--------------------------------------------------------------------------------


 
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form 10-K

         X     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
               SECURITIES EXCHANGE ACT  OF 1934

               For the Fiscal Year Ended  January 30, 1999

         __    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
               THE SECURITIES EXCHANGE ACT OF 1934

               For the Transition Period from _________ to __________

                        Commission File Number: 33-59380

                         FINLAY FINE JEWELRY CORPORATION
            --------------------------------------------------------   
             (Exact name of registrant as specified in its charter)

            Delaware                                              13-3287757    
 --------------------------------                            -------------------
 (State or other jurisdiction of                              (I.R.S. Employer
  incorporation or organization)                             Identification No.)

          529 Fifth Avenue New York, NY                        10017
    ----------------------------------------                ----------
    (Address of principal executive offices)                (zip code)

                                  212-808-2800
             ------------------------------------------------------  
              (Registrant's telephone number, including area code)


        Securities registered pursuant to Section 12 (b) of the Act: None
        Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                           Yes   X                   No
                               -----                    -----

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]

As of April 23, 1999,  there were 1,000 shares of common  stock,  par value $.01
per share, of the Registrant outstanding.  As of such date, all shares of common
stock  were  owned by the  Registrant's  parent,  Finlay  Enterprises,  Inc.,  a
Delaware corporation.

*The Registrant is not subject to the filing requirements of Section 13 or 15(d)
of the  Securities  Exchange Act of 1934 and is  voluntarily  filing this Annual
Report on Form 10-K



<PAGE>


                         FINLAY FINE JEWELRY CORPORATION

                                    FORM 10-K

                   FOR THE FISCAL YEAR ENDED JANUARY 30, 1999

                                      INDEX



                                                                         Page(s)
                                                                         -------
PART I
 Item 1.  Business............................................................ 3
 Item 2.  Properties..........................................................15
 Item 3.  Legal Proceedings...................................................15
 Item 4.  Submission of Matters to a Vote of Security Holders.................15

PART II
 Item 5.  Market for the Registrant's Common Equity and Related Stockholder
             Matters..........................................................16
 Item 6.  Selected Consolidated Financial Data................................17
 Item 7.  Management's Discussion and Analysis of Financial
             Condition and Results of Operations..............................19
 Item 7a. Quantitative and Qualitative Disclosures about Market Risk..........28
 Item 8.  Financial Statements and Supplementary Data.........................29
 Item 9.  Changes in and Disagreements with Accountants on
             Accounting and Financial Disclosure..............................29
 
PART III
 Item 10. Directors and Executive Officers of the Registrant..................30
 Item 11. Executive Compensation..............................................34
 Item 12. Security Ownership of Certain Beneficial Owners and Management......43
 Item 13. Certain Relationships and Related Transactions......................46

PART IV
 Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.....50

SIGNATURES ...................................................................59











                                       2

<PAGE>
                                     PART I

Item 1. Business

The Company

     Finlay Fine Jewelry  Corporation,  a Delaware  corporation,  and its wholly
owned subsidiaries  ("Finlay  Jewelry"),  is a wholly owned subsidiary of Finlay
Enterprises, Inc., a Delaware corporation (the "Holding Company"). References to
"Finlay"  mean,  collectively,  the  Holding  Company,  Finlay  Jewelry  and all
predecessor  businesses.  All references  herein to "Departments"  refer to fine
jewelry   departments   operated   pursuant  to  license   agreements  or  other
arrangements with host department stores.

     Finlay is one of the leading retailers of fine jewelry in the United States
and France.  Finlay operates leased fine jewelry departments  ("Departments") in
major department  stores for retailers such as The May Department Stores Company
("May"), Federated Department Stores ("Federated"), Belk, the Carson Pirie Scott
and Proffitt's  divisions of Saks  Incorporated,  and with the completion of its
1997  acquisition of Diamond Park (as defined herein),  operates  Departments in
Marshall Field's, Parisian and Dillard's, formerly the Mercantile Stores. Finlay
sells a broad selection of moderately priced fine jewelry,  including necklaces,
earrings,  bracelets,  rings and watches, and markets these items principally as
fashion  accessories with an average sales price of approximately $161 per item.
Average  sales per  Department  were  $776,000 in 1998 and the average size of a
Department is approximately 1,000 square feet.

     Finlay's sales have increased from $552.1 million in 1994 to $863.4 million
in 1998, a compound  annual  growth rate of 11.8%.  Income from  operations  has
increased  from $37.5  million to $62.3  million in the same period,  a compound
annual growth rate of 13.5%.  Finlay has increased in size from 757  Departments
at the beginning of 1994 to 1,097 Departments and 12 stand-alone  stores,  for a
total of 1,109 locations at the end of 1998.

     As of January 30,  1999,  Finlay  operated  its 1,109  locations in 31 host
store groups,  located in 45 states, the District of Columbia,  France,  England
and Germany.  Finlay's  largest host store  relationship  is with May, for which
Finlay has operated  Departments  since 1948.  Finlay  operates the fine jewelry
departments in all of May's 390 department  stores,  including Lord & Taylor and
Filene's. Finlay's second largest host store relationship is with Federated, for
which Finlay has operated Departments since 1983. Finlay operates Departments in
153 of Federated's 401 department  stores,  including Rich's and Burdines.  Over
the past three years,  store groups owned by May and Federated  accounted for an
average of 46% and 21%,  respectively,  of  Finlay's  annual  sales.  Management
believes that it maintains excellent relations with its host store groups, 20 of
which have had leases with Finlay for more than five years  (representing 79% of
Finlay's  sales in 1998) and 16 of which  have had leases  with  Finlay for more
than ten years (representing 69% of Finlay's sales in 1998).

     Finlay entered the  international  fine jewelry retailing market in October
1994 by acquiring Societe Nouvelle d' Achat de Bijouterie--S.O.N.A.B. ("Sonab"),
the largest operator of Departments in France, operating 144 Departments in five
host store groups, including Galeries Lafayette, Nouvelles Galeries and Bazar de
L'Hotel de Ville.

     As of January 30, 1999,  Finlay also  operated  nine  domestic  stand alone
jewelry outlet stores at  nonmetropolitan  outlet shopping  center  locations in
Ohio, New York, Florida,  South Carolina,  Pennsylvania,  Georgia and California
under the name "New York Jewelry Outlet".  The outlet stores provide Finlay with
a channel to sell discontinued, close-out and certain other merchandise.



                                       3

<PAGE>

     Finlay's fiscal year ends on the Saturday closest to January 31. References
to 1994,  1995,  1996,  1997, 1998 and 1999 relate to the fiscal years ending on
January 28, 1995,  February 3, 1996, February 1, 1997, January 31, 1998, January
30, 1999 and January 29, 2000,  respectively.  Each of the fiscal years includes
52 weeks except 1995, which included 53 weeks.

     Finlay  Jewelry is a wholly owned  subsidiary of the Holding  Company.  The
principal  executive  offices of Finlay Jewelry are located at 529 Fifth Avenue,
New York,  New York  10017 and its  telephone  number at this  address  is (212)
808-2800.

     On April 24,  1998,  the Holding  Company  completed  a public  offering of
1,800,000 shares of its common stock, par value $.01 per share ("Common Stock"),
at a price of $27.50 per share (the "1998  Offering"),  of which 567,310  shares
were sold by the  Holding  Company  and  1,232,690  shares  were sold by certain
selling stockholders.  Concurrently with the 1998 Offering,  the Holding Company
and Finlay  Jewelry  completed the public  offering of $75.0  million  aggregate
principal  amount  of  9%  Senior  Debentures  due  May  1,  2008  (the  "Senior
Debentures')  and $150.0  million  aggregate  principal  amount of 8-3/8% Senior
Notes due May 1, 2008 (the "Senior Notes"),  respectively. In addition, on April
24, 1998, Finlay's revolving credit agreement (the "Revolving Credit Agreement")
was amended to increase the line of credit  thereunder to $275.0  million and to
make certain other changes.

     On May 1, 1998,  the Holding  Company  prepaid all of the $39.0  million of
accreted  interest on the Holding  Company's 12% Senior Discount  Debentures due
2005 (the "Old  Debentures") as of such date. The Holding Company  exercised its
option to prepay all such accreted  interest to take  advantage of the resulting
tax benefit relating to the deductibility of such prepayment in 1998.

     On May 26,  1998,  the net  proceeds to the Holding  Company  from the 1998
Offering,  the sale of the Senior  Debentures,  together  with  other  available
funds,  were used to redeem the  Holding  Company's  Old  Debentures,  including
associated premiums. Also, on May 26, 1998, Finlay Jewelry used the net proceeds
from the sale of the Senior  Notes to redeem  Finlay  Jewelry's  10-5/8%  Senior
Notes due 2003 (the  "Old  Notes"),  including  associated  premiums.  The above
transactions,  excluding  the 1998  Offering,  are  referred  to  herein  as the
"Refinancing". Finlay Jewelry recorded, in the second quarter of 1998, a pre-tax
extraordinary  charge of approximately $8.0 million,  including $5.4 million for
the  redemption  premium  on the Notes and $2.0  million  to write off  deferred
financing costs associated with the Old Notes.

     On October 6, 1997,  Finlay  completed the acquisition of certain assets of
the Diamond Park Fine Jewelers division of Zale Corporation  ("Diamond Park"), a
leading operator of Departments,  for approximately  $63.0 million. By acquiring
Diamond Park, Finlay added 139 Departments that, in 1998,  contributed in excess
of $100  million  in sales and also  added  new host  store  relationships  with
Marshall Field's, Parisian and Dillard's, formerly the Mercantile Stores.

     On October 21, 1997, the Holding  Company  completed a public offering (the
"1997  Offering") of 3,450,000  shares of its Common Stock, at a price of $19.00
per  share,  of which  2,196,971  shares  were  issued  and sold by the  Holding
Company. An additional 1,253,029 shares were sold by existing stockholders.  Net
proceeds to the Holding  Company from the 1997 Offering were $38.1 million.  The
Holding  Company used the funds for working  capital,  repayment of indebtedness
and other general corporate purposes.

     On April 6, 1995, the Holding Company  completed an initial public offering
(the "Initial  Public  Offering") of 2,500,000  shares of its Common Stock, at a
price  of  $14.00  per  share.  An  additional   115,000  shares  were  sold  by
non-management  selling  stockholders.  Net  proceeds  from the  Initial  Public
Offering were $30.2 million and were used to  repurchase  $6.1 million  accreted
balance of the Old 



                                       4

<PAGE>

Debentures, with the balance of the net proceeds used to reduce a portion of the
outstanding indebtedness incurred under the Revolving Credit Agreement.

General

     Overview.  Host stores benefit from outsourcing the operation of their fine
jewelry   departments.   By  engaging  Finlay,   host  stores  gain  specialized
managerial,  merchandising,  selling, marketing,  inventory control and security
expertise.  Additionally,  by  avoiding  the  high  working  capital  investment
typically required of the jewelry business,  host stores improve their return on
investment and can potentially increase their profitability.

     As a lessee,  Finlay  benefits from the host stores'  reputation,  customer
traffic, advertising, credit services and established customer base. Finlay also
avoids the substantial capital investment in fixed assets typical of stand-alone
retail formats. These factors have generally enabled Finlay's new Departments to
achieve  profitability  within their first twelve  months of  operation.  Finlay
further benefits because net sales proceeds are generally  remitted to Finlay by
each host store on a monthly  basis with  essentially  all customer  credit risk
borne by the host store.

     As a result of Finlay's strong  relationships with its vendors,  management
believes that Finlay Jewelry's working capital requirements are lower than those
of many other jewelry retailers. In recent years, on average,  approximately 49%
of Finlay's  domestic  merchandise has been carried on  consignment.  The use of
consignment  merchandise  also reduces Finlay's  inventory  exposure to changing
fashion trends because, in general, unsold consigned merchandise can be returned
to the vendor.

     Industry.  Management  believes that current  trends in jewelry  retailing,
particularly in the department store sector,  provide a significant  opportunity
for Finlay's  growth.  Consumers  spent  approximately  $46.3 billion on jewelry
(including  both fine and  costume  jewelry)  in the United  States in 1998,  an
increase of  approximately  $17.7  billion  over 1988,  according  to the United
States  Department of Commerce.  In the department  store sector in which Finlay
operates,  consumers  spent $4  billion  on fine  jewelry  in  1997.  Management
believes that  demographic  factors such as the maturing of the U.S.  population
and an  increase  in the  number of  working  women  have  resulted  in  greater
disposable income, thus contributing to the growth of the fine jewelry retailing
industry.  Management also believes that jewelry  consumers  today  increasingly
perceive  fine jewelry as a fashion  accessory,  resulting  in  purchases  which
augment  Finlay's gift and special  occasion  sales.  Finlay's  Departments  are
typically located in "high traffic" areas of leading department stores, enabling
Finlay to capitalize on these consumer buying patterns.

     Growth Strategy.  Finlay intends to pursue the following key initiatives to
increase sales and earnings:

o    Increase  Comparable  Department  Sales.  In 1996,  1997 and  1998,  Finlay
     achieved domestic  comparable  Department sales increases of 6.0%, 5.7% and
     5.4%,  respectively,  outpacing  the  majority  of its host  stores.  These
     increases were achieved  primarily by emphasizing  key  merchandise  items,
     increasing focus on holiday and event-driven  promotions,  participating in
     host  store  marketing  programs  and  positioning  its  Departments  as  a
     "destination  location" for fine jewelry.  Finlay  believes that comparable
     Department  sales will  continue to benefit  from these  merchandising  and
     marketing strategies, as well as from increasing demand for fine jewelry.

o    Add  Departments   Within   Existing  Host  Store  Groups.   Finlay's  well
     established  relationships  with many of its host store groups have enabled
     Finlay to add Departments in new locations  opened by existing host stores.
     Finlay has operated  Departments  in May stores since 1948 and operates the
     fine jewelry departments in all of May's 390 department stores. Finlay also
     has  operated 


                                       5

<PAGE>

     Departments in Federated stores since 1983 and operates  Departments in 153
     of Federated's  401 department  stores.  Since the beginning of 1994,  host
     store expansion has added 92 net new Departments.  Based on May's expansion
     plans,  Finlay believes it will have the opportunity to open  approximately
     100 new Departments in May stores alone over the next five years (excluding
     possible closings).

o    Establish New Host Store  Relationships.  Finlay has an opportunity to grow
     by establishing  new  relationships  with department  stores that presently
     either  lease their fine jewelry  departments  to Finlay's  competitors  or
     operate their own fine jewelry departments. Finlay seeks to establish these
     new  relationships  by  demonstrating  to department  store  management the
     potential for improved financial performance.  Since the beginning of 1992,
     Finlay has added such host store groups as Burdines,  The Bon Marche, Elder
     Beerman  and  Stern's.  Over the past  three  years,  Finlay  has  added 27
     Departments in the Hecht's division of May as a result of May's acquisition
     of John  Wanamaker  and  Strawbridge's.  By  acquiring  Diamond  Park  (the
     "Diamond Park  Acquisition"),  Finlay added Marshall Field's,  Parisian and
     Dillard's (formerly the Mercantile Stores) to its host store relationships.

o    Continue to Improve Operating Leverage. Selling, general and administrative
     expenses as a percentage  of sales  declined from 43.3% in 1994 to 42.2% in
     1998.  Finlay  seeks to continue to leverage  expenses  both by  increasing
     sales at a faster rate than  expenses and by reducing its current  level of
     certain operating  expenses.  For example,  Finlay has demonstrated that by
     increasing  the selling  space (with host store  approval)  of certain high
     volume  Departments,  incremental  sales can be achieved  without having to
     incur proportionate  increases in selling and administrative  expenses.  In
     addition,  management  believes Finlay will benefit from recent investments
     in technology  and  refinements of operating  procedures  designed to allow
     Finlay's  sales  associates  more  time for  customer  sales  and  service.
     Finlay's new central distribution facility,  which became fully operational
     in the  Spring  of  1998,  has  enabled  Finlay  to  improve  the  flow  of
     merchandise to  Departments  and,  during the latter part of 1998,  enabled
     Finlay to reduce payroll and freight costs.

     Additionally,  since  1994  Finlay  has opened  nine  domestic  stand-alone
jewelry outlet stores which provide Finlay with a channel to sell  discontinued,
close-out and certain other merchandise.

     Merchandising  Strategy.  Finlay seeks to maximize sales and  profitability
through a unique  merchandising  strategy known as the "Finlay Triangle",  which
integrates store management  (including host store management and Finlay's store
group management),  vendors and Finlay's central office. By coordinating efforts
and sharing access to information, each Finlay Triangle participant plays a role
which  emphasizes its area of expertise in the  merchandising  process,  thereby
increasing  productivity.  Within guidelines set by the central office, Finlay's
store group management  contributes to the selection of the specific merchandise
most appropriate to the demographics and customer tastes within their particular
geographical area. Finlay's advertising initiatives and promotional planning are
closely  coordinated  with both host store  management  and Finlay's store group
management to ensure the effective use of Finlay's marketing  programs.  Vendors
participate  in  the   decision-making   process  with  respect  to  merchandise
assortment,  including the testing of new products,  marketing,  advertising and
stock levels.  By utilizing the Finlay Triangle,  opportunities  are created for
the vendor to assist in identifying  fashion trends thereby improving  inventory
turnover  and  profitability,  both for the  vendor  and  Finlay.  As a  result,
management believes it capitalizes on economies of scale by centralizing certain
activities,  such as vendor selection,  advertising and planning, while allowing
store management the flexibility to implement merchandising programs tailored to
the host store environments and clientele.



                                       6

<PAGE>
                               The Finlay Triangle
                                [GRAPHIC OMITTED]


     Finlay has structured its  relationships  with vendors to encourage sharing
of responsibility for marketing and merchandise management.  Finlay furnishes to
vendors, through on-line access to Finlay's information systems, the same sales,
stock and gross margin  information  that is  available to Finlay's  store group
management  and  central  office  for each of the  vendor's  styles in  Finlay's
merchandise assortment. Using this information,  vendors are able to participate
in  decisions  to  replenish  inventory  which  has been  sold and to  return or
exchange slower-moving  merchandise.  New items are tested in specially selected
"predictor"  Departments  where sales  experience  can indicate an item's future
performance in Finlay's other Departments.  Management  believes that the access
and input which vendors have in the  merchandising  process  results in a better
assortment, timely replenishment, higher turnover and higher sales of inventory,
differentiating Finlay from its competitors.

     Since  many of the host store  groups in which  Finlay  operates  differ in
fashion  image  and  customer   demographics,   Finlay's  flexible  approach  to
merchandising  is designed to  complement  each host  store's own  merchandising
philosophy. Finlay emphasizes a "fashion accessory" approach to fine jewelry and
watches,  and seeks to  provide  items  that  coordinate  with the host  store's
fashion focus as well as to maintain stocks of traditional and gift merchandise.

Store Relationships

     Host Store  Relationships.  As of January 30, 1999,  Finlay  operated 1,109
locations (including 12 stand-alone stores) in 31 host store groups,  located in
45 states, the District of Columbia,  France,  England and Germany. By acquiring
Diamond Park in 1997,  Finlay added 139  Departments in three host store groups,
located in 19 states.  Finlay's largest host store relationship is with May, for
which  Finlay has  operated  Departments  since 1948.  Finlay  operates the fine
jewelry  departments  in all of May's 390  department  stores,  including Lord &
Taylor and Filene's.  Finlay's  second largest host store  relationship  is with
Federated, for which Finlay has operated Departments since 1983. Finlay operates
Departments in 153 of Federated's 401 department  stores,  including  Rich's and
Burdines.  Over the past three years,  store  groups owned by May and  Federated
accounted for an average of 46% and 21%, respectively, of Finlay's annual sales.

     Finlay also operates  Departments in numerous other host store groups, such
as  Belk  and  the  Carson  Pirie  Scott  and   Proffitt's   divisions  of  Saks
Incorporated. Management believes that it maintains excellent relations with its
host store  groups,  20 of which have had leases  with Finlay for more than five
years  (representing  79% of  Finlay's  sales in 1998) and 16 of which  have had
leases with Finlay for more than ten years  (representing  69% of Finlay's sales
in 1998).  As a  consequence  of the strong  and, in many  instances,  long-term
relationships,   host  store  groups  have  routinely   renewed  Finlay's  lease
agreements at their renewal dates.  Management believes that the majority of its
lease agreements will continue to be renewed routinely.




                                       7

<PAGE>

     The  following  table  identifies  the host  store  groups in which  Finlay
operated   Departments   at  January  30,  1999,  the  year  in  which  Finlay's
relationship  with each host store group commenced and the number of Departments
operated by Finlay in each host store  group.  The table also  provides  similar
information  regarding Finlay's  international  Departments and its domestic and
international stand-alone locations.

 
                                                                 Number of
                                                 Inception of   Departments
Host Store Group/Location                        Relationship    /Stores
-------------------------                        ------------   -----------
May
Robinsons-May..................................    1948           55
Filene's.......................................    1977           40
Lord & Taylor..................................    1978           73
Famous Barr/L.S. Ayres.........................    1979           38
Kaufmann's.....................................    1979           48
Foley's........................................    1986           57
Hecht's/Strawbridge's..........................    1986           71
Meier & Frank..................................    1988            8
   Total May Departments.......................                  ---         390

Federated
Rich's/Lazarus/Goldsmith's.....................    1983           69
Burdines.......................................    1992           43
The Bon Marche.................................    1993           19
Stern's........................................    1994           22
   Total Federated Departments.................                  ---         153

Saks Incorporated
Younkers.......................................    1973           35
Carson Pirie Scott/Bergner's/Boston Store......    1977           50
Proffitt's.....................................    1991           15
Parisian.......................................    1997           34
   Total Saks Incorporated.....................                  ---         134

Other Domestic Departments
Crowley's/Steinbach (1)........................    1968           14
Gottschalks....................................    1969           32
Belk...........................................    1975           55
Liberty House..................................    1983           12
The Bon-Ton....................................    1986           42
Elder Beerman..................................    1992           35
Dillard's......................................    1997           62
Marshall Field's...............................    1997           21
   Total Other Domestic Departments............                  ---         273
                                                                           -----
   Total Domestic Departments..................                              950

International Departments (Sonab)
Bazar de L'Hotel de Ville......................    1994            6
Galeries Lafayette.............................    1994           34
Monoprix/Inno/Baze/Prisunic....................    1994           50
Nouvelles Galeries.............................    1994           54
Jeanteur.......................................    1996            1
Allders........................................    1998            1
Beatties.......................................    1998            1
   Total International Departments.............                  ---         147

Stand-Alone Stores
New York Jewelry Outlet........................    1994            9
New Gold (Sonab)...............................    1994            3
   Total Stand-Alone Stores....................                  ---          12
                                                                           -----
     Total Departments and Stand-Alone Stores..                            1,109
___________________________                                                =====
(1)   Finlay closed these Departments during February 1999.

                                       8

<PAGE>

     Terms of Lease  Agreements.  Finlay's  lease  agreements  typically have an
initial  term of one to five years.  Finlay has,  where  possible,  entered into
five-year lease agreements and expects to continue this practice. Finlay's lease
agreements generally contain renewal options or provisions for automatic renewal
absent prior notice of termination  by either party.  Lease renewals are for one
to five  year  periods.  In 1997,  Finlay  extended  its lease  agreements  with
Federated,  including  leases for  Departments  in  Burdines,  Rich's,  Lazarus,
Goldsmith's  and The Bon Marche  through  February  3,  2001,  and the lease for
Departments  in Stern's  through  February  1, 2003.  Sonab is in the process of
negotiating  extensions of its leases for Departments in the Galeries Lafayette,
Nouvelles Galeries and Bazar de L'Hotel de Ville store groups,  which leases are
presently scheduled to expire on December 31, 1999. In exchange for the right to
operate a Department within the host store,  Finlay pays each host store group a
lease fee,  calculated as a percentage of sales (subject to a minimum annual fee
in a limited number of cases).

     Finlay's  domestic lease agreements  generally require host stores to remit
sales proceeds for each month  (without  regard to whether such sales were cash,
store credit or national credit card) to Finlay  approximately three weeks after
the end of such month. During the months of November and December, however, most
domestic  host store groups remit to Finlay 75% of the  estimated  months' sales
prior to or shortly  following  the end of that  month.  Finlay's  international
lease agreements  generally require host stores to remit sales proceeds for each
two-week period  (without  regard to whether such sales were cash,  store credit
card or national credit card) to Finlay approximately two weeks after the end of
such  period.  Each host store  group  withholds  from the  remittance  of sales
proceeds a lease fee and other  expenditures,  such as advertising  costs, which
the host store group may have made on Finlay's behalf.

     Finlay is usually  responsible  for providing and  maintaining any fixtures
and other equipment  necessary to operate its Departments,  while the host store
is typically  required to provide clean space for  installation of any necessary
fixtures.  The host store is  generally  responsible  for paying  utility  costs
(except  certain  telephone  charges),  maintenance  and certain other  expenses
associated with the operation of the  Departments.  All of the lease  agreements
provide that Finlay is responsible for the hiring (subject to the suitability of
such  employees  to the host store) and  discharge  of its sales and  Department
supervisory  personnel,  and substantially all domestic lease agreements require
Finlay to provide its employees with salaries and certain benefits comparable to
those received by the host store's employees.  Many of Finlay's lease agreements
provide that Finlay may operate the  Departments in any new stores opened by the
host store group. In certain instances,  Finlay is operating Departments without
written agreements, although the arrangements in respect of such Departments are
generally in accordance with the terms described herein.

     In many cases,  Finlay is subject to limitations under its lease agreements
which prohibit Finlay from operating Departments for competing host store groups
within a certain  geographical  radius of the host stores (typically five to ten
miles).  Such  limitations  restrict Finlay from further  expansion within areas
where  it  currently  operates  Departments,  including  expansion  by  possible
acquisitions.  Certain domestic lease agreements, however, make an exception for
adding  Departments  in stores  established  by groups  with which  Finlay has a
preexisting  lease  arrangement.  In  addition,  Finlay  has  from  time to time
obtained the consent of an existing  host store group to operate in another host
store group  within a  prohibited  area.  For example,  May and  Federated  have
granted  consents of this type to Finlay with respect to one  another's  stores.
Further,  Finlay sought and received the consent of certain of its existing host
store groups in connection with the Diamond Park Acquisition.  In certain cases,
Finlay  has  found  that,   notwithstanding  the  absence  of  any  geographical
limitation in a lease  agreement,  it may be limited as a practical  matter from
opening  Departments  for competing host store groups in close proximity to each
other because of the adverse effect such openings might have on its overall host
store group relationships.



                                       9

<PAGE>

     Credit.  Substantially  all consumer credit risk is borne by the host store
rather than by Finlay.  Purchasers of Finlay's  merchandise  at a host store are
entitled to the use of the host store's  credit  facilities on the same basis as
all of the host store's customers.  Payment of credit card or check transactions
is generally  guaranteed  to Finlay by the host store,  provided that the proper
credit  approvals have been obtained in accordance with the host store's policy.
Accordingly, payment to Finlay in respect of its sales proceeds is generally not
dependent on when (or if) payment is received by the host store.

     Departments  Opened/Closed.  During  1998,  Department  openings  offset by
closings  resulted  in a net  decrease  of eight  Departments.  Included  in the
Departments  opened  and  closed  in  1998,  listed  below,  are 34  replacement
Departments  relating  primarily to Dillard's  purchase of the Mercantile Stores
and its  subsequent  sale of  certain  stores to  Finlay's  existing  host store
groups.  With the  exception  of two  Departments  opened in new store groups in
England,  the remaining 42 openings were all within  existing store groups.  The
majority  of  the  closings   occurred   within   existing  store  groups.   See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations--1998 Compared with 1997".

     The following table sets forth data regarding the number of Departments and
stand-alone stores which Finlay has operated from the beginning of 1994:
<TABLE>
<CAPTION>
                                                                             Fiscal Year Ended
                                                        ------------------------------------------------------------
                                                         Jan. 28,     Feb. 3,      Feb. 1,     Jan. 31,    Jan. 30,
                                                          1995         1996         1997        1998        1999
                                                        ---------    --------     --------    ---------   ----------
   Departments/Stores:

<S>                                                        <C>          <C>          <C>          <C>        <C>  
   Open at beginning of period....................         757          903          941          939        1,117
   Opened during period...........................         159           70           84          188           78
   Closed during period...........................         (13)         (32)         (86)         (10)         (86)
                                                        ---------    --------     --------    ---------   ----------
   Open at end of period..........................         903          941          939        1,117        1,109
                                                        ---------    --------     --------    ---------   ----------
   Net increase (decrease)........................         146           38           (2)         178           (8)
                                                        =========    ========     ========    =========   ==========
</TABLE>

     For the periods  presented in the table  above,  Department  closings  were
primarily   attributable  to:  ownership  changes  in  host  store  groups;  the
bankruptcy of certain host store groups;  internal consolidation within May; the
closing  or sale by host  store  groups of  individual  stores;  the  closing of
Departments  in a host store group as a result of the opening of  Departments in
another host store group that competes in the same geographic market; host store
group decisions to consolidate with one lessee;  and Finlay's  decision to close
unprofitable  Departments.  To  management's  knowledge,  none of the Department
closings  during  the  periods  presented  in  the  table  above  resulted  from
dissatisfaction of a host store group with Finlay's performance.

Products and Pricing

     Each  of  Finlay's  domestic   Departments  offers  a  broad  selection  of
necklaces,   earrings,   bracelets,  rings  and  watches.  Other  than  watches,
substantially  all of the fine  jewelry  items  sold by  Finlay  are  made  from
precious metals and many also contain diamonds or colored gemstones. Finlay also
provides  jewelry and watch repair  services.  Finlay does not carry  costume or
gold-filled  jewelry.  Specific brand  identification is generally not important
within the fine jewelry business,  except for watches.  With respect to watches,
Finlay  emphasizes  brand name vendors,  including  Seiko,  Citizen,  Movado and
Bulova. Many of Finlay's lease agreements with host store groups restrict Finlay
from  selling  certain  brand name items or, in some cases,  set price  minimums
below which Finlay may not sell  particular  items.  Sonab's watch  selection is
limited to private  label  watches  marketed  under Sonab's "New Gold" and "Gold
Line" names. In France, all other watch brands are sold by the host stores.


                                       10

<PAGE>

     The following  table sets forth the domestic  sales and percentage of sales
by category of merchandise for 1996, 1997 and 1998:
<TABLE>
<CAPTION>
                                                                 Fiscal Year Ended
                                ------------------------------------------------------------------------------------
                                       Feb. 1. 1997                 Jan. 31, 1998               Jan. 30, 1999
                                ---------------------------    ------------------------    -------------------------
                                                  % of                        % of                         % of
                                  Sales            Sales         Sales         Sales         Sales          Sales
                                -----------      ----------    ----------    ----------    ----------     ----------
                                                               (Dollars in millions)
<S>                             <C>                 <C>        <C>              <C>        <C>               <C>  
   Gemstones.................   $   153.1           24.1%      $   169.0        23.4%      $   184.4         22.4%
   Gold......................       144.8           22.8           155.1        21.6           182.0         22.1
   Watches...................       114.3           18.0           126.3        17.6           147.0         17.9
   Diamonds..................       129.2           20.3           147.7        20.5           192.0         23.4
   Other (1).................        93.5           14.8           121.5        16.9           116.6         14.2
                                -----------      ----------    ----------    ----------    ----------     ----------
   Total Sales...............   $   634.9          100.0%      $   719.6       100.0%      $   822.0        100.0%
                                ===========      ==========    ==========    ==========    ==========     ==========
</TABLE>
__________________________
(1)  Includes  special  promotional  items,  remounts,  estate jewelry,  pearls,
     beads, cubic zirconia, sterling silver and men's jewelry, as well as repair
     services and accommodation sales to Finlay employees.

     See  "Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of Operations".

     Finlay  sells its  merchandise  at  prices  generally  ranging  from $50 to
$1,000. In 1998, the average price of the items sold by Finlay was approximately
$161 per item. An average  Department has over 4,000 items in stock.  Consistent
with fine jewelry retailing in general, a substantial  portion of Finlay's sales
are made at prices  discounted from listed retail prices.  Finlay's  advertising
and  promotional  planning are closely  coordinated  with its pricing  strategy.
Publicized sales events are an important part of Finlay's  marketing  efforts. A
substantial  portion of Finlay's sales occur during such promotional events. The
amount of time during  which  merchandise  may be offered at discount  prices is
limited by applicable laws and regulations. See "Legal Proceedings".

Purchasing and Inventory

     General.  A key element of Finlay's  strategy has been to lower the working
capital investment  required for operating its existing  Departments and opening
new Departments. At any one time, Finlay typically is required to pay in advance
of sale for less than half of its inventory because in recent years, on average,
approximately  49%  of  Finlay's  domestic  merchandise  has  been  obtained  on
consignment  and certain  additional  inventory has been purchased with extended
payment terms. In 1998,  Finlay's net monthly investment in inventory (i.e., the
total cost of  inventory  owned and paid for)  averaged 38% of the total cost of
its on-hand  merchandise.  Finlay is generally granted exchange privileges which
permit Finlay to return or exchange  unsold  merchandise for new products at any
time. In addition, Finlay structures its relationships with vendors to encourage
their participation in and responsibility for merchandise management.  By making
the vendor a participant in Finlay's merchandising strategy,  Finlay has created
opportunities  for the vendor to assist in identifying  fashion trends,  thereby
improving  inventory  turnover and profitability.  As a result,  Finlay's direct
capital investment in inventory has been reduced to levels which it believes are
low for the retail jewelry industry. In addition, Finlay's inventory exposure to
changing  fashion  trends is reduced  because,  in general,  unsold  consignment
merchandise can be returned to the vendor.

     Management  believes  the  willingness  of  vendors to  participate  in the
inventory management process is due, in part, to the large volume of merchandise
which  Finlay  sells  in its  Departments  and the  desire  of  vendors  to take
advantage  of  Finlay's  nationwide  distribution  network.  By  offering  their
merchandise  through  Finlay's  Departments,  vendors  are able to reach a broad
spectrum  of  the  marketplace  in


                                       11

<PAGE>

coordination with national or regional  advertising  campaigns  conducted by the
vendors or their service organizations.

     In 1998, merchandise obtained by Finlay from its 40 largest vendors (out of
a total of approximately  325 vendors)  generated  approximately 77% of domestic
sales,   and  merchandise   obtained  from  Finlay's  largest  vendor  generated
approximately 11% of domestic sales. Finlay does not believe the loss of any one
of its vendors would have a material adverse effect on its business.

     In addition, Finlay's new central distribution facility, which became fully
operational  in the Spring of 1998,  has  enabled  Finlay to improve the flow of
merchandise to Departments  and, during the latter part of 1998,  enabled Finlay
to reduce payroll and freight costs.

     Gold Consignment  Agreement.  Finlay Jewelry is party to a gold consignment
agreement  (the "Gold  Consignment  Agreement"),  which  expires on December 31,
2001. The Gold Consignment  Agreement  enables Finlay to receive  merchandise by
providing gold, or otherwise  making  payment,  to certain vendors who currently
supply Finlay with  merchandise on consignment.  While the merchandise  involved
remains consigned,  title to the gold content of the merchandise  transfers from
the  vendors to the gold  consignor.  Finlay can  obtain,  pursuant  to the Gold
Consignment  Agreement,  up to the lesser of (i) 85,000 fine troy ounces or (ii)
$32.0  million  worth of gold,  subject to a formula as  prescribed  by the Gold
Consignment  Agreement.  At January 30, 1999, amounts outstanding under the Gold
Consignment  Agreement totaled 78,836 fine troy ounces,  valued at approximately
$22.5  million.  The  average  amount  outstanding  under  the Gold  Consignment
Agreement was $15.6 million in 1998.

     Under the Gold  Consignment  Agreement,  Finlay is  required to pay a daily
consignment fee on the dollar equivalent of the fine gold value of the ounces of
gold consigned thereunder. The daily consignment fee is based on a floating rate
which,  as of January 30, 1999, was  approximately  3.2% per annum. In addition,
Finlay  is  required  to pay an  unused  line fee of 0.5% if the  amount of gold
consigned has a value equal to or less than $12.0 million.  In conjunction  with
the Gold  Consignment  Agreement,  Finlay  granted to the gold consignor a first
priority  perfected lien on, and a security  interest in, specified gold jewelry
of participating  vendors  approved under the Gold  Consignment  Agreement and a
lien on  proceeds  and  products  of such  jewelry  subject  to the  terms of an
intercreditor  agreement  between the gold  consignor and the  Revolving  Credit
Agreement lenders.

Operations

     General.  Most of Finlay's  Departments have between 30 and 150 linear feet
of display  cases (with an average of  approximately  60 linear feet)  generally
located  in high  traffic  areas on the main  floor  of the  host  stores.  Each
Department is supervised by a manager  whose  primary  duties  include  customer
sales and service,  scheduling and training of personnel,  maintaining  security
controls and merchandise presentation. Most of the Departments utilize up to 260
staff hours per week on a permanent basis,  depending on the Department's  sales
volume,  and employ  additional  sales staff  during the peak  year-end  holiday
season.  Each  Department is open for business during the same hours as its host
store.  Subject to the terms of the applicable host store group lease agreement,
Finlay is generally  responsible for its own operating  decisions within each of
its Department operations, including the hiring and compensation of sales staff.
See "--Store Relationships--Terms of Lease Agreements".

     To  parallel  host store  operations,  Finlay  establishes  separate  group
service  organizations  responsible for managing  Departments  operated for each
host  store.  Staffing  for each group  organization  varies  with the number of
Departments in each group. Typically, Finlay services each host store group with
a group manager,  an assistant group manager,  one or more group buyers,  one or
more regional  supervisors who oversee the individual  Department managers and a
number of clerical  employees.  Each group  manager 


                                       12

<PAGE>

reports to a regional vice  president,  who is responsible for supervision of up
to seven host  store  groups.  In its  continued  efforts to improve  comparable
Department sales through improved operating  efficiency,  Finlay has taken steps
to minimize  administrative  tasks at the Department  level,  thereby  improving
customer  service and, as a result,  sales. For example,  Finlay  implemented an
interface  between store cash registers and Finlay's  central office,  which has
reduced administrative time.

     Finlay had average sales per linear foot of approximately  $11,600 in 1996,
$11,900 in 1997 and $12,100 in 1998. Finlay determines  average sales per linear
foot by dividing its sales by the aggregate estimated  measurements of the outer
perimeters  of the  display  cases of Finlay's  Departments.  Finlay had average
sales per Department of approximately  $729,000,  $749,000 and $776,000 in 1996,
1997 and 1998, respectively.

     Management  Information  and  Inventory  Control  Systems.  Finlay  and its
vendors use Finlay's  management  information  systems to monitor  sales,  gross
margin and inventory performance by location, merchandise category, style number
and vendor. Using this information, Finlay is able to monitor merchandise trends
and  variances  in  performance  and improve  the  efficiency  of its  inventory
management.  Finlay  also  measures  the  productivity  of its  sales  force  by
maintaining  current  statistics  for  each  employee  such as sales  per  hour,
transactions per hour and transaction  size. For a discussion of certain matters
regarding the year 2000 and Finlay's  information  technology  initiatives,  see
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations--Liquidity and Capital Resources".

     Personnel  and  Training.  Finlay  considers  its  employees  an  important
component of its  operations and devotes  substantial  resources to training and
improving  the  quality  of sales  and  management  personnel.  Finlay  seeks to
motivate its employees by linking a substantial percentage of their compensation
to  performance  standards.  In  most  cases,  individual  sales  personnel  are
compensated  on an hourly  basis  and paid a  commission  on  sales.  Department
managers are generally compensated on the basis of a salary plus a percentage of
their  Department's  sales.  Group  managers and regional  vice  presidents  are
eligible  to  earn  bonuses  of up to  50%  of  their  base  salaries  upon  the
achievement of specified goals.

     As of the end of 1998, Finlay employed  approximately  8,700 persons in the
United  States and  approximately  600 persons in France,  England and  Germany,
approximately  90% of  whom  were  regional  and  local  sales  and  supervisory
personnel and the balance of whom were employed in  administrative  or executive
capacities.  Of Finlay's  8,700  domestic  employees,  approximately  3,800 were
part-time  employees,  working  less  than 20 hours  per  week.  Finlay's  labor
requirements  fluctuate because of the seasonal nature of Finlay's business. See
"--Seasonality".  Management  believes that its relations with its employees are
good. Less than 1% of Finlay's domestic  employees are unionized.  Substantially
all of Finlay's employees in France are, however, unionized.

     Advertising.  Finlay promotes its products through  four-color  direct mail
catalogs,  using targeted mailing lists,  and newspaper  advertising of the host
store groups.  Finlay maintains an in-house  advertising  staff  responsible for
preparing  a  majority  of  Finlay's  advertisements  and for  coordinating  the
finished  advertisements  with the  promotional  activities  of the host stores.
Finlay's  gross  advertising  expenditures  over the past five fiscal years have
consistently been in excess of 6% of sales, a level which is consistent with the
jewelry  industry's  reliance  on  promotional  efforts to generate  sales.  The
majority of Finlay's  domestic lease  agreements  with host store groups require
Finlay  to  expend  certain  specified  minimum  percentages  of the  respective
Department's annual sales on advertising and promotional activities.



                                       13

<PAGE>

     Inventory  Loss  Prevention and Insurance.  Finlay  undertakes  substantial
efforts  to  safeguard  its  merchandise  from  loss  or  theft,  including  the
installation  of  safes  at each  location  and the  taking  of a daily  diamond
inventory.  During 1998,  inventory  shrinkage amounted to approximately 0.8% of
sales.  Finlay maintains  insurance  covering the risk of loss of merchandise in
transit or on Finlay's  premises  (whether owned or on  consignment)  in amounts
that  management  believes are reasonable and adequate for the types and amounts
of merchandise carried by Finlay.

     Gold Hedging. The cost to Finlay of gold merchandise sold on consignment in
some  cases is not fixed  until the sale is  reported  to the vendor or the gold
consignor  in the case of  merchandise  sold  pursuant  to the Gold  Consignment
Agreement.  In such cases, the cost of merchandise varies with the price of gold
and Finlay is exposed to the risk of  fluctuations  in the price of gold between
the time Finlay establishes the advertised or other retail price of a particular
item of  merchandise  and the date on which the sale of the item is  reported to
the  vendor.  In order to hedge  against  this  risk  and to  enable  Finlay  to
determine  the cost of such goods prior to their  sale,  Finlay may elect to fix
the price of gold prior to the sale of such merchandise.  Accordingly, Finlay at
times  enters  into  futures  contracts,  such  as  options  or  forwards  or  a
combination thereof.  The value of gold hedged under such contracts  represented
less  than 1% of  Finlay  Jewelry's  cost of  goods  sold in  1998.  Under  such
contracts, Finlay obtains the right to purchase a fixed number of troy ounces of
gold at a  specified  price per ounce for a  specified  period.  Such  contracts
typically  have  durations  ranging  from one to nine  months and are  generally
priced at the spot gold price plus an amount based on prevailing  interest rates
plus customary  transactions  costs. When sales of such merchandise are reported
to the  consignment  vendors  and the cost of such  merchandise  becomes  fixed,
Finlay sells its related hedge position.  Finlay did not have any open positions
in futures contracts for gold at January 31, 1998 or January 30, 1999.

     The primary effect on liquidity from using futures  contracts is associated
with the  related  margin  requirements.  Historically,  cash  flows  related to
futures  margin  requirements  have not been material to Finlay's  total working
capital  requirements.  Finlay  manages  the  purchase of futures  contracts  by
estimating  and  monitoring  the  quantity of gold that it  anticipates  it will
require in connection with its anticipated  level of sales of the type described
above.  Finlay's  gold  hedging  transactions  are entered into by Finlay in the
ordinary course of its business. Finlay's gold hedging strategies are determined
and monitored on a regular basis by Finlay's senior  management and its Board of
Directors.

Competition

     Finlay  faces  competition  for  retail  jewelry  sales from  national  and
regional jewelry chains,  other department  stores,  local  independently  owned
jewelry  stores  and  chains,  specialty  stores,  mass  merchandisers,  catalog
showrooms,  discounters,  direct mail suppliers, televised home shopping and the
internet.  Several of Finlay's  competitors  are  substantially  larger and have
greater financial resources than Finlay. Management believes that competition in
the retail jewelry  industry is based primarily on the price,  quality,  fashion
appeal  and  perceived  value  of the  product  offered  and on the  reputation,
integrity and service of the retailer.

     With respect to the operation of Departments  in host store groups,  Finlay
competes with a limited number of other established  Department lessees, such as
J.B. Rudolph, and department store chains.  Management believes that competition
for the operation of Departments  is based  principally on the reputation of the
operator for integrity, the expertise and experience of the operator in offering
an attractive selection of merchandise at competitive prices, and the operator's
ability  to   generate   lease   fees  for  the  host   stores.   See   "--Store
Relationships--Terms of Lease Agreements" with respect to certain limitations on
Finlay's ability to compete.



                                       14

<PAGE>

Seasonality

     The retail jewelry business is highly seasonal.  See "Selected Consolidated
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations-- Seasonality".

Item 2. Properties 

     The only real estate owned by Finlay is the central distribution  facility,
totaling 106,200 square feet at 205 Edison Avenue, Orange,  Connecticut.  Finlay
leases approximately 18,400 square feet at 521 Fifth Avenue, New York, New York,
and  49,100  square  feet at 529  Fifth  Avenue,  New  York,  New  York  for its
executive,  accounting,   advertising,  the  majority  of  its  data  processing
operations and other administrative  functions. The leases for such space expire
September 30, 2008. For certain  operations at 500 Eighth Avenue,  New York, New
York and 500 Fifth Avenue,  New York, New York, Finlay has leased  approximately
9,200 square feet under a lease which expires January 31, 2000 and approximately
3,600  square  feet under a lease which  expires  July 31,  2000,  respectively.
Finlay  also  leases  retail  space for its New York  Jewelry  Outlet and French
stand-alone stores and office space in France for Sonab's corporate  operations.
Generally, as part of Finlay's domestic lease arrangements,  host stores provide
office space to Finlay's host store group management personnel free of charge.

Item 3. Legal Proceedings

     Finlay is involved in certain legal actions  arising in the ordinary course
of business.  Management believes none of these actions,  either individually or
in the  aggregate,  will have a material  adverse  effect on Finlay's  business,
financial position or results of operations.

     Commonly  in  the  retail  jewelry  industry,   a  substantial   amount  of
merchandise is sold at a discount to the "regular" or "original" price. Finlay's
experience  is  consistent  with this  practice.  See  "Business--  Products and
Pricing".  Domestically,  a number  of  states  in which  Finlay  operates  have
regulations  which require  retailers who offer merchandise at discounted prices
to offer the  merchandise  at the  "regular"  or  "original"  prices  for stated
periods  of  time.  Finlay  has  received  inquiries  and has  been  subject  to
investigation from time to time by various states with respect to its compliance
with such  regulations.  In 1987 and 1989,  Finlay entered into consent  decrees
with the states of  Wisconsin  and Georgia,  respectively,  in  connection  with
Finlay's past sales  discounting  and other  practices and paid nominal fines to
both states.  In addition,  one of Finlay's  store groups entered into a consent
decree  with the state of Oregon in 1988 and two others are  subject to standing
injunctions,  one issued at the request of the state of  California  in 1988 and
the other issued at the request of the state of Colorado in 1990,  regarding the
sales discounting  practices of the host store groups in the respective  states.
As a lessee of the host store  groups,  Finlay is  obligated  to comply with the
consent decree and  injunctions in effect with respect to the host store groups.
Although Finlay receives  inquiries from various state  authorities from time to
time,  management  believes it is in substantial  compliance with all applicable
federal and state laws with respect to such practices.

Item 4. Submission of Matters to a Vote of Security Holders

     No matters were  submitted to a vote of security  holders during the fourth
quarter of 1998.




                                       15

<PAGE>
                                     PART II

Item 5.  Market  for the  Registrant's  Common  Equity and  Related  Stockholder
Matters

     Finlay  Jewelry  is a  wholly  owned  subsidiary  of the  Holding  Company.
Accordingly,  there is no established public trading market for Finlay Jewelry's
common stock.

     During 1998,  cash  dividends of $3.5  million were  distributed  by Finlay
Jewelry to the Holding Company.  The distributions are generally utilized to pay
interest on the Senior  Debentures and certain  expenses of the Holding  Company
such as legal,  accounting and directors' fees. Certain restrictive covenants in
the indenture  relating to the Senior Notes,  the Revolving Credit Agreement and
the Gold Consignment  Agreement  currently  restrict annual  distributions  from
Finlay Jewelry to the Holding Company to 0.25% of Finlay Jewelry's net sales for
the preceding fiscal year and also allow distributions to the Holding Company to
enable it to make interest payments on the Senior Debentures.

     There was one record holder of Finlay  Jewelry's  common stock at April 23,
1999.






















                                       16

<PAGE>

Item 6. Selected Consolidated Financial Data

     The selected  consolidated  financial  information  below should be read in
conjunction with  "Management's  Discussion and Analysis of Financial  Condition
and Results of Operations" and the Consolidated  Financial  Statements and Notes
thereto. See "Index to Consolidated Financial Statements". The balance sheet and
statement of operations data of Finlay Jewelry at February 1, 1997,  January 31,
1998 and  January  30,  1999 and for each of the  fiscal  years  then ended were
derived  from  consolidated   financial  statements  of  Finlay  Jewelry,  which
statements  have  been  audited  by  Arthur  Andersen  LLP,  independent  public
accountants, as indicated in their report included elsewhere herein. The balance
sheet and statement of operations data of Finlay Jewelry at January 28, 1995 and
February 3, 1996 and for each of the fiscal  years then ended were  derived from
consolidated  financial statements of Finlay Jewelry, which statements have been
audited by Arthur Andersen LLP,  independent public  accountants,  and which are
not included or incorporated herein.
<TABLE>
<CAPTION>
                                                                              Fiscal Year Ended (1)
                                                        -------------------------------------------------------------------
                                                         Jan. 28,        Feb. 3,       Feb. 1,      Jan. 31,      Jan. 30,
                                                           1995           1996          1997          1998          1999
                                                        ----------     ----------    ----------    ----------    ----------
                                                                              (Dollars in thousands)
Statement of Operations Data:
<S>                                                     <C>            <C>           <C>           <C>           <C>      
   Sales...........................................     $ 552,090      $ 654,491     $ 685,274     $ 769,862     $ 863,428
   Cost of sales...................................       261,263        314,029       330,300       371,085       421,450
                                                        ----------     ----------    ----------    ----------    ----------
   Gross margin (2)................................       290,827        340,462       354,974       398,777       441,978
   Selling, general and administrative expenses....       239,281        281,693       289,145       325,752       364,002
   Depreciation and amortization...................         8,910          9,659        10,840        12,163        15,672
   Management transition and consulting
     expense (3)...................................         5,144          -             -             -             -
                                                        ----------     ----------    ----------    ----------    ----------
   Income (loss) from operations...................        37,492         49,110        54,989        60,862        62,304
   Other nonrecurring income (4)...................         -             (5,000)        -             -             -
   Interest expense, net...........................        20,927         21,844        22,526        24,413        24,612
   Nonrecurring interest associated with
     refinancing (5)...............................         -              -             -             -               417
                                                        ----------     ----------    ----------    ----------    ----------
   Income (loss) before income taxes and                                              
     extraordinary charges........................         16,565         32,266        32,463        36,449        37,275
   Provision (benefit) for income taxes............         8,349         12,527        14,501        15,528        15,323
                                                        ----------     ----------    ----------    ----------    ----------
   Income (loss) before extraordinary charges......         8,216         19,739        17,962        20,921        21,952
   Extraordinary charges from early extinguishment
     of debt, net (6).............................          -              -             -             -             4,755
                                                        ----------     ----------    ----------    ----------    ----------
   Net income (loss)...............................     $   8,216      $  19,739     $  17,962     $  20,921     $  17,197
                                                        ==========     ==========    ==========    ==========    ==========

Operating and Financial Data:
   Number of Departments (end of period) (7)........          903            941           939         1,117         1,109
   Percentage increase in sales.....................         9.2%          18.5%          4.7%         12.3%         12.2%
   Percentage increase in comparable Department
     sales (7)(8)...................................         4.5%           5.7%          5.9%          5.5%          3.9%
   Average sales per Department (7) (9).............    $     674      $     710     $     729     $     749     $     776
   EBITDA (10)......................................       46,402         58,769        65,829        73,025        77,976
   Capital expenditures.............................       11,228         14,933        17,533        19,338        14,874

Cash flows provided from (used in):
   Operating activities.............................    $  25,511      $  (4,620)    $  14,197     $  74,314     $ (13,018)
   Investing activities.............................      (12,378)       (17,157)      (18,372)      (79,366)      (23,134)
   Financing activities.............................      (11,559)        24,553        (1,024)       (2,349)       40,067
</TABLE>




                                       17

<PAGE>
<TABLE>
<CAPTION>
                                                                              Fiscal Year Ended (1)
                                                        -------------------------------------------------------------------
                                                         Jan. 28,        Feb. 3,       Feb. 1,      Jan. 31,      Jan. 30,
                                                           1995           1996          1997          1998          1999
                                                        ----------     ----------    ----------    ----------    ----------
                                                                              (Dollars in thousands)
Balance Sheet Data-End of Period:
<S>                                                     <C>            <C>           <C>           <C>           <C>      
   Working capital..................................    $  26,864      $  65,309     $  75,692     $  65,705     $ 126,723
   Total assets.....................................      338,129        393,057       416,808       501,454       541,403
   Short-term debt, including current portion of
     long-term debt.................................          576            206             2         -             -
   Long-term debt, excluding current portion........      135,004        135,002       135,000       135,000       150,000
   Series C Preferred Stock.........................       25,428          -             -             -             -
   Total stockholders' equity (deficit).............       27,706         72,387        86,410       101,826       152,083
</TABLE>
____________________________
(1)  Each of the fiscal years for which  information  is  presented  includes 52
     weeks except 1995, which includes 53 weeks.

(2)  Finlay  utilizes the LIFO method of accounting for  inventories.  If Finlay
     had valued  inventories  at actual cost,  as would have  resulted  from the
     specific identification  inventory valuation method, the gross margin would
     have increased  (decreased) as follows:  $0.8 million,  $0.9 million,  $1.9
     million,  $(2.3) million and $(1.0) million for 1994,  1995, 1996, 1997 and
     1998, respectively.

(3)  Included  in  1994  are  compensation  and  benefits  for a  former  senior
     executive  totaling  $3.1  million  as a result of the  termination  of his
     employment agreement and other management transition and consulting expense
     totaling $2.0 million.

(4)  Included in 1995 are proceeds of $5.0 million from a life insurance  policy
     Finlay maintained on a senior executive.

(5)  As a result of certain  call  requirements  associated  with the Old Notes,
     Finlay had outstanding,  both the new debt and the old debt for a period of
     thirty  days.  The net  effect of the  above,  offset by  reduced  interest
     expense on the borrowings under the Revolving Credit Agreement and interest
     income on excess cash balances, was $0.4 million.

(6)  The  extraordinary  charges of $8.0  million  include  $5.4 million for the
     redemption  premium on the Old Notes and $2.0 million to write off deferred
     financing costs  associated  with the Old Notes.  The income tax benefit on
     the extraordinary charges totaled $3.2 million.

(7)  Includes, beginning in 1994, Departments and stand-alone locations.

(8)  Comparable  Department  sales are  calculated  by comparing  the sales from
     Departments open for the same months in the comparable periods.

(9)  Average sales per Department is determined by dividing sales by the average
     of the number of  Departments  open at the beginning and at the end of each
     period.  For 1994, the effect of the  acquisition of Sonab,  and subsequent
     Department openings by Sonab, was prorated in determining average sales per
     Department.

(10) EBITDA   represents   income  from  operations   before   depreciation  and
     amortization  expenses.  For 1994, EBITDA includes the effect of management
     transition and consulting expense totaling $5.1 million described in Note 3
     above. Finlay Jewelry believes EBITDA provides  additional  information for
     determining  its ability to meet future debt service  requirements.  EBITDA
     should not be  construed as a substitute  for income from  operations,  net
     income  or cash  flow  from  operating  activities  (all as  determined  in
     accordance with generally accepted  accounting  principles) for the purpose
     of analyzing  Finlay's operating  performance,  financial position and cash
     flows as EBITDA is not defined by generally accepted accounting principles.
     Finlay  has  presented  EBITDA,  however,  because it is  commonly  used by
     certain  investors  and  analysts to analyze and compare  companies  on the
     basis of  operating  performance  and to  determine a company's  ability to
     service  and/or  incur  debt.  Finlay's  computation  of EBITDA  may not be
     comparable to similar titled measures of other companies.




                                       18

<PAGE>

Item 7. Management's  Discussion and Analysis of Financial Condition and Results
of Operations

     The following  should be read in conjunction  with  "Selected  Consolidated
Financial  Information"  and the  Consolidated  Financial  Statements  and Notes
thereto included elsewhere in this Form 10-K.

     Certain statements under this caption "Management's Discussion and Analysis
of Financial  Condition and Results of Operations'  constitute  "forward-looking
statements" under the Securities Act of 1933, as amended (the "Securities Act'),
and the Securities  Exchange Act of 1934, as amended (the 'Exchange  Act").  See
"Special Note Regarding Forward-Looking Statements".

General

     Since 1995,  sales have  increased by $208.9 million to $863.4  million,  a
compound  annual growth rate of 9.7%,  while  comparable  Department  sales have
increased  by  5.9%,  5.5%  and  3.9% in  1996,  1997  and  1998,  respectively.
Comparable  Department sales include Departments open for the same months during
comparable periods. Domestic comparable Department sales during this same period
increased 6.0%, 5.7% and 5.4%. The increase in total sales during this period is
the  result  of (i)  adding  168 net new  Departments  and  stand-alone  stores,
including 139 Departments from the Diamond Park Acquisition, and (ii) increasing
comparable  Department sales.  Management  attributes its comparable  Department
sales increases during this period to the following initiatives: (i) introducing
its "Key Item" and "Best Value" merchandising programs, which provide a targeted
assortment of items at competitive  prices; (ii) increasing focus on holiday and
event-driven  promotions  as  well  as  host  store  marketing  programs;  (iii)
positioning Finlay's  Departments as a "destination  location" for fine jewelry;
and (iv) implementing  project PRISM (Promptly Reduce  Inefficiencies  and Sales
Multiply),  a program  designed to allow Finlay's sales associates more time for
customer sales and service.

     Gross margin as a percentage of sales has  decreased  from 51.8% in 1996 to
51.2% in 1998.  This decrease is  principally  the result of Finlay's "Key Item"
and "Best  Value"  programs,  which  produce  higher sales volume and a slightly
lower gross margin, on average,  than other merchandise,  and the integration of
the former Diamond Park Departments at a lower gross margin offset,  in 1997 and
1998, by the favorable impact of the LIFO method of inventory.

     Selling,  general and  administrative  expenses ("SG&A") as a percentage of
sales was unchanged at 42.2% in 1996 and 1998. Management attributes this to (i)
leveraging  operating  expenses through higher domestic sales, and (ii) reducing
the level of certain  operating  expenses through the ongoing  implementation of
project PRISM.  Offseting this were additional  expenses relating to the central
distribution  facility during its initial start up phase and expenses associated
with Finlay's year 2000  remediation  project.  In addition,  the  leveraging of
operating expenses was negatively  impacted as a result of the slowdown of sales
in France in 1998. The components of SG&A include payroll  expense,  lease fees,
net advertising expenditures and other field and administrative expenses.

     As  a  result  of  the  1993   Recapitalization   and  the  1988  Leveraged
Recapitalization  (each as defined in Note 1 of Notes to Consolidated  Financial
Statements),  Finlay Jewelry is highly leveraged and, as such,  interest expense
had a  significant  impact  on  Finlay  Jewelry's  results  of  operations.  The
Refinancing  resulted  in a lower  interest  rate on the  Senior  Notes than the
interest rate on the Old Notes.  As such, for the 1998 period  subsequent to the
retirement of the Old Notes,  interest  expense has been  favorably  impacted as
compared to 1997.  Finlay also  records  approximately  $3.6 million of goodwill
amortization    annually   resulting   primarily   from   the   1988   Leveraged
Recapitalization and the Diamond Park Acquisition.



                                       19

<PAGE>

     Finlay entered the  international  fine jewelry retailing market in October
1994 by acquiring  Sonab,  which as of January 30, 1999 operated 147 Departments
and three  stand-alone  stores,  principally in France. In the second quarter of
1998,  Sonab began to experience lower sales trends due to the transition from a
promotional pricing strategy to an everyday low price strategy.  This change was
made as a result of Sonab reassessing its pricing policy following certain local
French court decisions. The adverse impact of such change continued through 1998
and is expected to continue at least through the third quarter of 1999.

Diamond Park Acquisition

     On October 6, 1997,  Finlay  completed the acquisition of certain assets of
Diamond  Park,  a leading  operator  of  Departments,  for  approximately  $63.0
million.  By acquiring Diamond Park, Finlay added 139 Departments that, in 1998,
contributed  in excess of $100  million  in sales and also  added new host store
relationships  with  Marshall  Field's,  Parisian and  Dillard's  (formerly  the
Mercantile  Stores).  Management  believes that, in addition to increasing sales
volume,  the Diamond Park  Acquisition will continue to improve Finlay's results
of operations  through the  leveraging of expenses and the  achievement of other
operating synergies.

Results of Operations

     The following table sets forth  operating  results as a percentage of sales
for the periods indicated:
<TABLE>
<CAPTION>
                                                                                Fiscal Year Ended
                                                                 ------------------------------------------------
                                                                    Feb. 1,           Jan. 31,         Jan. 30,
                                                                     1997               1998             1999
                                                                 ------------      -------------     ------------
   Statement of Operations Data:
<S>                                                                   <C>              <C>               <C>   
   Sales....................................................          100.0%           100.0%            100.0%
   Cost of sales............................................           48.2             48.2              48.8
                                                                 ------------      -------------     ------------
     Gross margin...........................................           51.8             51.8              51.2
   Selling, general and administrative expenses.............           42.2             42.3              42.2
   Depreciation and amortization............................            1.6              1.6               1.8
                                                                 ------------      -------------     ------------
   Income (loss) from operations............................            8.0              7.9               7.2
   Interest expense, net....................................            3.3              3.2               2.8
   Nonrecurring interest associated with refinancing (1)                -                -                 0.1
                                                                 ------------      -------------     ------------
   Income (loss) before income taxes and extraordinary
     charges................................................            4.7              4.7               4.3
   Provision for income taxes...............................            2.1              2.0               1.8
                                                                 ------------      -------------     ------------
   Income (loss) before extraordinary charges..............             2.6              2.7               2.5
   Extraordinary charges from early extinquishment of
     debt, net (2)..........................................            -                -                 0.6
                                                                 ------------      -------------     ------------
   Net income (loss)........................................            2.6%             2.7%              1.9%
                                                                 ============      =============     ============

   Other Supplemental Data:
   EBITDA (3)...............................................            9.6%             9.5%              9.0%
</TABLE>
_______________________

(1)  See Note 5 to "Selected Consolidated Financial Data".
(2)  See Note 6 to "Selected Consolidated Financial Data".
(3)  EBITDA   represents   income  from  operations   before   depreciation  and
     amortization  expenses.  Finlay Jewelry believes EBITDA provides additional
     information  for  determining  its  ability  to meet  future  debt  service
     requirements. See Note 10 to "Selected Consolidated Financial Data".



                                       20

<PAGE>

1998 Compared with 1997

     Sales.  Sales increased $93.6 million,  or 12.2%, in 1998 compared to 1997.
Comparable Department sales increased 3.9%. Domestic comparable Department sales
increased 5.4%.  Management  attributes  this increase in comparable  Department
sales primarily to the "Key Item" and "Best Value" merchandising programs and to
the marketing  initiatives  discussed above. Sales from the operation of net new
Departments  contributed $63.5 million,  primarily due to the acquisition of the
former Diamond Park  Departments.  This increase was offset by the net effect of
new  store  openings  and  closings  as well as the  timing  of such  Department
openings and closings.

     During 1998,  Finlay opened 78 Departments and closed 86  Departments.  The
Department openings were comprised of the following:

                                   Number of
                                  Departments/
           Store Group               Stores                   Reason
--------------------------------  ------------  --------------------------------
Proffitt's/Parisian/Younkers....       12       Proffitt's/Parisian/Younkers' 
                                                 purchase from Dillards.
Famous Barr/L.S. Ayres..........        8       Famous Barr /L.S. Ayres' 
                                                 purchase from Dillard's.
Belk............................        7       Belk's purchase from Dillard's.
Foley's.........................        1       Foley's purchase from Dillard's.
Dillard's.......................        3       Dillard's purchase from Belk.
Monoprix........................        7       Expansion in France.
Allders.........................        1       New host store in England.
Beatties........................        1       New host store in England.
Other...........................       38       Department openings within 
                                      ---        existing store groups.
                                       78
                                      ===

     The Department closings were comprised of the following:

                                    Number of
                                   Departments/
           Store Group               Stores                 Reason
--------------------------------  ------------  --------------------------------
Mercantile Stores...............           28   Departments sold by Dillard's to
                                                 existing Finlay host store 
                                                 groups subsequent to Dillard's
                                                 acquisition of the Mercantile 
                                                 Stores.  Included in openings 
                                                 above.
Dillard's.......................            5   Previous Dillard's Departments 
                                                 prior to Dillard's acquisition 
                                                 of the Mercantile Stores.
Debenhams.......................            7   Mutual agreement to close.
Monoprix........................            9   Close smaller volume Departments
Other...........................           37   Department closings within 
                                          ---    existing store groups.
                                           86
                                          ===

     Gross margin.  Gross margin  increased by $43.2 million in 1998 compared to
1997,  however,  as a  percentage  of sales,  gross  margin  decreased  by 0.6%,
primarily due to (i)  management's  efforts to increase  market  penetration and
market  share  through  its  pricing  strategy  and  (ii)  lower  gross  margins
experienced  by  the  former  Diamond  Park  Departments,  particularly  as  the
merchandise  acquired as part of the Diamond  Park  Acquisition  continued to be
sold in 1998.  During 1998, Finlay Jewelry benefited from a decrease in the LIFO
provision  of $1.0  million,  which was lower  than the  benefit in 1997 of $2.3
million.



                                       21

<PAGE>

     Selling,  general and administrative expenses. SG&A totaled $364.0 million,
an increase of $38.3 million,  or 11.7%,  in 1998 compared to 1997 due primarily
to  payroll  expense  and lease  fees  associated  with the  increase  in Finlay
Jewelry's  sales.  The  increased  sales  generated  by the former  Diamond Park
Departments  and strong  domestic  comparable  Department  sales enabled  Finlay
Jewelry to leverage  administrative and certain other expenses.  Offsetting this
were  higher than  anticipated  expenses  relating  to the central  distribution
facility during its initial start up phase and expenses associated with Finlay's
year 2000 remediation project. In addition, the leveraging of operating expenses
was negatively impacted as a result of the slowdown of sales in France. Also, in
1997,  Finlay  Jewelry  purchased  inventory  from the  Holding  Company and was
charged a service  fee of $1.9  million.  As a result of the  factors  discussed
above, SG&A as a percentage of sales decreased by 0.1% compared to 1997.

     Depreciation and amortization.  Depreciation and amortization  increased by
$3.5  million in 1998  compared  to 1997,  reflecting  $14.9  million in capital
expenditures  for the most recent twelve  months,  depreciation  on Finlay's new
central  distribution  facility  and  amortization  related to the Diamond  Park
Acquisition,  offset by the effect of certain assets becoming fully depreciated.
The  increase  in  fixed  assets  was  primarily  due  to  the  addition  of new
Departments and the renovation of existing Departments.

     Interest   expense,   net.  Interest  expense  increased  by  $0.2  million
reflecting an increase in average  borrowings  ($272.6 million for 1998 compared
to $242.7 million for 1997).  The increase in average  borrowings is a result of
an increase in the  outstanding  balance of the Senior  Notes as compared to the
Old Notes and additional  indebtedness  outstanding  under the Revolving  Credit
Agreement (adjusted to exclude the timing impact of the call requirements on the
Old Notes,  discussed  below).  The weighted  average interest rate was 9.4% for
both 1998 and 1997.

     Nonrecurring  interest associated with refinancing.  As a result of certain
call  requirements  associated with the Old Notes,  the debt could not be repaid
until May 26, 1998.  Thus,  for thirty days,  Finlay was required to maintain as
outstanding  both the new debt  issued on April 24, 1998 as well as the old debt
retired on May 26, 1998. The net effect of carrying the new and old debt, offset
by  reduced  interest  expense  on the  borrowings  under the  Revolving  Credit
Agreement  and  interest  income on excess  cash  balances,  was an  increase to
interest expense of $0.4 million.

     Provision  for income  taxes.  The income tax  provision  for 1998 and 1997
reflects an effective tax rate of 40.5% and 41.5%, respectively.

     Extraordinary  charges from early extinguishment of debt, net of income tax
benefit.  In  conjunction  with the repayment of the Old Notes,  Finlay  Jewelry
recorded a pre-tax extraordinary charge of $8.0 million,  including $5.4 million
for the  redemption  premium  on the Old  Notes  and $2.0  million  to write off
deferred financing costs associated the Old Notes. The income tax benefit on the
extraordinary charges totaled $3.2 million.

     Net income.  Net income of $17.2 million for 1998  represents a decrease of
$3.7  million as compared to net income of $20.9  million in 1997 as a result of
the factors discussed above.  Income before  extraordinary  charges increased by
$1.0 million to $22.0 million in 1998.

1997 Compared with 1996

     Sales.  Sales increased $84.6 million,  or 12.3%, in 1997 compared to 1996.
Comparable Department sales increased 5.5%. Domestic comparable Department sales
increased 5.7%.  Management  attributes  this increase in comparable  Department
sales primarily to the "Key Item" and "Best Value" merchandising programs and to
the marketing  initiatives  discussed above.  Sales increased $46.9 million 


                                       22

<PAGE>

as a result of the net new store  openings,  primarily due to the acquisition of
the former Diamond Park Departments.

     During 1997, Finlay opened 188 Departments and closed ten Departments.  The
Department openings were comprised of the following:

                                   Number of
                                 Departments/
          Store Group               Stores                  Reason
-----------------------------   -------------   --------------------------------
Mercantile Stores............        90         Diamond Park Acquisition.
Marshall Field's.............        21         Diamond Park Acquisition.
Parisian.....................        28         Diamond Park Acquisition.
Monoprix.....................        16         Expansion in France.
Other........................        33         Department openings within 
                                    ---          existing store groups.
                                    188
                                    ===

     These openings were offset by ten  Departments  closed within existing host
store groups.

     Gross margin.  Gross margin  increased by $43.8 million in 1997 compared to
1996 and, as a percentage of sales, gross margin was unchanged compared to 1996.
During 1997,  Finlay Jewelry  benefited from a decrease in the LIFO provision as
well as the  inclusion of the results of the former  Diamond  Park  Departments,
which  contributed  $26.4 million to Finlay  Jewelry's  gross margin,  offset by
management's efforts to increase market penetration and market share through its
pricing strategy.

     Selling,  general and administrative expenses. SG&A totaled $325.8 million,
an increase of $36.6 million,  or 12.7%,  in 1997 compared to 1996 due primarily
to  payroll  expense  and lease  fees  associated  with the  increase  in Finlay
Jewelry's  sales.  As a  percentage  of sales,  SG&A  increased  by 0.1% in 1997
compared to 1996.

     Depreciation and amortization.  Depreciation and amortization  increased by
$1.3  million in 1997  compared  to 1996,  reflecting  $19.3  million in capital
expenditures for the most recent twelve months,  offset by the effect of certain
assets  becoming fully  depreciated.  The increase in fixed assets was primarily
due  to  the  addition  of  new  Departments  and  the  renovation  of  existing
Departments.

     Interest  expense,  net. Interest expense increased by $1.9 million in 1997
compared to 1996,  reflecting an increase in average  borrowings ($242.7 million
for 1997 compared to $210.4 million for 1996) primarily as a result of financing
the Diamond Park Acquisition.  The increase in average  borrowings was partially
offset by a lower weighted average interest rate (9.4% for 1997 compared to 9.7%
for 1996).

     Provision  for income  taxes.  The income tax  provision  for 1997 and 1996
reflects an effective tax rate of 41.5%.

     Net income.  Net income of $20.9 million for 1997 represents an increase of
$3.0  million as compared to net income of $18.0  million in 1996 as a result of
the factors discussed above.

Liquidity and Capital Resources

     Finlay's  primary capital  requirements are for funding working capital for
new Departments and for working capital growth of existing Departments and, to a
lesser extent,  capital  expenditures  for opening new  Departments,  renovating
existing Departments and information technology  investments.  For 1998, capital
expenditures  totaled  $14.9 million and in 1997 totaled  $19.3  million,  which
included  construction 


                                       23

<PAGE>

costs  related  to  Finlay's  central  distribution   facility.   Total  capital
expenditures for 1999 are estimated to be approximately $15.0 million.  Although
capital expenditures are limited by the terms of the RevolvingCredit  Agreement,
to date this  limitation  has not precluded  Finlay from  satisfying its capital
expenditure requirements.
 
     Finlay's  operations  substantially  preclude  customer  receivables and in
recent years, on average, approximately 49% of Finlay's domestic merchandise has
been carried on consignment.  Accordingly,  management  believes that relatively
modest  levels of working  capital  are  required  in  comparison  to many other
retailers.  Finlay  Jewelry's  working  capital  balance  was $126.7  million at
January 30,  1999,  an increase of $61.0  million  from  January 31,  1998.  The
increase  resulted  primarily  from a  capital  contribution  from  the  Holding
Company,  the sale of the  Senior  Notes and the  impact of  1998's  net  income
exclusive of depreciation and amortization,  partially offset by the use of such
proceeds to prepay the Old Notes and capital expenditures. Based on the seasonal
nature  of  Finlay's  business,   working  capital  requirements  and  therefore
borrowings  under the Revolving  Credit Agreement can be expected to increase on
an interim basis during the first three  quarters of any given fiscal year.  See
"--Seasonality".

     The seasonality of Finlay's business causes working capital requirements to
reach their  highest  level in the months of October,  November  and December in
anticipation of the year-end  holiday season.  Accordingly,  Finlay  experiences
seasonal cash needs as inventory  levels peak.  The Revolving  Credit  Agreement
provides Finlay with a line of credit of up to $275.0 million to finance working
capital needs.  Amounts  outstanding  under the Revolving  Credit Agreement bear
interest at a rate equal to, at Finlay's option,  (i) the Index Rate (as defined
in the Revolving  Credit  Agreement)  plus a margin ranging from zero to 1.0% or
(ii)  adjusted  LIBOR  plus a margin  ranging  from  1.0% to 2.0%,  in each case
depending on the financial performance of Finlay.

     In each year, Finlay is required to reduce the outstanding revolving credit
balance and letter of credit  balance  under the Revolving  Credit  Agreement to
$50.0  million  or less  and  $20.0  million  or  less,  respectively,  for a 30
consecutive day period (the "Balance Reduction  Requirement").  Borrowings under
the  Revolving  Credit  Agreement  at January 30, 1999 and January 31, 1998 were
zero. The average amounts  outstanding  under the Revolving Credit Agreement for
1997 and 1998 were $107.7 million and $123.8 million (adjusted for the impact of
the  temporary  paydown of the  revolving  credit  facility  due to certain call
requirements  associated with the Old Notes),  respectively.  The maximum amount
outstanding for 1998 was $176.0 million.

     Significant  additional  working capital has not been required with respect
to the operation of the former Diamond Park Departments because Finlay purchased
the  inventory  of the Diamond Park  Departments.  Inventory  purchases  for the
former  Diamond Park  Departments  will continue to be financed in part by trade
payables  combined  with  an  increased  utilization  of  consignment  inventory
compared  to the amount of  consignment  merchandise  on hand at the time of the
Diamond Park  Acquisition.  As such,  management  believes that working  capital
requirements  for the  former  Diamond  Park  Departments  have been  reduced as
compared  to the amount of working  capital  required at the time of the Diamond
Park Acquisition.

     Finlay's  long-term needs for external financing will depend on its rate of
growth,  the level of  internally  generated  funds and the  ability to continue
obtaining  substantial amounts of merchandise on advantageous  terms,  including
consignment  arrangements  with its  vendors.  As of January  30,  1999,  $283.8
million of consignment merchandise from approximately 300 vendors was on hand as
compared to $219.8 million at January 31, 1998. For 1998,  Finlay had an average
balance of  consignment  merchandise of $268.5 million as compared to an average
balance  of $216.5  million in 1997.  See  "Business--Store  Relationships"  and
"Business--Purchasing and Inventory".



                                       24

<PAGE>

     A substantial  amount of Finlay's operating cash flow has been used or will
be required to pay,  directly or  indirectly,  interest  with respect to the Old
Notes,  the  Senior  Debentures,  the  Senior  Notes and  amounts  due under the
Revolving  Credit  Agreement,  including the payments  required  pursuant to the
Balance  Reduction  Requirement.  As of January 30, 1999,  Finlay's  outstanding
borrowings  included a $150.0 million  balance under the Senior Notes. On May 1,
1998, the Holding Company prepaid all of the $39.0 million of accreted  interest
on the Old Debentures as of such date. The Holding Company  exercised its option
to prepay all such  accreted  interest to take  advantage of the  resulting  tax
benefit  relating to the  deductibility of such prepayment in 1998. In addition,
on May 26, 1998, Finlay redeemed the outstanding  principal  amounts,  including
associated premiums,  of the Old Debentures and the Old Notes. Finlay funded the
prepayment  and the  redemptions  using the proceeds from the sale of the Senior
Debentures,  the 1998 Offering and the sale of the Senior  Notes,  together with
other  available  funds.  In  connection  with the  redemption of the Old Notes,
Finlay Jewelry  recorded a pre-tax  nonrecurring  charge of  approximately  $8.0
million,  including $5.4 million for the redemption premium on the Old Notes and
$2.0  million to write off  deferred  financing  costs  associated  with the Old
Notes.

     Finlay Jewelry is party to the Gold Consignment Agreement, which expires on
December 31, 2001.  The Gold  Consignment  Agreement  enables  Finlay Jewelry to
receive  merchandise by providing gold, or otherwise making payment,  to certain
vendors.  Finlay Jewelry can obtain, pursuant to the Gold Consignment Agreement,
up to the lesser of (i) 85,000 fine troy ounces or (ii) $32.0  million  worth of
gold, subject to a formula as prescribed by the Gold Consignment  Agreement.  At
January 30,  1999,  amounts  outstanding  under the Gold  Consignment  Agreement
totaled 78,836 fine troy ounces,  valued at  approximately  $22.5  million.  The
average  amount  outstanding  under  the Gold  Consignment  Agreement  was $15.6
million in 1998.

     Many of  Finlay's  existing  computer  systems,  software  products,  other
systems using embedded chips  ("non-information  technology  systems") and third
party  systems,  accept  only two entries in the date field to  distinguish  the
year.  Beginning  in the year 2000,  these date  fields will need to accept four
digit entries, or properly handle two digit entries, to distinguish 21st century
dates from 20th century dates. As a result, Finlay's date critical functions may
be adversely  affected unless the computer systems and software products of both
Finlay and significant third parties are or become year 2000 compliant.

     A comprehensive  plan is being executed to ensure that all systems critical
to the operation of Finlay are year 2000 compliant.  The plan is structured into
five  primary  phases:  identification,  assessment,  remediation,  testing  and
implementation. Finlay has completed the identification and assessment phases of
all critical components and is in the remediation phase. Finlay expects that the
testing  and  implementation  phases  of all  internal  systems,  including  its
non-information technology systems, will be completed by August 1999.

     Finlay is using,  and will continue to use, a  combination  of internal and
external  resources to execute its year 2000 project plan.  Finlay has estimated
that the costs  related to its year 2000 efforts will total  approximately  $4.0
million,  of which  approximately  $1.9  million was spent in 1998.  Finlay will
incur the  balance of these costs  during 1999 and will fund such costs  through
operating cash flows.

     During  1998,  Finlay  began  formal  communications  with  all of its host
stores,  vendors and other third parties in an effort to determine the extent to
which  Finlay may be  vulnerable  to the failure of their  systems and to obtain
year 2000 compliance certification. To date, none of the third parties that have
responded  have raised any year 2000 issues which Finlay  believes  would have a
material  adverse  effect on Finlay.  Finlay will  continue  this  communication
process during 1999.


                                       25

<PAGE>

     Management expects that with the successful implementation of the year 2000
project,  the year 2000 issue will not pose  significant  operational  problems.
There can be no assurance,  however,  that Finlay's systems and software will be
rendered year 2000 compliant in a timely  manner,  or that Finlay will not incur
significant  unforeseen  additional  expenses  to ensure  such  compliance.  The
consequences of a disruption of Finlay's operations,  whether caused by Finlay's
internal systems or those of any significant third party,  could have a material
adverse effect on Finlay Jewelry's  financial position or results of operations.
The likely worst case scenario may be an inability to distribute  merchandise to
Finlay's  Departments and to process its daily business for some period of time.
The lost revenues,  if any, resulting from a worst case scenario would depend on
the time period in which the failure  goes  uncorrected  and the  difficulty  to
remediate such failure.

     Management  recognizes the  importance of developing a contingency  plan in
the event of a year 2000 failure, the development of which is in progress and is
expected  to be  completed  by the third  quarter of 1999.  Finlay is  currently
gathering data in an effort to assess the potential  effects on Finlay's mission
critical functions of a failure of Finlay's year 2000 plan to be fully effective
and, to the extent deemed  appropriate,  to address such  effects.  In addition,
progress  reports on the year 2000  project are  presented  regularly  to senior
management and Finlay's Board of Directors.
 
     During  1998,  Finlay began  several  information  technology  initiatives,
including  the  design and  development  of a new  merchandising  system and the
upgrade of  point-of-sale  systems  and  related  hardware  in the  majority  of
Finlay's  departments.  These  projects  will serve to support  future growth of
Finlay as well as provide improved  analysis and reporting  capabilities and are
expected to be completed in mid-2000. The cost associated with these projects is
estimated  to be $11.0  million for  software and  implementation  costs,  to be
included in Deferred charges and other assets,  and  approximately  $3.0 million
for  hardware  and related  equipment,  to be included as a component  of Finlay
Jewelry's  capital  expenditures  and reflected in Fixed assets.  At January 30,
1999,  approximately  $4.1 million was expended and included in Deferred charges
and other assets.

     Section 382 of the Internal  Revenue Code of 1986,  as amended (the "Code')
restricts  utilization  of net operating  loss ("NOLs")  carryforwards  after an
ownership  change  exceeding  50%. As a result of the 1993  Recapitalization,  a
change in ownership of the Holding  Company  exceeding  50% occurred  within the
meaning  of  Section  382 of the  Code.  Similar  restrictions  apply  to  other
carryforwards.  Consequently, there is a material limitation on Finlay Jewelry's
annual utilization of its NOLs and other carryforwards which requires a deferral
or loss of the utilization of such NOLs or other  carryforwards.  Finlay Jewelry
had, at October 31, 1998 (Finlay Jewelry's tax year end), a NOL for tax purposes
of  approximately  $11.5  million  which  is  subject  to  an  annual  limit  of
approximately $2.0 million per year. However,  for financial reporting purposes,
no NOL exists as of January 30, 1999.

     From time to time, Finlay enters into futures contracts, such as options or
forwards,  based upon the  anticipated  sales of gold  product in order to hedge
against the risk  arising from its payment  arrangements.  Changes in the market
value of futures contracts are accounted for as an addition to or reduction from
the inventory  cost.  For the year ended  January 30, 1999,  the gain or loss on
open futures  contracts was not material.  Finlay  Jewelry did not have any open
positions in futures  contracts  for gold at January 30,  1999.  There can be no
assurance  that these  hedging  techniques  will be  successful  or that hedging
transactions  will not adversely affect Finlay Jewery's results of operations or
financial position.

     Finlay believes that, based upon current  operations,  anticipated  growth,
and availability under the Revolving Credit Agreement,  Finlay Jewelry will, for
the foreseeable future, be able to meet its debt service and anticipated working
capital obligations, and to make distributions to the Holding Company sufficient
to permit the Holding  Company to meet its debt service  obligations  and to pay
certain other  expenses as they come due. No assurances,  however,  can be given
that Finlay  Jewelry's  current  level of 


                                       26

<PAGE>

operating  results will continue or improve or that Finlay Jewelry's income from
operations  will  continue to be  sufficient  to permit  Finlay  Jewelry and the
Holding  Company to meet their debt  service and other  obligations.  Currently,
Finlay Jewelry's principal financing  arrangements restrict annual distributions
from Finlay  Jewelry to the  Holding  Company to 0.25% of Finlay  Jewelry's  net
sales for the preceding fiscal year and also allow  distributions to the Holding
Company to enable it to make  interest  payments on the Senior  Debentures.  The
amounts required to satisfy the aggregate of Finlay  Jewelry's  interest expense
and required  amortization  payments totaled $23.4 million and $24.5 million for
1997 and 1998, respectively.

SEASONALITY

     Finlay's  business is highly  seasonal,  with a significant  portion of its
sales and income from  operations  generated  during the fourth  quarter of each
year, which includes the year-end holiday season.  The fourth quarter  accounted
for an average of 42% of Finlay's  sales and 82% of its income  from  operations
for 1996,  1997 and 1998.  Finlay has  typically  experienced  net losses in the
first three quarters of its fiscal year.  During these periods,  working capital
requirements   have  been  funded  by  borrowings  under  the  Revolving  Credit
Agreement.  Accordingly,  the results for any of the first three quarters of any
given fiscal year, taken individually or in the aggregate, are not indicative of
annual results. See Note 10 of Notes to Consolidated Financial Statements.

     Finlay  Jewelry's  Sales and Income (loss) from operations for each quarter
of 1996, 1997 and 1998 were as follows:
<TABLE>
<CAPTION>

                                                                            Fiscal Quarter
                                                    ---------------------------------------------------------------
                                                        First            Second           Third          Fourth
                                                    --------------     ------------    ------------    ------------
                                                                        (dollars in thousands)
  1996:
<S>                                                 <C>              <C>              <C>             <C>        
    Sales.......................................    $   130,719      $   137,188      $   136,140     $   281,227
    Income (loss) from operations...............            596            6,371            4,606          43,416
  1997:
    Sales.......................................        134,592          148,060          148,770         338,440
    Income (loss) from operations...............          1,187            6,838            2,518          50,319
  1998:
    Sales.......................................        160,992          177,366          165,894         359,176
    Income (loss) from operations...............          2,169            6,335            2,061          51,739
</TABLE>

Inflation

     The effect of  inflation  on Finlay's  results of  operations  has not been
material in the periods discussed.

Special Note Regarding Forward-Looking Statements

     This Annual  Report on Form 10-K ("Form  10-K")  includes  "forward-looking
statements"  within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange  Act. All  statements  other than  statements  of historical
information  provided  herein are  forward-looking  statements  and may  contain
information  about  financial  results,  economic  conditions,  trends and known
uncertainties.  The forward-looking  statements  contained herein are subject to
certain  risks and  uncertainties  that  could  cause  actual  results to differ
materially from those reflected in the forward-looking statements.  Factors that
might cause such a difference  include,  but are not limited to, those discussed
under  "Management's  Discussion and Analysis of Financial Condition and Results
of  Operations",  as well as trends in the general  economy in the United States
and France,  competition in the retail jewelry business,  the seasonality of the
retail  jewelry  business,  Finlay  Jewelry's  ability  to  increase  comparable
Department sales and to open new


                                       27

<PAGE>

Departments,  Finlay  Jewelry's  estimate  of the  cost  to  address  year  2000
compliance  issues and the impact on Finlay Jewelry's  operations of a year 2000
failure,  Finlay Jewelry's dependence on certain host store relationships due to
the  concentration  of sales generated by such host stores,  the availability to
Finlay  Jewelry of  alternate  sources of  merchandise  supply in the case of an
abrupt loss of any significant supplier, Finlay Jewelry's ability to continue to
obtain  substantial  amounts of merchandise  on  consignment,  Finlay  Jewelry's
dependence  on key  officers,  Finlay  Jewelry's  ability  to  integrate  future
acquisitions  into its  existing  business,  Finlay  Jewelry's  high  degree  of
leverage  and the  availability  to Finlay  Jewelry of  financing  and credit on
favorable terms and changes in regulatory  requirements  which are applicable to
Finlay Jewelry's business.

     Readers  are  cautioned  not to rely on these  forward-looking  statements,
which reflect management's analysis,  judgment, belief or expectation only as of
the date hereof.  Finlay  Jewelry  undertakes no  obligation to publicly  revise
these  forward-looking  statements to reflect events or circumstances that arise
after the date hereof. In addition to the disclosure  contained herein,  readers
should carefully review any disclosure of risks and  uncertainties  contained in
other  documents  Finlay  Jewelry  files or has filed from time to time with the
Securities and Exchange  Commission (the "Commission")  pursuant to the Exchange
Act.

Item 7a. Quantitative and Qualitative Disclosures about Market Risk

     Finlay  Jewelry is exposed to market risk  primarily  through the  interest
rate on its  borrowings  under  the  Revolving  Credit  Agreement,  which  has a
variable  interest  rate.  In seeking to minimize the risks from  interest  rate
fluctuations, Finlay Jewelry manages exposures through its regular operating and
financing activities.  In addition,  the majority of Finlay Jewelry's borrowings
are  under  fixed  rate  arrangements,  as  described  in  Note  4 of  Notes  to
Consolidated  Financial  Statements,  and as such,  there was no material market
risk exposure to Finlay Jewelry's financial  position,  results of operations or
cash flows as of January 30, 1999.
 














                                       28

<PAGE>

Item 8.  Financial Statements and Supplementary Data

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                            Page
                                                                            ----
Finlay Fine Jewelry Corporation

Report of Independent Public Accountants.....................................F-2

Consolidated Statements of Operations for the years ended February 1, 1997, 
 January 31, 1998 and January 30, 1999.......................................F-3

Consolidated Balance Sheets as of January 31, 1998 and January 30, 1999......F-4

Consolidated Statements of Changes in Stockholder's Equity for the years 
 ended February 1, 1997, January 31, 1998 and January 30, 1999...............F-5

Consolidated Statements of Cash Flows for the years ended February 1, 1997, 
 January 31, 1998 and January 30, 1999.......................................F-6

Notes to Consolidated Financial Statements...................................F-7


Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosure

     There  have been no  changes  in or  disagreements  with  Finlay  Jewelry's
accountants on matters of accounting or financial disclosure.















                                       29

<PAGE>
                                    PART III

Item 10. Directors and Executive Officers of the Registrant

     Set forth below is certain  information with respect to each of the current
executive officers and directors of the Holding Company and Finlay Jewelry. Each
of the  persons  listed as a director is a member of the Board of  Directors  of
both the Holding Company and Finlay Jewelry.

                 Name                 Age              Position
----------------------------------   ----    --------------------------------
Arthur E. Reiner..................    58     Chairman  of  the  Board, 
                                              President  and  Chief  Executive
                                              Officer  of  the  Holding Company,
                                              Chairman   and  Chief Executive 
                                              Officer of Finlay Jewelry and 
                                              Director
Joseph M. Melvin..................    48     Executive Vice President and Chief 
                                              Operating  Officer of the Holding 
                                              Company and President and Chief  
                                              Operating  Officer of Finlay 
                                              Jewelry
Leslie A. Philip..................    52     Executive Vice President and Chief
                                              Merchandising  Officer of the 
                                              Holding Company and Finlay Jewelry
Barry D. Scheckner................    49     Senior Vice  President  and Chief  
                                              Financial  Officer of the Holding 
                                              Company and Finlay Jewelry
David B. Cornstein................    60     Director
Rohit M. Desai....................    60     Director
James Martin Kaplan...............    54     Director
Thomas H. Lee.....................    55     Director
Norman S. Matthews................    66     Director
Hanne M. Merriman.................    57     Director
Warren C. Smith, Jr...............    42     Director

     The Holding  Company,  and an affiliate of Thomas H. Lee Company  (together
with its affiliate  transferees,  the "Lee Investors"),  partnerships managed by
Desai Capital Management Incorporated (collectively,  the "Desai Investors") and
certain members of management  (the  "Management  Stockholders"),  together with
certain  third  parties,   are  parties  to  a   Stockholders'   Agreement  (the
"Stockholders'  Agreement") which provides, among other things, that all parties
thereto,  subject to certain conditions,  vote their shares to fix the number of
members of the Board of Directors of the Holding Company at eight and to vote in
favor  of six  directors  who  will  be  nominated  as  follows:  two by the Lee
Investors; one by the Desai Investors; two by Mr. Cornstein (one of whom must be
a  management  employee  of the Holding  Company);  and one by Mr.  Reiner.  The
nomination  and election of the  remaining  two directors is not governed by the
Stockholders' Agreement,  although the Stockholders' Agreement does require that
such directors not be parties to the Stockholders' Agreement.

     Notwithstanding  the foregoing,  the right of various  persons to designate
directors  will be  reduced  or  eliminated  at such  time as they own less than
certain specified percentages of the shares of Common Stock then outstanding. As
a result of the 1998 Offering (as herein defined),  the number of directors that
the Lee  Investors  have the  right to  nominate  was  reduced  from two to one.
Pursuant to the Stockholders' Agreement (i) Messrs. Lee and Smith were nominated
to the Board of Directors as the designees of the Lee Investors,  (ii) Mr. Desai
was nominated by the Desai  Investors,  (iii) Messrs.  Cornstein and Kaplan were
nominated by Mr. Cornstein and (iv) Mr. Reiner nominated himself.

     The Stockholders'  Agreement also provides that the Executive  Committee of
the Board of Directors will consist of five directors, including one independent
director  selected by the Board of Directors,  one member  designated by Mr. Lee
(so  long as the Lee  Investors  have the  right  to  designate  a  nominee  for
director),  one member  designated by the Desai  Investors (so long as the Desai
Investors  have the right to designate a nominee for  director)  and two members
designated  by  Mr.  Cornstein  (which  number  will  be  


                                       30

<PAGE>

reduced to one if Mr.  Cornstein is only  entitled to designate  one nominee for
director  and none if Mr.  Cornstein  ceases  to have the right to  designate  a
nominee for director). The Executive Committee for the Holding Company presently
consists of Messrs.  Lee, Desai,  Matthews,  Cornstein,  Kaplan and Reiner.  See
information    under   the   caption   "Certain    Relationships   and   Related
Transactions-Stockholders' Agreement".

     Under the Holding  Company's  Restated  Certificate of  Incorporation,  the
Holding  Company's  Board of Directors is  classified  into three  classes.  The
members of each class will serve staggered  three-year terms.  Messrs. Desai and
Lee are Class I  directors;  Messrs.  Cornstein,  Kaplan and Reiner are Class II
directors;  and  Messrs.  Matthews  and  Smith  and Ms.  Merriman  are Class III
directors.  The terms of the Class I, Class II and Class III directors expire at
the  annual  meeting  of  stockholders  to be  held  in  1999,  2000  and  2001,
respectively.  Officers  serve at the  discretion  of the  Board  of  Directors.
Directors who are employees  receive no additional  compensation  for serving as
members  of  the  Board.  Messrs.  Lee,  Desai,  Smith  and  Kaplan  receive  no
compensation for serving as directors of the Holding  Company.  For serving as a
director of the Holding  Company,  Mr.  Matthews and Ms.  Merriman  each receive
aggregate  compensation  at the rate of  $20,000  per year.  Ms.  Merriman  also
receives a fee of $1,000 for each regular and special meeting attended and a fee
of $500 for each committee  meeting  attended.  In addition,  effective March 1,
1999, Mr.  Matthews was granted  options under the 1997 Plan to purchase  20,000
shares of Common  Stock of the  Holding  Company  at a price of $8.50 per share,
vesting 20% per year  commencing on the first  anniversary of the date of grant,
and Ms.  Merriman  was granted  options  under the 1997 Plan to  purchase  5,000
shares of Common  Stock of the  Holding  Company  at a price of $8.50 per share,
vesting on the first anniversary of the date of grant. See information under the
caption "Election of Directors--Directors' Compensation".  Affiliates of Messrs.
Lee and Desai receive fees  pursuant to the  Management  Agreements  (as defined
under the caption "Executive  Compensation-Compensation Committee Interlocks and
Insider Participation").  Mr. Reiner has an employment contract with Finlay, and
a company as to which Mr. Cornstein is a principal  receives  compensation  from
Finlay pursuant to a consulting  agreement.  See  information  under the caption
"Executive  Compensation-Employment  and Other  Agreements and Change of Control
Arrangements".

     The business  experience,  principal  occupations and employment of each of
the executive  officers and directors of the Holding Company and Finlay Jewelry,
together with their  periods of service as directors  and executive  officers of
the Holding Company and Finlay Jewelry, are set forth below.

     Arthur E. Reiner became Chairman of the Holding Company effective  February
1, 1999 and,  from  January  1995 to such date,  served as Vice  Chairman of the
Holding  Company.  Mr. Reiner has also served as President  and Chief  Executive
Officer of the  Holding  Company  since  January 30, 1996 and as Chairman of the
Board and Chief Executive Officer of Finlay Jewelry since January 3, 1995. Prior
to  joining  Finlay,  Mr.  Reiner  had  spent  over 30  years  with  the  Macy's
organization.  From February  1992 to October 1994,  Mr. Reiner was Chairman and
Chief  Executive  Officer of Macy's East, a subsidiary  of Macy's.  From 1988 to
1992, Mr. Reiner was Chairman and Chief Executive  Officer of Macy's  Northeast,
which was combined with Macy's Atlanta division to form Macy's East in 1992. Mr.
Reiner is also a director of Loehmann's, Inc.

     Joseph M.  Melvin was  appointed  as  Executive  Vice  President  and Chief
Operating  Officer of the Holding  Company  and  President  and Chief  Operating
Officer of Finlay Jewelry on May 1, 1997. From September 1975 to March 1997, Mr.
Melvin served in various positions with May, including, from 1990 to March 1997,
as Chairman of the Board and Chief Operating Officer of Filene's.




                                       31

<PAGE>

     Leslie A. Philip has been Executive Vice President and Chief  Merchandising
Officer of the Holding  Company and Finlay Jewelry since May 1997. From May 1995
to May 1997,  Ms. Philip was Executive  Vice  President-Merchandising  and Sales
Promotion of Finlay  Jewelry.  From 1993 to May 1995, Ms. Philip was Senior Vice
President--Advertising and Sales Promotion of Macy's, and from 1988 to 1993, Ms.
Philip  was Senior  Vice  President--Merchandise--Fine  Jewelry  at Macy's.  Ms.
Philip held various other positions at Macy's from 1970 to 1988.

     Barry D.  Scheckner  has been Senior  Vice  President  and Chief  Financial
Officer of Finlay  Jewelry  since  December  1988.  Mr.  Scheckner has also been
Senior Vice President and Chief  Financial  Officer of the Holding Company since
September  1992.  Prior to  September  1992,  he was  Treasurer  of the  Holding
Company.  From February 1983 through  December 1988, Mr.  Scheckner held various
finance and accounting positions with Finlay's predecessors.

     David B. Cornstein has been Chairman  Emeritus of the Holding Company since
his retirement from day-to-day  involvement  with the Holding Company  effective
January 31,  1999.  He served as Chairman of the Holding  Company  from May 1993
until his retirement,  and has been a director of the Holding Company and Finlay
Jewelry since their inception in December 1988. Mr.  Cornstein is a Principal of
Pinnacle  Advisors  Limited,  which has served as a  consultant  to Finlay since
February 1999.  From December 1988 to January 1996, Mr.  Cornstein was President
and Chief  Executive  Officer of the  Holding  Company.  From  December  1985 to
December  1988,  Mr.  Cornstein was  President,  Chief  Executive  Officer and a
director of a predecessor of the Holding Company. Mr. Cornstein is a director of
TeleHub- Link Corporation.

     Rohit M.  Desai has been a  director  of the  Holding  Company  and  Finlay
Jewelry since May 1993.  Mr. Desai is the founder of and, since its formation in
1984, has been Chairman and President of Desai Capital Management  Incorporated,
a specialized  equity  investment  management firm in New York which manages the
assets of various  institutional  clients,  including  Equity-Linked  Investors,
L.P.,  Equity-Linked  Investors-II  and Private  Equity  Investors III, L.P. Mr.
Desai is also the managing  general  partner of the general  partners of each of
Equity-Linked  Investors,  L.P. and Equity-Linked  Investors-II and the managing
member of the general  partner of Private  Equity  Investors III, L.P. Mr. Desai
serves  as  a  director  of  The  Rouse  Company,  Sunglass  Hut  International,
Incorporated and Independence Community Bank Corp.

     James  Martin  Kaplan has been a director  of the Holding  Company,  Finlay
Jewelry and their  predecessors  since 1985.  Mr. Kaplan is a partner of the law
firm of Tenzer Greenblatt LLP, counsel to Finlay,  which he joined in 1998. From
1977 to 1998,  Mr.  Kaplan  was a partner  with the law firm of  Zimet,  Haines,
Friedman & Kaplan, former counsel to Finlay.

     Thomas H. Lee has been a director of the Holding Company and Finlay Jewelry
since May 1993. Since 1974, Mr. Lee has been President of Thomas H. Lee Company.
He is a director of First Security  Services  Corporation,  Livent Inc.,  Miller
Import Corporation, Safelite Glass Corporation and Vail Resorts, Inc.

     Norman S.  Matthews  has been a director of the Holding  Company and Finlay
Jewelry since July 1993. Mr. Matthews has been a retail  consultant based in New
York for over six years. Prior to that time, Mr. Matthews served as President of
Federated.  He is  also a  director  of  Toys  "R"  Us,  Inc.,  The  Progressive
Corporation,  Loehmann's,  Inc., Lechters, Inc. and Eye Care Centers of America,
Inc.



                                       32

<PAGE>

     Hanne M. Merriman was elected a director of the Holding  Company and Finlay
Jewelry in December  1997.  Ms.  Merriman  is the  Principal  in Hanne  Merriman
Associates,  a retail  business  consulting  firm.  She is also a director of US
Airways Group,  Inc.,  Ameren Corp.,  Central  Illinois Public Service  Company,
State Farm Mutual Automobile  Insurance Company,  The Rouse Company,  Ann Taylor
Stores  Corporation  and T.  Rowe  Price  Mutual  Funds.  She is a member of the
National  Women's  Forum and a director of the  Children's  Hospital  Foundation
(part of the Children's National Medical Center).

     Warren C. Smith,  Jr. has served as a director  of the Holding  Company and
Finlay Jewelry since May 1993. Mr. Smith is a Managing Director of Thomas H. Lee
Company and has been  employed by Thomas H. Lee Company since 1990. In addition,
Mr. Smith is Vice President of THL Equity Trust, a general partner of THL Equity
Advisors  Limited  Partnership,  the  general  partner  of Thomas H. Lee  Equity
Partners, L.P. He is also a director of Rayovac Corporation, Eye Care Centers of
America, Inc. and Just For Feet, Inc.

















                                       33

<PAGE>

Item 11. Executive Compensation

                           Summary Compensation Table

     The following table sets forth information with respect to the compensation
in 1998, 1997 and 1996 of Finlay's Chief Executive  Officer and each of the four
other mostly highly  compensated  executive  officers of the Holding  Company or
Finlay Jewelry,  including the Holding  Company's former Chief Executive Officer
(collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>


                                                Annual Compensation                   Long Term Compensation
                                  ------------------------------------------------  -------------------------
                                                                                     Restricted    Securities
      Name and Principal                                            Other Annual      Stock       Underlying           All Other
           Position               Year     Salary      Bonuses    Compensation (1)    Awards     Options/SARs(2)   Compensation (3)
----------------------------      ----   -----------  ----------  ----------------  ----------   ------------      ----------------
<S>                               <C>    <C>          <C>         <C>                                            <C>          <C>
Arthur E. Reiner                  1998   $   750,000  $      -    $      17,642         -             -            $    428,016 (4)
  Chairman, President             1997       750,000     271,425         17,706         -            300,000             28,481
  and Chief Executive             1996       700,000     253,750         -              -             -                  27,495
  Officer of the Holding
  Company and Chairman
  and Chief Executive
  Officer of Finlay Jewelry
David B. Cornstein                1998   $   600,000  $      -    $      42,686         -             -            $     52,144
  Chairman Emeritus and           1997       600,000     137,300         42,840         -             -                  52,609
  former Chairman and             1996       600,000     137,500         42,977         -             -                  51,623
  Chief Executive Officer of
  the Holding Company
Joseph M. Melvin (5)              1998   $   367,100  $   85,000         -              -             30,000       $    387,241 (6)
  Executive Vice President        1997       263,200     120,000         -              -             50,000            154,314 (6)
  and Chief Operating             1996        -           -              -              -             -                  -
  Officer of the Holding
  Company and President
  and Chief Operating
  Officer of Finlay Jewelry
Leslie A. Philip                  1998   $   376,700  $  110,000         -              -             30,000       $      9,626
  Executive Vice President        1997       350,500     127,000         -              -             46,667             10,091
  and Chief Merchandising         1996       320,000     116,000         -              -             -                   8,730
  Officer of the Holding
  Company and
  Finlay Jewelry
Barry D. Scheckner                1998   $   311,700  $   50,000         -              -              20,000      $      8,919
  Senior Vice President           1997       300,500     109,000         -              -              13,000             9,384
  and Chief Financial             1996       300,000     109,000         -              -              -                  8,398
  Officer of the Holding
  Company and
  Finlay Jewelry
</TABLE>
____________________________
(1)  Represents tax equalization payments made in connection with life insurance
     premiums paid by Finlay on behalf of the Named Executive Officers.

(2)  See "--Option/SAR Grants in 1998".



                                       34

<PAGE>

(Footnotes continued from previous page)

(3)  Includes for each Named Executive  Officer the sum of the following amounts
     earned in 1998, 1997 and 1996 for such Named Executive Officer:
<TABLE>
<CAPTION>
                                                                       Life           Retirement         Medical
                                                                  Insurance (a)      Benefits (b)     Benefits (c)
                                                                  ---------------    -------------    --------------
<S>                                                       <C>     <C>                <C>              <C>        
    Arthur E. Reiner.................................     1998    $     20,176       $     5,200      $     2,640
                                                          1997          20,176             5,575            2,730
                                                          1996          20,176             5,375            1,944

    David B. Cornstein...............................     1998    $     44,304       $     5,200      $     2,640
                                                          1997          44,304             5,575            2,730
                                                          1996          44,304             5,375            1,944

    Joseph M. Melvin.................................     1998    $      1,079       $     5,035      $     2,640
                                                          1997             540             -                2,048
                                                          1996           -                 -                -

    Leslie A. Philip.................................     1998    $      1,786       $     5,200      $     2,640
                                                          1997           1,786             5,575            2,730
                                                          1996           1,786             5,000            1,944

    Barry D. Scheckner...............................     1998    $      1,079       $     5,200      $     2,640
                                                          1997           1,079             5,575            2,730
                                                          1996           1,079             5,375            1,944
</TABLE>

     (a) Insurance  premiums  paid by Finlay with respect to life  insurance for
     the benefit of the Named Executive Officer.

     (b) The dollar  amount of all  matching  contributions  and profit  sharing
     contributions  under  Finlay's  401(k) profit sharing plan allocated to the
     account of the Named Executive Officer.

     (c) The insurance  premiums paid in respect of the Named Executive  Officer
     under Finlay's Executive Medical Benefits Plan.

(4)  In addition  to the other  compensation  set forth in Note 3 above,  Finlay
     made a payment to Mr. Reiner in an aggregate amount of $400,000, consisting
     of (i) the  reimbursement of Mr. Reiner for the interest paid in respect of
     the loan made by the Holding  Company to him in 1995 for the purpose of his
     purchase  of  shares  of  Common  Stock  of the  Holding  Company  upon the
     commencement  of his  employment  with  Finlay and (ii) a special  bonus of
     $125,000 in connection with the 1998 Offering and the Refinancing.

(5)  Mr. Melvin  commenced  employment with Finlay on May 1, 1997 and the salary
     above for 1997 reflects only  compensation  for the period from May 1, 1997
     through  January 31, 1998. Mr.  Melvin's  annual salary for 1997 was at the
     rate of $350,000.

(6)  In addition to the other compensation set forth in Note 3 above, Mr. Melvin
     received  $378,487  and  $151,726  in  1998  and  1997,  respectively,  for
     reimbursement of relocation expenses.

     Mr. Reiner was named Chairman of the Holding Company effective  February 1,
1999 and, from January 1995 to such date, served as Vice Chairman of the Holding
Company.  Mr. Reiner has also served as President and Chief Executive Officer of
the  Holding  Company  since  January  30, 1996 and as Chairman of the Board and
Chief Executive  Officer of Finlay Jewelry since January 3, 1995. Mr.  Cornstein
retired from day-to-day  involvement with the Holding Company  effective January
31, 1999 and continues as the Chairman  Emeritus of the Holding Company and is a
Principal of Pinnacle  Advisors  Limited,  which has served as a  consultant  of
Finlay  since  February  1999.  For a  discussion  of the  employment  and other
arrangements  with Messrs.  Reiner and Cornstein,  see  "--Employment  and Other
Agreements and Change of Control Arrangements".



                                       35

<PAGE>

Long-Term Incentive Plans

     The Holding Company currently has two long-term  incentive plans, for which
it has  reserved a total of  1,582,596  shares of Common  Stock for  issuance in
connection with awards. Of this total,  732,596 shares of Common Stock have been
reserved for issuance under the Holding  Company's Long Term Incentive Plan (the
"1993  Plan"),  of which  153,744  shares have been issued to date in connection
with  exercises of options  granted  under the 1993 Plan and 564,918  shares are
reserved  for  issuance  upon  exercise of currently  outstanding  options.  The
remaining  13,934  shares of Common Stock are  available for future grants under
the  1993  Plan.  In  1997,  the  Holding   Company's  Board  of  Directors  and
stockholders  approved the Holding  Company's 1997 Long Term Incentive Plan (the
"1997 Plan" and, together with the 1993 Plan, the "Incentive  Plans"),  which is
intended as a successor  to the 1993 Plan.  The 1997 Plan is similar to the 1993
Plan and  provides  for the grant of the same  types of awards as are  currently
available  under the 1993 Plan.  The  maximum  number of shares of Common  Stock
available  for  issuance  under the 1997 Plan is 850,000.  Of this total,  2,600
shares have been issued to date in connection  with exercises of options granted
under the 1997 Plan and 567,582  shares are reserved for issuance  upon exercise
of currently  outstanding  options. The remaining 279,818 shares of Common Stock
are available for future grants under the 1997 Plan. See "--Option/SAR Grants in
1998".

     The Incentive Plans permit the Holding Company to grant to key employees of
the Holding Company and its subsidiaries,  consultants and certain other persons
and  directors of the Holding  Company  (other  than,  in the case of 1993 Plan,
members  of  the  Compensation  Committee  of the  Holding  Company's  Board  of
Directors),  the following: (i) stock options; (ii) stock appreciation rights in
tandem with stock  options;  (iii) limited stock  appreciation  rights in tandem
with stock options;  (iv)  restricted or  nonrestricted  stock awards subject to
such terms and conditions as the  Compensation  Committee shall  determine;  (v)
performance  units which are based upon attainment of performance goals during a
period of not less than two nor more than five years and which may be settled in
cash or in Common Stock in the discretion of the Holding Company's  Compensation
Committee;  or (vi) any  combination of the  foregoing.  The 1997 Plan provides,
however, that no participant may be granted,  during any fiscal year, options or
other awards relating to more than 175,000 shares of Common Stock.

     Under the  Incentive  Plans,  the Holding  Company may grant stock  options
which are either  "incentive  stock options"  ("Incentive  Options")  within the
meaning  of  Section  422  of  the  Code,   or   non-incentive   stock   options
("Non-incentive   Options").   Incentive  Options  are  designed  to  result  in
beneficial  tax treatment to the optionee,  but no tax deduction for the Holding
Company.  Nonincentive  Options  will not give the  optionee the tax benefits of
Incentive  Options,  but  generally  will  entitle the Holding  Company to a tax
deduction when and to the extent income is recognized by the optionee.

     The Incentive Plans are administered by the  Compensation  Committee of the
Holding  Company's Board of Directors  which,  pursuant to the Incentive  Plans,
consists of at least two  directors.  Subject to the provisions of the Incentive
Plans,  the  Compensation  Committee  has  sole  discretion  (i) to  select  the
individuals to participate  in the Incentive  Plans,  (ii) to determine the form
and substance of grants made under the Incentive Plans to each participant,  and
the conditions and restrictions, if any, subject to which grants are made, (iii)
to interpret the Incentive  Plans and (iv) to adopt,  amend or rescind rules and
regulations for carrying out the Incentive Plans as it may deem appropriate.

     The Incentive  Plans provide that the per share exercise price of an option
granted under the plans shall be determined by the Compensation  Committee.  The
exercise price of an Incentive Option may not, however, be less than 100% of the
fair market  value of the Common Stock on the date the option is granted and the
duration of an Incentive Option may not exceed ten years from the date of grant.
In addition, an Incentive Option that is granted to an employee who, at the time
the option is granted, owns stock possessing more than 10% of the total combined
voting power of all classes of capital stock of the


                                       36

<PAGE>

"employer corporation" (as used in the Code) or any parent or subsidiary thereof
shall have a per share  exercise price which is at least 110% of the fair market
value of the Common  Stock on the date the option is granted and the duration of
any such  option  may not  exceed  five  years  from the date of grant.  Options
granted under the Incentive  Plans become  exercisable  at such time or times as
the  Compensation  Committee  may  determine  at the time the option is granted.
Options are  nontransferable  (except by will or  intestacy  on the death of the
optionee)  and  during a  participant's  lifetime  are  exercisable  only by the
participant.

     In making  grants to  employees  under the  Incentive  Plans,  the  Holding
Company has on occasion  utilized a uniform  Agreement and Certificate of Option
(the  "Option  Agreement"),  under which the  Holding  Company  grants  ten-year
options,  subject to various vesting periods of up to five years.  Other vesting
schedules  have also been  utilized  by Finlay.  The Option  Agreement  contains
transfer and certain other restrictions and provides that options not vested may
expire,  or shares acquired upon exercise of options may be repurchased at their
exercise  price,  in the  event  of  termination  of  employment  under  certain
circumstances.  In  addition,  the  Option  Agreement  provides  that  (i) if an
optionee's  employment  is  terminated  for  "Cause"  (as  defined in the Option
Agreement),  such  optionee's  options will  terminate  immediately,  (ii) if an
optionee's  employment is terminated due to death,  "Disability" or "Retirement"
(each as defined in the Incentive Plans),  such optionee's  options become fully
vested and  exercisable  for a period of 21 days following such  termination and
(iii) if an  optionee's  employment is  terminated  for any other  reason,  such
optionee's  options  remain  exercisable to the extent vested for a period of 21
days following such termination.

     The Incentive  Plans may be amended or terminated by the Board at any time,
but no such  termination or amendment may, without the consent of a participant,
adversely  affect the  participant's  rights with respect to previously  granted
awards. Under the 1993 Plan, the approval of the Holding Company's  stockholders
is  required  for any  amendment  (i) to increase  the maximum  number of shares
subject  to awards  under the 1993  Plan,  (ii) to change  the class of  persons
eligible to participate  and/or receive  incentive  stock options under the 1993
Plan, (iii) to change the requirements for serving on the Compensation Committee
or (iv) to increase  materially the benefits accruing to participants  under the
1993  Plan.  Under  the  1997  Plan,  the  approval  of  the  Holding  Company's
stockholders  is required to amend the 1997 Plan if the  Compensation  Committee
determines  that such approval would be necessary to retain the benefits of Rule
16b-3 under the Exchange Act (with  respect to  participants  who are subject to
Section  16  thereof),  Section  162(m) of the Code (with  respect  to  "covered
employees"  within the meaning of Section  162(m) of the Code) or Section 422 of
the Code (with  respect to Incentive  Options),  or if  stockholder  approval is
otherwise  required  by federal or state law or  regulation  or the rules of any
exchange or  automated  quotation  system on which the Common  Stock may then be
listed or quoted,  or if the Board of Directors  otherwise  determines to submit
the proposed amendment for stockholder approval.

     Subject to certain  limitations  set forth in the Incentive  Plans,  if the
Compensation  Committee  determines  that  any  corporate  transaction  or event
affects the shares of Common Stock (or other  securities or property  subject to
an award under the Incentive Plans) such that an adjustment is determined by the
Compensation  Committee  to be  appropriate  in order  to  prevent  dilution  or
enlargement of the benefits or potential  benefits intended to be made available
under the Incentive Plans, then the Compensation Committee shall, in such manner
as it may deem equitable, adjust any or all of (i) the number and type of shares
(or other  securities  or property)  with respect to which awards may be granted
under  the  Incentive  Plans,  (ii) the  number  and type of  shares  (or  other
securities or property) subject to outstanding  awards under the Incentive Plans
or (iii) the grant or  exercise  price  with  respect  to any  awards  under the
Incentive Plans or, if deemed appropriate,  make provision for a cash payment to
the holder of an outstanding award in consideration for the cancellation of such
award  (which,  in the  case  of an  option,  will  be  equal  to  the  positive
difference, if any, between the Market Value (as defined in the Incentive Plans)
of the shares covered by such option,  as determined  immediately  prior to such
corporate  transaction  or  event,  and the


                                       37

<PAGE>



exercise price per share of such option).

Option/SAR Grants in 1998

     In 1998, the Holding Company granted options to purchase a total of 201,067
shares of Common Stock, of which options to purchase  30,000,  30,000 and 20,000
shares were granted to Mr. Melvin,  Ms. Philip and Mr. Scheckner,  respectively,
at  exercise  prices  ranging  from $8.25 to  $24.3125  per share.  All of these
options were granted  under the 1997 Plan.  The 10,000  options  granted in June
1998 to each of Mr.  Melvin and Mr.  Scheckner  vest and become  exercisable  in
equal  installments on each of the five  anniversaries of the date of grant. The
balance of the options  granted to Mr. Melvin,  Ms. Philip and Mr.  Scheckner in
December  1998 vest and became  exercisable  50% on  December 1, 2000 and 50% on
December 1, 2001.

     The following table provides  information related to the options granted to
the Named  Executive  Officers  during 1998. No stock  appreciation  rights were
issued by the Holding Company in 1998.

<TABLE>
<CAPTION>                                                                                      
                                                          Individual Grants                            Potential Realizable Value
                           --------------------------------------------------------------------------    at Assumed Annual Rates
                             Number of     % of Total                                                         of Stock Price
                            Securities     Options/SARs                                                        Appreciation
                            Underlying      Granted to                                                     for Option Term ($)
                            Options/SARs   Employees in  Exercise or Base Price                         ------------------------ 
Name                        Granted (#)     Fiscal Year         ($/share)         Expiration Date(s)         5%          10%
------------------------   ------------    ------------  ----------------------  --------------------    ---------    ---------
<S>     <C>    <C>    <C>    <C>    <C>    <C>
Arthur E. Reiner........        -              -                  -                        -                -            -
David B. Cornstein......        -              -                  -                        -                -            -
Joseph M. Melvin........       30,000          14.9          8.25 & 24.3125        6/22/08 & 12/1/08      256,668      650,446
Leslie A. Philip........       30,000          14.9               8.25                 12/1/08            155,651      394,451
Barry D. Scheckner......       20,000           9.9          8.25 & 24.3125        6/22/08 & 12/1/08      204,784      518,962
</TABLE>

Certain Information Concerning Stock Options/SARs

     The following  table sets forth certain  information  with respect to stock
options  exercised  in 1998 as well as the value of stock  options at the fiscal
year end. No stock appreciation rights were exercised during 1998.

Aggregated Option/SAR Exercises in 1998 and Fiscal Year-End Option SAR Value
<TABLE>
<CAPTION>
                                                                 Number of
                                                                 Securities           Value of
                                                                 Underlying          Unexercised
                                                                 Unexercised        In-the-Money
                                                                Options/SARs       Options/SARs at
                                    Shares                      at Year-End         Year-End ($)
                                   Acquired       Value         Exercisable/        Exercisable/
               Name               on Exercise    Realized       Unexercisable     Unexercisable (1)
--------------------------------  -----------  ------------  ------------------  -------------------
<S>                                                           <C>      <C>                    
Arthur E. Reiner................       -            -         34,632 / 334,631           - / -
David B. Cornstein..............       -            -         53,333 /  13,333           - / -
Joseph M. Melvin................       -            -         10,000 /  70,000           - /$55,000
Leslie A. Philip................       -            -         29,333 /  80,667           - / 82,500
Barry D. Scheckner..............     18,200    $   253,573     6,880 /  29,920   $   9,048 / 27,500
</TABLE>

(1) The values of Unexercised In-the-Money  Options/SARs represent the aggregate
amount of the excess of $11.00, the closing price for a share of Common Stock at
year end, over the relevant exercise price of all "in-the-money" options.




                                       38

<PAGE>

Compensation Committee Interlocks and Insider Participation

     The Board of  Directors of each of the Holding  Company and Finlay  Jewelry
have established a Compensation  Committee (the "Compensation  Committee").  The
Compensation  Committee is presently  comprised of Rohit M. Desai, Thomas H. Lee
and Norman S. Matthews.  All decisions  with respect to executive  compensation,
and all benefit  plans  involving  employees,  of both the  Holding  Company and
Finlay Jewelry are currently  made by the  Compensation  Committee.  None of the
present Compensation Committee members were, at any time, an officer or employee
of the Holding Company or any of its subsidiaries.

     In connection with the 1993 Recapitalization,  the Holding Company, the Lee
Investors,  the Desai Investors,  the Management  Stockholders and certain other
stockholders  entered into (i) the Registration  Rights Agreement,  which grants
certain  registration  rights to the Lee Investors,  the Desai Investors and the
Management  Stockholders  and (ii) the  Stockholders'  Agreement,  which granted
certain rights to, and imposed  certain  restrictions  on the rights of, the Lee
Investors,  the Desai Investors,  the Management  Stockholders and certain other
stockholders. See "Certain Transactions".

     In  connection  with the 1993  Recapitalization,  the  Holding  Company and
Finlay Jewelry  entered into  management  agreements  with each of Thomas H. Lee
Company  (the  "Lee  Management   Agreement")   and  Desai  Capital   Management
Incorporated  (the  "Desai  Management  Agreement"  and,  together  with the Lee
Management Agreement,  the "Management  Agreements"),  affiliates of Mr. Lee and
Mr. Desai,  respectively.  Pursuant to the Management Agreements,  Thomas H. Lee
Capital LLC (as assignee of Thomas H. Lee Company) and Desai Capital  Management
Incorporated  were  entitled  to  receive  $180,000  and  $60,000  per year plus
expenses,  respectively,  during the five-year  period  commencing  May 1993 for
consulting and management  advisory services rendered to the Holding Company and
Finlay Jewelry.  Pursuant to the terms of the Management  Agreements,  each such
Management  Agreement was  automatically  renewed through May 2000.  Thereafter,
each of the Management  Agreements will be automatically  renewable on an annual
basis,  unless any party thereto  serves notice of  termination at least 90 days
prior to the renewal date. Each of the Management Agreements contains provisions
entitling the managing company to  indemnification  under certain  circumstances
for losses  incurred in the course of service to the  Holding  Company or Finlay
Jewelry.

     Any future  transactions  between the Holding Company and/or Finlay Jewelry
and the  officers,  directors  and  affiliates  thereof will be on terms no less
favorable to the Holding  Company and Finlay  Jewelry than can be obtained  from
unaffiliated third parties, and any material transactions with such persons will
be approved by a majority of the disinterested  directors of the Holding Company
or Finlay Jewelry, as the case may be.

Employment and Other Agreements and Change of Control Arrangements

     Effective January 3, 1995, Finlay entered into an employment agreement with
Arthur E. Reiner to employ Mr.  Reiner as Vice  Chairman of the Holding  Company
and Chairman and Chief Executive Officer of Finlay Jewelry. On January 30, 1996,
the Holding  Company's Board of Directors  appointed Mr. Reiner to the office of
President and Chief Executive  Officer of the Holding Company and on February 1,
1999,  Mr.  Reiner  became  Chairman  of the  Holding  Company.  The  employment
agreement,  as amended,  provides for Mr. Reiner to serve for a term expiring on
January 31, 2001. Pursuant to the employment  agreement,  Mr. Reiner received an
annual base salary of  approximately  $666,660 in 1995,  which was  increased to
$700,000  on the first day of fiscal  1996 and to  $750,000  on the first day of
fiscal 1997. Thereafter, further increases are at the discretion of the Board of
Directors of the Holding  Company.  In addition to his annual base  salary,  Mr.
Reiner is entitled to an annual bonus payment based on a target incentive amount
equal to  one-half of his base salary for the  applicable  year (the  "Incentive


                                       39

<PAGE>

Amount"). The payment of the bonus in respect of a particular year will be based
on the achievement by Finlay of certain financial  performance criteria based on
EBITA-FIFO (the "Target Level"), with 20% of the Incentive Amount payable if 90%
of the Target Level is achieved, increasing incrementally on a pro rata basis to
80% of the  Incentive  Amount  payable if 100% of the Target  Level is achieved,
increasing  further  incrementally  on a pro rata basis to 160% of the Incentive
Amount payable if 140% of the Target Level is achieved,  and if over 140% of the
Target  Level is  achieved,  the annual  bonus  payment  shall equal 160% of the
Incentive  Amount plus 1% of the Incentive  Amount for each percentage  point by
which  Finlay's  measured   performance   exceeds  140%  of  the  Target  Level.
Notwithstanding  the foregoing,  with respect to 1996 and 1997,  pursuant to the
terms of his employment agreement, Mr. Reiner received bonuses in the amounts of
$253,750 and  $271,425,  respectively.  No bonus was paid to Mr.  Reiner in 1998
pursuant to the terms of his employment agreement.

     Under the agreement,  Mr. Reiner received in January 1995 options under the
1993 Plan to purchase  69,263  shares of Common  Stock at an  exercise  price of
$14.00 per  share.  Of those  options,  one-half  are  time-based  and  one-half
performance-accelerated,  vesting in ten years  subject to  accelerated  vesting
upon achievement of specified performance goals. Of the time-based options, one-
third  became  exercisable  on each of February 3, 1996,  February 1, 1997,  and
January 31, 1998. One-third of the performance-accelerated options will vest for
each fiscal year  commencing  with 1995 for which  EBITA-FIFO in the  applicable
year  equals or exceeds  certain  specified  target  levels in that year and any
subsequent  year.  To date,  none of the  performance-accelerated  options  have
vested.

     In the  event of Mr.  Reiner's  termination  of  employment  either  by the
Holding Company for "Cause" (as defined in the agreement), by Mr. Reiner for any
reason (other than "Good Reason", as defined in the agreement) or as a result of
Mr. Reiner's death or Disability (as defined in the agreement), all the options,
to the  extent  not  then  exercisable,  shall  terminate.  In the  event of Mr.
Reiner's termination of employment either by the Holding Company without "Cause"
or by Mr.  Reiner for "Good  Reason",  all the  options,  to the extent not then
exercisable,  shall  thereupon  become  fully  exercisable.  In the event of Mr.
Reiner's  termination  of employment  for any reason after January 31, 1998, all
performance-accelerated  options,  to the  extent  not then  exercisable,  shall
terminate. In addition, in the event of a "Change of Control" (as defined in the
agreement),  (i) any outstanding time-based options shall become exercisable and
(ii)  the  performance-accelerated  options  will  vest  to the  extent  (a) the
"Enterprise  Value" of the Holding Company (as defined in the agreement) exceeds
certain  established  "Enterprise Value" targets set forth in the agreement with
respect to the fiscal year in which the  "Change of  Control"  occurs or (b) the
"Change of Control"  represents a per share of Common Stock transaction price in
excess of 130% of the fair  market  value per share of Common  Stock  determined
immediately prior to the public announcement of such "Change of Control".

     Upon the  commencement  of his  employment,  Mr. Reiner  purchased  138,525
shares of Common Stock (the "Purchased Shares") at a purchase price of $7.23 per
share. The aggregate purchase price of the Purchased Shares was paid in the form
of a note issued by Mr.  Reiner to the Holding  Company,  the repayment of which
was secured by the Purchased Shares and certain proceeds  received by Mr. Reiner
upon  disposition of the Purchased  Shares or upon any  distribution  paid on or
with respect to the Purchased  Shares. On April 24, 1998, in connection with the
sale by Mr.  Reiner of 100,000 of the  Purchased  Shares,  Mr. Reiner repaid the
outstanding balance of the note. Mr. Reiner was subsequently  reimbursed for the
interest  paid by him in  respect  of  such  note.  In the  event  Mr.  Reiner's
employment is terminated,  the remaining  Purchased Shares (together with vested
options and shares issued upon exercise of vested options ("Option Shares")) are
subject to certain call rights and the Option Shares are additionally subject to
certain put rights.  In the event the Holding Company does not exercise its call
rights,  the  rights  may be  exercised  by the  Lee  Investors  and  the  Desai
Investors,  pro rata based on their  respective  ownership of Common Stock.  The
Purchased  Shares and  Option  Shares are  subject  to certain  restrictions  on
transfer and  registration  rights set forth in the agreement and are subject to
the


                                       40

<PAGE>

Stockholders'  Agreement and the Registration  Rights Agreement,  other than the
provisions   thereof   relating  to  restrictions  on  transfer.   See  "Certain
Transactions   --   Stockholders'   Agreement"  and  "Certain   Transactions  --
Registration Rights Agreement".

     Under Mr. Reiner's  agreement,  subject to certain  specified  limitations,
Finlay is required to maintain  life  insurance on the life of Mr. Reiner in the
amount of $5.0 million, payable to his beneficiaries,  and to provide Mr. Reiner
with catastrophic health insurance. In addition, Finlay is required to reimburse
Mr.  Reiner for any income taxes owed by him as a result of the premiums paid by
Finlay  with  respect to such life  insurance.  The  employment  agreement  also
provides for Mr.  Reiner to receive an annual  allowance  for business use of an
automobile of up to $15,000.

     Mr. Reiner's  agreement provides that if his employment is terminated prior
to a "Change of Control" either by the Holding Company without "Cause" or by Mr.
Reiner for "Good  Reason",  Mr.  Reiner will continue to receive his base salary
for the balance of the term and bonus compensation (calculated as though 110% of
the Target Level were achieved) as if such termination had not occurred.  In the
event he is  terminated  without  "Cause"  and  coincident  with or  following a
"Change of Control", Mr. Reiner shall be entitled to a lump sum payment equal to
299% of his "base amount" (as defined in Section 280G(b)(3) of the Code). In the
event that Mr. Reiner  voluntarily  terminates  his  employment  within one year
following a "Change of Control" in  connection  with which the  acquirer did not
expressly  assume Mr.  Reiner's  agreement and extend its term for an additional
three years or otherwise  offer Mr. Reiner a contract on terms no less favorable
than those  provided  under the existing  agreement  providing  for a term of at
least three years,  or if he terminates  his  employment  following a "Change of
Control" for "Good  Reason",  he will be entitled to a payment  equal to 299% of
the "base amount".  In the event that Mr. Reiner is terminated for "Cause" or if
he  voluntarily  terminates  his  employment  without "Good Reason" prior to the
occurrence  of a "Change of  Control",  he shall be entitled to receive his base
salary  through the date of  termination  and any bonus earned with respect to a
previously  completed  fiscal year which  remains  unpaid.  Payments made to Mr.
Reiner upon termination of employment are subject to certain restrictions in the
event  that  such  payments  constitute   "parachute   payments"  under  Section
280G(b)(2) of the Code. In addition,  Mr. Reiner is required to mitigate certain
payments made to him under the agreement under certain limited circumstances.

     Under Mr.  Reiner's  agreement,  a "Change of  Control"  occurs  when (i) a
person  or  group  other  than  certain  of  the  Holding   Company's   existing
stockholders  and certain related parties becomes the beneficial owner of 50% or
more of the  aggregate  voting  power of the  Holding  Company,  (ii) during any
period of two  consecutive  calendar  years,  there are  certain  changes in the
composition of the Holding Company's Board of Directors or (iii) there is a sale
of all or substantially all of the Holding Company's assets.

     A portion of any payments  which may be made upon a "Change of Control" may
be deemed an "excess parachute payment" within the meaning of the Code, in which
event the portion  will not be a  deductible  expense for tax  purposes  for the
Holding Company.

     On March 5,  1997,  Mr.  Reiner  received  options  under  the 1993 Plan to
purchase an aggregate of 139,719  shares of Common Stock at an exercise price of
$14.00 per share. Such options vest and become exercisable on January 2, 2001 so
long as Mr.  Reiner  remains  employed  by the  Holding  Company  on such  date;
provided,  however,  that such  options are  subject to early  vesting and early
termination under certain  circumstances and are subject to various  conditions.
The Holding Company has also granted to Mr. Reiner an additional 160,281 options
under the 1997 Plan,  which options have an exercise  price of $13.875 per share
and  are  subject  to  similar  terms  and  conditions   regarding  vesting  and
termination.




                                       41

<PAGE>

     Effective May 26, 1993, Mr. Cornstein entered into an employment  agreement
with Finlay  providing  for his  employment  as  President  and Chief  Executive
Officer,  and his  appointment as Chairman of the Board of the Holding  Company.
Under his employment  agreement,  Mr. Cornstein was entitled to an annual salary
of $600,000 plus bonus.

     Under Mr. Cornstein's employment agreement, Finlay was required to maintain
insurance on the life of Mr. Cornstein,  payable to his  beneficiaries,  and Mr.
Cornstein was entitled to reimbursement for income tax liability  resulting from
Finlay's payment of premiums.

     On January 30, 1996, Mr. Reiner was appointed President and Chief Executive
Officer of the  Holding  Company.  On  February  1, 1999,  Mr.  Reiner was named
Chairman of the Holding Company and Mr.  Cornstein  became Chairman  Emeritus of
the Holding  Company  following the  expiration of the term of his employment on
January 31, 1999. On February 1, 1999, Finlay and Pinnacle  Advisors Limited,  a
company as to which Mr.  Cornstein is a principal  ("Pinnacle"),  entered into a
two year consulting  agreement pursuant to which Pinnacle was engaged to provide
consulting  services and it was agreed that, if available,  Mr.  Cornstein  will
attempt to act for  Pinnacle  in the  performance  of services  thereunder.  The
consulting  agreement  provides that Pinnacle shall receive  compensation in the
amount of $225,000 per year and be reimbursed for expenses.

     On March 30, 1995, Mr. Cornstein  received an option under the 1993 Plan to
purchase an aggregate of 66,667  shares of Common Stock at an exercise  price of
$14.00 per share.  Twenty  percent of these options vested  immediately,  and an
additional  twenty  percent  of the  options  vest  on each  of the  first  four
anniversaries of the grant date.

     On May 1,  1997,  the  Holding  Company  appointed  Mr.  Melvin to serve as
Executive Vice President and Chief Operating  Officer of the Holding Company and
President and Chief Operating Officer of Finlay Jewelry. The Holding Company has
agreed to pay to Mr.  Melvin an annual  base  salary of  $350,000  as well as an
annual bonus based on the  achievement  of certain  targets.  In  addition,  Mr.
Melvin was paid a $25,000  bonus upon his joining the  Holding  Company  and, in
July 1997, received from Finlay a $295,000  non-interest-bearing loan, which was
repaid in full on July 16, 1998.  On May 1, 1997,  Finlay  granted to Mr. Melvin
options  under the 1997 Plan to  purchase  50,000  shares of Common  Stock at an
exercise price per share equal to $14.875.  The options granted in May 1997 vest
in equal  installments on each of the first five anniversaries of the respective
grant dates.  The options  will be subject to early  termination  under  certain
circumstances  and will be  subject to various  conditions.  Mr.  Melvin is also
eligible for benefits that are  available to other senior  executives of Finlay,
including  reimbursement  of moving and  relocation  expenses.  If Mr.  Melvin's
employment  is  terminated  by Finlay  without  cause  (not  including  death or
disability) or his title is changed to a lesser title, he is entitled to receive
a lump sum payment equal to one year's base salary. On February 22, 1999, Finlay
agreed with Mr.  Melvin that in the event he  continues to be employed by Finlay
or an  affiliate on February 1, 2001,  Finlay shall pay to Mr.  Melvin a special
bonus of $125,000 and in the event he continues to be so employed on February 1,
2002, Finlay shall pay to him an additional special bonus of $75,000.

     On February 22, 1999,  Finlay agreed with Ms. Leslie Philip,  the Executive
Vice President and Chief Merchandising Officer of the Holding Company and Finlay
Jewelry,  that in the  event  she  continues  to be  employed  by  Finlay  or an
affiliate on February 1, 2001, Finlay shall pay to Ms. Philip a special bonus of
$200,000  and in the event she  continues to be so employed on February 1, 2002,
Finlay shall pay to her an additional special bonus of $150,000.




                                       42

<PAGE>

Directors' Compensation

     Directors who are employees receive no additional  compensation for serving
as  members of the  Board.  Messrs.  Lee,  Desai,  Smith and  Kaplan  receive no
compensation for serving as directors of the Holding  Company.  For a discussion
of certain fees paid to affiliates of Messrs.  Lee and Desai, see  "Compensation
Committee  Interlocks and Insider  Participation".  For serving as a director of
the Holding  Company,  Mr.  Matthews and Ms.  Merriman each  receives  aggregate
compensation  at the rate of $20,000 per year. Ms.  Merriman also receives a fee
of $1,000 for each  regular and special  meeting  attended and a fee of $500 for
each committee meeting attended. Mr. Matthews was granted,  effective as of July
1993,  options  under the 1993 Plan to purchase  33,333  shares of Common Stock,
16,667 of which have an  exercise  price of $12.00 per share and 16,666 of which
have an exercise price of $16.50 per share. Twenty percent of these options vest
on each of the first five  anniversaries  of the grant date,  with the  unvested
portion of the options fully vesting on a "Change of Control" (as defined in the
consulting  agreement).  On March 30, 1995, Mr. Matthews was granted  additional
options under the 1993 Plan to purchase 16,667 shares of Common Stock at a price
of $14.00. Twenty percent of these options vested immediately, and an additional
twenty  percent of the options vest on each of the first four  anniversaries  of
the grant date. On January 30, 1996, Mr. Matthews was granted additional options
under  the 1993 Plan to  purchase  10,000  shares of Common  Stock at a price of
$11.16 per share,  which options vested and became  exercisable in January 1997.
In addition, on March 6, 1997, Mr. Matthews was granted an option under the 1997
Plan to purchase  20,000 shares of Common Stock at an exercise  price of $13.875
per share,  twenty  percent of which options will vest on each of the first five
anniversaries  of the grant date.  In  addition,  effective  March 1, 1999,  Mr.
Matthews was granted  options  under the 1997 Plan to purchase  20,000 shares of
Common Stock at a price of $8.50 per share,  vesting 20% per year  commencing on
the first  anniversary of the date of grant.  All of Mr.  Matthews'  options are
subject to early  termination  under  certain  circumstances  and are subject to
various conditions.  Ms. Merriman was granted, effective as of December 3, 1997,
options under the 1997 Plan to purchase  5,000 shares of Common Stock at a price
of $21.3125.  All of these  options vest on the first  anniversary  of the grant
date. On March 1, 1999, Ms.  Merriman was granted options under the 1997 Plan to
purchase 5,000 shares of Common Stock at a price of $8.50 per share,  vesting on
the  first  anniversary  of the date of  grant.  Mr.  Reiner  has an  employment
contract  with  Finlay,  and a company as to which Mr.  Cornstein is a principal
receives  compensation  from Finlay  pursuant  to a  consulting  agreement.  See
information  under the  caption  "Executive  Compensation--Employment  and Other
Agreements and Change of Control Arrangements".

Item 12.  Security Ownership of Certain Beneficial Owners and Management

     The following  table sets forth  information  as to each person who, to the
knowledge of the Holding Company, as of April 26, 1999, was the beneficial owner
of more  than 5% of the  issued  and  outstanding  Common  Stock of the  Holding
Company.
<TABLE>
<CAPTION>
                                                                                  Shares of Common Stock
                                                                                  Beneficially owned (1)
                                                                            -----------------------------------
                                                                              Number of            Percentage
                                   Name                                        Shares               of Class
    -------------------------------------------------------------------     --------------        -------------

<S>              <C>                                                             <C>                   <C> 
    Thomas H. Lee(2)...............................................              984,340               9.5%
    Becker Capital Management, Inc.(3).............................              853,600               8.2%
    Mellon Bank Corporation(4).....................................              748,320               7.2%
    Rohit M. Desai(5)..............................................              704,412               6.8%
    David B. Cornstein(6)..........................................              635,439               6.1%
    FMR  Corp(7)...................................................              565,000               5.4%
    Neuberger Berman, LLC(8).......................................              534,400               5.1%
</TABLE>


                                       43
<PAGE>
______________________________
(1)  Except as noted below, each beneficial owner has sole voting power and sole
     investment power, subject (in the case of Messrs. Lee, Desai and Cornstein)
     to the terms of the Stockholders' Agreement.
(2)  Includes  884,455  shares of Common  Stock  held of record by Thomas H. Lee
     Equity Partners, L.P. ("THLEP"), the general partner of which is THL Equity
     Advisors Limited Partnership,  a Massachusetts limited partnership of which
     Mr. Lee is a general  partner,  and 99,885  shares of Common  Stock held of
     record by 1989  Thomas H. Lee  Nominee  Trust (the  "Nominee  Trust"),  979
     shares of which are subject to options granted to others. Mr. Lee's address
     is c/o Thomas H. Lee Company,  L.L.C.,  590 Madison  Avenue,  New York, New
     York 10022.
(3)  According  to a  Schedule  13G  dated  February  10,  1999  filed  with the
     Commission  by Becker  Capital  Management,  Inc., a registered  investment
     advisor  ("Becker"),  the  indicated  number of shares is owned by advisory
     clients of Becker;  Becker has sole  voting  and  dispositive  powers  with
     respect to all of such shares, but disclaims  beneficial ownership thereof.
     The address for Becker  Capital  Management,  Inc. is 1211 SW Fifth Avenue,
     Suite 2185, Portland, Oregon 97204.
(4)  According  to a  Schedule  13G  dated  February  4,  1999  filed  with  the
     Commission by Mellon Bank Corporation  ("Mellon Bank"), (i) Mellon Bank has
     sole  power to vote  679,920  shares  and sole  power to dispose of 685,120
     shares,  and shares  power to vote no shares and shares power to dispose of
     63,200 shares, and (ii) each of Boston Group Holdings,  Inc. and The Boston
     Company,  Inc.  has sole  power to vote  494,250  shares  and sole power to
     dispose  of 499,450  shares  and shares  power to vote no shares and shares
     power to dispose of 63,200 shares.  According to such Schedule 13G,  Boston
     Group Holdings,  Inc. is a subsidiary of Mellon Bank and is also the parent
     holding company of The Boston  Company,  Inc. All of the shares reported in
     the  Schedule  13G are  beneficially  owned by  Mellon  Bank and  direct or
     indirect subsidiaries, including Boston Group Holdings, Inc. and The Boston
     Company,  Inc.,  in their  various  fiduciary  capacities.  The address for
     Mellon Bank Corporation is One Mellon Bank Center, Pittsburgh, Pennsylvania
     15258.
(5)  Includes  704,412  shares of Common  Stock held of record by  Equity-Linked
     Investors-II  ("ELI-II").  ELI-II is a  limited  partnership,  the  general
     partner of which is Rohit M. Desai Associates-II. As general partner, Rohit
     M.  Desai  Associates-II  has  the  power  to vote  and  dispose  of  these
     securities.  Rohit M.  Desai is the  managing  general  partner of Rohit M.
     Desai  Associates-II.  Mr. Desai is also the sole stockholder,  chairman of
     the board and president of Desai Capital Management  Incorporated ("DCMI"),
     which  acts as an  investment  advisor  to  ELI-II.  Under  the  investment
     advisory agreements between DCMI and ELI-II,  decisions as to the voting or
     disposition  of these  securities  may be made by DCMI.  DCMI and Mr. Desai
     disclaim beneficial  ownership of the securities.  The address of Mr. Desai
     and  ELI-II is c/o  Desai  Capital  Management  Incorporated,  540  Madison
     Avenue, New York, New York 10022.
(6)  Includes  options to acquire  66,667 shares of Common Stock granted in 1995
     having an exercise price of $14.00 per share.  The address of Mr. Cornstein
     is in care of the Holding  Company,  529 Fifth Avenue,  New York,  New York
     10017.
(7)  These shares represent  shares reported as beneficially  owned by FMR Corp.
     in a joint filing on a Schedule  13G dated  February 1, 1999 filed with the
     Commission  by FMR  Corp.,  Edward C.  Johnson 3d and  Abigail P.  Johnson.
     According to said Schedule 13G,  members of the Edward C. Johnson 3d family
     and trusts for their benefit are the  predominant  owners of Class B shares
     of common stock of FMR Corp., representing  approximately 49% of the voting
     power of FMR Corp. Mr. Johnson 3d owns 12.0% and Abigail Johnson owns 24.5%
     of the aggregate  outstanding  voting stock of FMR Corp.  Mr. Johnson 3d is
     Chairman of FMR Corp. and Abigail P. Johnson is a Director of FMR Corp. The
     Johnson family group and all other Class B shareholders have entered into a
     shareholders' voting agreement under which all Class B shares will be voted
     in  accordance  with  the  majority  vote of Class B  shares.  Accordingly,
     through  their  ownership of voting  common stock and the  execution of the
     shareholders'  voting  agreement,  members  of the  Johnson  family  may be
     deemed,  under the  Investment  Company Act of 1940,  to form a controlling
     group with  respect to FMR Corp.  The  Schedule  13G  further  states  that
     Fidelity  Management  &  Research  Company  ("Fidelity"),   a  wholly-owned
     subsidiary  of  FMR  Corp.  and a  registered  investment  adviser,  is the
     beneficial  owner  of the  565,000  shares  which  are the  subject  of the
     Schedule  13G as a result of its acting as  investment  adviser to Fidelity
     Low-Priced Stock Fund (the "Fund"),  a registered  investment company which
     owns all of such 565,000  shares.  Edward C. Johnson 3d, as Chairman of FMR
     Corp.,  FMR Corp.,  through its control of Fidelity,  and the Fund each has
     sole power to dispose of the 565,000 shares owned by the Fund.  Neither FMR
     Corp.  nor  Edward C.  Johnson  3d has the sole power to vote or direct the
     voting of the shares owned  directly by the Fund,  which power resides with
     the Fund's Board of Trustees. Fidelity carries out the voting of the shares
     under
                                       44

<PAGE>

     written guidelines established by the Fund's Board of Trustees. The address
     for FMR  Corp.,  Fidelity  and the Fund is 82  Devonshire  Street,  Boston,
     Massachusetts 02109.
(8)  According  to a  Schedule  13G  dated  February  10,  1999  filed  with the
     Commission by Neuberger Berman, LLC ("Neuberger Berman"),  Neuberger Berman
     is deemed to be a beneficial  owner of the indicated number of shares since
     it has shared power to make decisions  whether to retain or dispose of, and
     in some cases the sole power to vote,  such shares,  which are held by many
     unrelated  clients.  Neuberger Berman does not, however,  have any economic
     interest in the  securities  of those  clients.  The clients are the actual
     owners of the  securities  and have the sole right to receive and the power
     to direct the receipt of dividends  from or proceeds  from the sale of such
     securities. Neuberger Berman has sole power to vote or direct the voting of
     414,500  shares,  shared power to vote or direct the voting of none of such
     shares,  sole power to dispose of or direct the disposition of none of such
     shares, and shared power to dispose of or direct the disposition of 534,400
     shares.  Principal(s)  of Neuberger  Berman own 17,200  shares in their own
     personal  securities   accounts.   Neuberger  Berman  disclaims  beneficial
     ownership  of these  shares  since these  shares were  purchased  with each
     principal(s)'  personal funds and each principal has exclusive  dispositive
     and voting  power over the shares held in their  respective  accounts.  The
     address of Neuberger  Berman,  LLC is 605 Third Avenue,  New York, New York
     10158-3698.
 
     The  following  table  sets  forth  certain  information  with  respect  to
beneficial  ownership  of the Common  Stock as of April 26,  1999 by each of the
Holding  Company's  directors  (other than  Messrs.  Lee,  Desai and  Cornstein,
information  with  respect  to each of whom is  presented  above),  the  Holding
Company's  Chief  Executive  Officer  and each of the  four  other  most  highly
compensated  executive officers of the Holding Company or Finlay Jewelry, and by
all directors and executive officers as a group. The Holding Company owns all of
the issued and outstanding capital stock of Finlay Jewelry.
<TABLE>
<CAPTION>
                                                                                  Shares of Common Stock
                                                                                  Beneficially owned (1)
                                                                            -----------------------------------
                                                                              Number of            Percentage
                                   Name                                        Shares               of Class
    -------------------------------------------------------------------     --------------        -------------
<S>                 <C>                                                           <C>                   
    Arthur E. Reiner(2)(3).........................................               79,279               *
    Norman S. Matthews(4)..........................................               68,000               *
    Leslie A. Philip(2)(5).........................................               41,333               *
    Joseph M. Melvin(2)(6).........................................               22,000               *
    Warren C. Smith, Jr.(7)........................................               12,590               *
    Barry D. Scheckner(2)(8).......................................               11,760               *
    Hanne M. Merriman(9)...........................................                5,000               *
    James Martin Kaplan(2).........................................                4,000               *
    All directors and executive officers
    as a group (11 persons)(10)....................................            2,568,153              24.1%
</TABLE>
    __________________
    *Less than one percent.

(1)  The persons named in the table have sole voting and  investment  power with
     respect  to  all  shares  of  Common  Stock  subject  to the  terms  of the
     Stockholders' Agreement.
 
(2)  The address of Messrs.  Reiner, Kaplan, Melvin and Scheckner and Ms. Philip
     is in care of the Holding  Company,  529 Fifth Avenue,  New York,  New York
     10017.

(3)  Includes  options to acquire  34,632 shares of Common Stock granted in 1995
     having an exercise price of $14.00 per share. In accordance with applicable
     Commission  rules,  does not include  334,631 shares subject to options not
     exercisable within 60 days.
 
(4)  Includes  options to acquire  16,666 shares of Common Stock granted in 1993
     having an  exercise  price of $12.00 per share,  options to acquire  16,667
     shares of Common Stock  granted in 1993 having an exercise  price of $16.50
     per share, options to acquire 16,667 shares of Common Stock granted in 1995
     having an  exercise  price of $14.00 per share,  options to acquire  10,000
     shares of Common Stock  granted in 1996 having an exercise  price of $11.16
     per share and options to acquire  8,000 shares of


                                       45

<PAGE>

     Common Stock granted in 1997 having an exercise price of $13.875 per share.
     Mr. Matthews' address is 650 Madison Avenue, New York, New York 10022.

(5)  Includes  options to acquire  26,666 shares of Common Stock granted in 1995
     having an  exercise  price of $11.19 per share,  options to acquire  10,667
     shares of Common Stock granted in 1997 having and exercise price of $13.875
     per share  and 4,000  shares of  Common  Stock  granted  in 1998  having an
     exercise price of $23.1875 per share.

(6)  Includes  options to acquire  20,000 shares of Common Stock granted in 1997
     having an exercise  price of $14.875  per share and 2,000  shares of Common
     Stock granted in 1998 having an exercise price of $24.3125 per share.

(7)  Mr. Smith's address is c/o Thomas H. Lee Company, 75 State Street,  Boston,
     Massachusetts 02109.

(8)  Includes  options to acquire  2,400 shares of Common Stock  granted in 1993
     having an  exercise  price of $7.23 per share,  options  to  acquire  3,200
     shares of Common Stock  granted in 1995 having an exercise  price of $14.00
     per share,  options to acquire 4,160 shares of Common Stock granted in 1997
     having an exercise  price of $13.875  per share and 2,000  shares of Common
     Stock granted in 1998 having an exercise price of $24.3125 per share.

(9)  Includes  options to acquire  5,000 shares of Common Stock  granted in 1997
     having an exercise price of $21.3125 per share. Ms.  Merriman's  address is
     c/o Hanne Merriman Associates, 3201 New Mexico Avenue, N.W., Washington, DC
     20016.

(10) Includes  options to acquire  249,392 shares having exercise prices ranging
     from $7.23 to $24.3125 per share.

Item 13. Certain Relationships and Related Transactions

                              CERTAIN TRANSACTIONS

The 1993 Recapitalization

     In  connection  with the 1993  Recapitalization,  the Lee Investors and the
Desai Investors  invested in units consisting of the Holding  Company's Series C
Preferred Stock and Common Stock.  Concurrently,  certain other existing classes
of preferred  stock and all  outstanding  warrants to purchase Common Stock were
redeemed.  These equity related  transactions  resulted in the Lee Investors and
the  Desai   Investors   obtaining   beneficial   ownership   of  52.6%  of  the
then-outstanding Common Stock.

     The 1993  Recapitalization also included the public issuance by the Holding
Company of units  consisting of the Old Debentures and Common Stock,  the public
issuance by Finlay  Jewelry of the Old Notes and the  refinancing of the Holding
Company's  outstanding term loans and revolving  indebtedness with the Revolving
Credit  Agreement.  In  connection  with  the  1993  Recapitalization,   certain
executive  officers  and  directors  of the Holding  Company and Finlay  Jewelry
entered into new employment  agreements with Finlay. Also in connection with the
1993 Recapitalization,  Finlay entered into the Lee Management Agreement with an
affiliate  of the Lee  Investors  and the  Desai  Management  Agreement  with an
affiliate of the Desai Investors. In July 1993, Finlay entered into a consulting
agreement with Norman Matthews,  which was terminated,  in part, upon completion
of the Initial Public Offering.  See "Employment and Other Agreements and Change
of  Control  Arrangements",   "Compensation  Committee  Interlocks  and  Insider
Participation"  and  "Directors'  Compensation"  under  the  caption  "Executive
Compensation".

The Initial Public Offering, Series C Exchange and Stockholder Purchase

     In April 1995, the Holding Company  completed the Initial Public  Offering,
in which 2,615,000  shares of Common Stock were sold to the public at a price of
$14.00  per  share,  2,500,000  of which were sold by the  Holding  Company  and
115,000 of which were sold by certain non-management  selling stockholders.  The
Holding  Company  used  the net  proceeds  of the  Initial  Public  Offering  to
repurchase a portion of the 


                                       46

<PAGE>

Old  Debentures and the balance  thereof to reduce a portion of the  outstanding
balance under,  and accrued  interest on, the Revolving  Credit Agreement and to
pay  transaction  costs.  As  part  of the  Initial  Public  Offering,  the  Lee
Investors,  the Desai  Investors and the  Management  Stockholders  purchased an
aggregate of 208,163 shares of Common Stock from the underwriters of the Initial
Public  Offering  at the  initial  public  offering  price of $14.00  per share.
Immediately  prior to completion of the Initial Public Offering,  the holders of
the Holding Company's Series C Preferred Stock exchanged all outstanding  shares
of Series C Preferred  Stock with the Holding  Company for  2,581,784  shares of
Common  Stock  (the  "Series C  Exchange").  For the  purposes  of the  Series C
Exchange,  the  outstanding  Series C  Preferred  Stock  was (i)  valued  at its
liquidation  value of $30,000,000 plus $6,145,000 of accrued  dividends  through
April 13, 1995, paid in kind at a quarterly rate of 2.5%, and (ii) exchanged for
Common Stock at the price of the Initial Public Offering. In connection with the
Series C Exchange, a $10,000,000 non-recurring, non-cash charge representing the
difference  between the liquidation value and the carrying value of the Series C
Preferred Stock was recorded.

Stockholders' Agreement

     Prior to completion of the Initial Public Offering, the Lee Investors,  the
Desai Investors, the Management  Stockholders,  all employees holding options to
purchase Common Stock, certain private investors and the Holding Company entered
into an amended  Stockholders'  Agreement,  which sets forth certain  rights and
obligations  of the  parties  with  respect  to the Common  Stock and  corporate
governance  of the Holding  Company.  Any employees of Finlay not parties to the
Stockholders'  Agreement who have received or in the future  receive  options to
purchase  Common  Stock in  connection  with  their  employment  have  also been
required or will also be required,  as the case may be, to become parties to the
Stockholders' Agreement.

     The Stockholders' Agreement, as amended, provides that the stockholders who
are parties  thereto  must vote their shares to fix the number of members of the
Board of Directors  of the Holding  Company at eight and to vote in favor of six
directors who are  nominated as follows:  two by the Lee  Investors;  one by the
Desai Investors; two by Mr. Cornstein (one of whom must be a management employee
of the Holding Company); and one by Mr. Reiner.

     Notwithstanding  the foregoing,  the right of various  persons to designate
directors  will be  reduced  or  eliminated  at such  time as they own less than
certain specified  percentages of the shares of Common Stock then outstanding or
in certain cases are no longer an employee of the Holding Company. The designees
of the Lee Investors currently serving on the Board of Directors are Messrs. Lee
and Smith;  the designee of the Desai  Investors is Mr. Desai;  the designees of
Mr.  Cornstein  are  Messrs.  Cornstein  and Kaplan;  and Mr.  Reiner is his own
designee. The Stockholders'  Agreement also provides for the Executive Committee
to  consist  of five  directors,  including  one  director  not a  party  to the
Stockholders'  Agreement  selected  by  the  Board  of  Directors,   one  member
designated by Mr. Lee (so long as the Lee Investors  have the right to designate
a nominee for director),  one member  designated by the Desai Investors (so long
as the Desai  Investors  have the right to designate a nominee for director) and
two members  designated by Mr. Cornstein (which number will be reduced to one if
Mr. Cornstein is only entitled to designate one nominee for director and none if
Mr.  Cornstein  ceases to have the right to  designate a nominee for  director).
When a  stockholder  or group of  stockholders  loses the right to  designate  a
director,  such  director  is to be  designated  instead  by a  majority  of the
directors  of the  Holding  Company.  The  Executive  Committee  of the  Holding
Company's Board consists at present of Messrs. Lee, Desai, Matthews,  Cornstein,
Kaplan and Reiner.

     In addition, the Stockholders'  Agreement provides that the parties thereto
have (i) certain "come along" rights  allowing  them to  participate  in private
sales of Common Stock by parties  selling at least a majority of the outstanding
shares of Common Stock and (ii) certain "take along" rights allowing parties 


                                       47

<PAGE>

who are selling at least a majority of the outstanding shares of Common Stock to
require  the  other  parties  to the  Stockholders'  Agreement  to sell all or a
portion  of their  shares  of  Common  Stock to the same  purchaser  in the same
transaction on the same terms.

Registration Rights Agreement

     The Registration Rights Agreement grants certain registration rights to the
Lee Investors,  the Desai Investors,  certain other investors and the Management
Stockholders.  Lee Investors and Desai  Investors who together hold at least 31%
of the  outstanding  "Registrable  Securities"  (as defined in the  Registration
Rights Agreement) are entitled to request jointly, and the Holding Company shall
be obligated to effect, up to three  registrations of "Registrable  Securities".
The Lee Investors and the Desai Investors also may demand  registration  without
the other under certain  circumstances.  The Registration  Rights Agreement also
provides that stockholders who are parties thereto (other than the Lee Investors
and  the  Desai  Investors)  holding  in  the  aggregate  at  least  20%  of the
"Registrable Securities" then outstanding will have the right on one occasion to
require the Holding Company to file a registration statement with the Commission
covering  all  or  a  portion  of  their  "Registrable  Securities"  in  certain
circumstances.  In addition,  under the Registration  Rights  Agreement,  if the
Holding Company proposes to register shares of Common Stock under the Securities
Act,  either for its own  account or for the  account  of others  (other  than a
registration  statement  relating solely to employee  benefit plans),  then each
party to the  Registration  Rights  Agreement  will have the  right,  subject to
certain  restrictions  and  priorities,  to  request  that the  Holding  Company
register its shares of Common Stock in connection with such registration.  Under
the Registration Rights Agreement, the holders of "Registrable  Securities",  on
the one hand,  and the Holding  Company,  on the other,  agree to indemnify each
other for certain liabilities,  including  liabilities under the Securities Act,
in connection with any registration of shares subject to the Registration Rights
Agreement.

The 1997 Offering

     On October 21, 1997, the Holding  Company  completed a public offering (the
"1997  Offering")  of 3,450,000  shares of Common Stock at a price of $19.00 per
share, of which 2,196,971 shares were issued and sold by the Holding Company and
1,253,029 shares were sold by certain  non-management  selling stockholders.  In
connection with the 1997 Offering,  Messrs. Lee, Desai and Matthews sold 410,325
shares, 953,029 shares and 5,722 shares, respectively.

The 1998 Offering

     On April  24,  1998,  the  Holding  Company  completed  the  1998  Offering
involving the sale of 1,800,000  shares of Common Stock at a price of $27.50 per
share,  of which 567,310  shares were sold by the Holding  Company and 1,232,690
shares were sold by certain  selling  stockholders.  In connection with the 1998
Offering,  Messrs.  Lee,  Reiner,  Smith and Scheckner  sold  1,071,921  shares,
100,000 shares, 13,055 shares and 20,200 shares,  respectively. A portion of the
proceeds  received by Mr. Reiner from the sale of such shares was used by him to
repay the  outstanding  balance of a note  issued by Mr.  Reiner to the  Holding
Company (the  "Receivable  Repayment").  See  "Executive  Compensation - Summary
Compensation  Table" and "-Employment and Other Agreements and Change of Control
Arrangements."

     Concurrently  with the 1998  Offering,  (i) the Holding  Company sold $75.0
million  aggregate  principal amount of its 9% Senior Debentures due May 1, 2008
(the "Senior  Debenture  Offering"),  (ii) Finlay  Jewelry  sold $150.0  million
aggregate  principal  amount  of its  8-3/8%  Senior  Notes due May 1, 2008 (the
"Senior Note  Offering") and (ii) the Revolving  Credit  Facility was amended to
increase  the line of credit  thereunder  to $275.0  million and to make certain
other changes.  The net proceeds to the Holding  Company from the 1998 Offering,
the Senior Debenture  Offering,  the Receivable  Payment and the repayment of an
intercompany liability by Finlay Jewelry (the "Intercompany Repayment") was used
by


                                       48

<PAGE>

the Holding Company to redeem its Old Debentures, including associated premiums.
In addition, on May 1, 1998, the Holding Company used a portion of such proceeds
to prepay the original issue discount of  $39,027,292 on the Old  Debentures.  A
portion of the net proceeds to Finlay  Jewelry from the Senior Note Offering was
used by Finlay  Jewelry to make the  Intercompany  Repayment  and an  additional
portion  of such  proceeds  was used by Finlay  Jewelry to redeem its Old Notes,
together with associated premiums.

Certain Other Transactions

     Prior to completion of the Initial  Public  Offering,  Finlay  entered into
indemnification agreements with each of Finlay's directors and certain executive
officers.  The  indemnification  agreements  require,  among other things,  that
Finlay   indemnify  its  directors  and  executive   officers   against  certain
liabilities and associated  expenses arising from their service as directors and
executive  officers  of Finlay and  reimburse  certain  related  legal and other
expenses.  In the event of a Change of Control (as defined therein) Finlay will,
upon request by an indemnitee under the agreements,  create and fund a trust for
the benefit of such  indemnitee  sufficient  to satisfy  reasonably  anticipated
claims for  indemnification.  Finlay will also cover each  director  and certain
executive officers under a directors and officers liability policy maintained by
Finlay in such amounts as the Board of Directors  of the Holding  Company  finds
reasonable.  Although the  indemnification  agreements offer coverage similar to
the provisions in the Holding  Company's  Restated  Certificate of Incorporation
and the Delaware  General  Corporation  Law, they provide  greater  assurance to
directors  and  officers  that  indemnification  will be available  because,  as
contracts,  they cannot be modified  unilaterally  in the future by the Board of
Directors or by the stockholders to eliminate the rights they provide.

     For  information  relating  to certain  transactions  involving  members of
management or others,  see "--  Compensation  Committee  Interlocks  and Insider
Participation"  and "--  Employment  and Other  Agreements and Change of Control
Arrangements" under the caption "Executive Compensation".















                                       49

<PAGE>
                                     PART IV
                                     -------

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

   (a) Documents filed as part of this report:

    (1) Financial Statements.

     See  Financial  Statements Index included in Item 8 of Part II of this Form
          10-K.

    (2) Financial Statement Schedules.

    None.

    (3) Exhibits.

    (Exhibit Number referenced to Item 601 of Regulation S-K).

Item
Number 
------

3.1  - Certificate of Incorporation, as amended, of Finlay Jewelry (incorporated
     by   reference  to  Exhibit  3.1  of  Form  S-1   Registration   Statement,
     Registration No. 33-59580).

3.2  - By-laws of Finlay Jewelry (incorporated by reference to Exhibit 4.1 filed
     as part of the Current  Report on Form 8-K filed by the  Registrant on June
     10, 1993).

4.1  - Article Fourth of the Restated  Certificate of Incorporation and Articles
     II and VI of the Bylaws  (incorporated  by reference to Exhibit 4.1 of Form
     S-1 Registration Statement, Registration No. 33-59380).

4.2  -  Specimen  10  5/8%  Senior  Note  Due  2003  issued  by  Finlay  Jewelry
     (incorporated  by  reference  to Exhibit  4.2 filed as part of the  Current
     Report on Form 8-K filed by the Registrant on June 10, 1993).

4.3(a) - Indenture  dated as of May 26, 1993 between  Finlay  Jewelry and Marine
     Midland  Bank,  as Trustee,  relating to the 10 5/8% Senior  Notes Due 2005
     issued by Finlay  Jewelry  (and  redeemed  in May  1998)  (incorporated  by
     reference  to Exhibit 4.3 filed as part of the  Current  Report on Form 8-K
     filed by the Company on June 10, 1993).

4.3(b) - First Supplemental  Indenture dated as of October 28, 1994 among Finlay
     Jewelry, Sonab Holdings, Inc. ("Sonab Holdings"), Sonab International, Inc.
     ("Sonab International"),  Sonab and Marine Midland Bank, as Trustee, to the
     indenture  relating  to the 10 5/8%  Senior  Notes  due 2003  issued by the
     Company (and  redeemed in May 1998)  (incorporated  by reference to Exhibit
     4.1 filed as part of the Quarterly Report on Form 10-Q for the period ended
     October 29, 1994 filed by Finlay Jewelry on December 13, 1994).






                                       50

<PAGE>

Item
Number 
------

4.3(c) - Second  Supplemental  Indenture  dated as of July 14, 1995 among Finlay
     Jewelry,  Sonab  Holdings,  Sonab  International,  Sonab and Marine Midland
     Bank, as Trustee, to the indenture relating to the 10 5/8% Senior Notes due
     2003 issued by the Company  (and  redeemed  in May 1998)  (incorporated  by
     reference to Exhibit 4.1 filed as part of the Quarterly Report on Form 10-Q
     for the period ended July 29, 1995 filed by Finlay  Jewelry on September 9,
     1995).

4.4  - Indenture  dated as of April 24, 1998 between  Finlay  Jewelry and Marine
     Midland Bank, as Trustee,  relating to Finlay Jewelry's 8-3/8% Senior Notes
     due May 1, 2008 issued by Finlay  Jewelry  (including  form of Senior Note)
     (incorporated  by  reference  to Exhibit  4.1 filed as part of the  Current
     Report on Form 8-K filed by Finlay Jewelry on May 11, 1998).

4.5  - Stock  Purchase  Agreement  dated as of May 26,  1993  among the  Holding
     Company, Finlay Jewelry, THL Equity Holding Corp., Equity-Linked Investors,
     L.P. and Equity-Linked  Investors-II  (incorporated by reference to Exhibit
     4.4 filed as part of the Current Report on Form 8-K filed by the Company on
     June 10, 1993).

4.6  - Amended and Restated  Stockholders'  Agreement  dated as of March 6, 1995
     among the Holding Company, David B. Cornstein,  Arthur E. Reiner, Robert S.
     Lowenstein, Norman S. Matthews, Ronald B. Grudberg, Harold S. Geneen, James
     Martin Kaplan,  Electra Investment Trust, PLC, RHI Holdings,  Inc., Jeffrey
     Branman,   The  Lee  Holders   listed  on  the   signature   page  thereto,
     Equity-Linked Investors, L.P., Equity-Linked Investors-II and certain other
     security holders (incorporated by reference to Exhibit 4.9 filed as part of
     the Annual  Report on Form 10-K for the period ended January 28, 1995 filed
     by the Company on April 12, 1995).

4.7  - Omnibus  Amendment to  Registration  Rights and  Stockholders'  Agreement
     (incorporated  by reference to Exhibit 10.10 filed as part of the Quarterly
     Report on Form 10-Q for the period  ended  November 1, 1997 filed by Finlay
     Jewelry on December 16, 1997).

4.8  - Registration Rights Agreement dated as of May 26, 1993 among the Company,
     David B.  Cornstein,  Harold  S.  Geneen,  Ronald  B.  Grudberg,  Robert S.
     Lowenstein, John C. Belknap, James Martin Kaplan, Electra Investment Trust,
     PLC, RHI Holdings,  Inc.,  Jeffrey Branman,  Andrew U. Belknap,  Timothy H.
     Belknap,  THL Equity  Holding  Corp.,  Equity-Linked  Investors,  L.P.  and
     Equity-Linked  Investors-II (incorporated by reference to Exhibit 4.6 filed
     as part of the Current  Report on Form 8-K filed by the Company on June 10,
     1993).

10.1 - Underwriting Agreement relating to the offering of Senior Notes by Finlay
     Jewelry  dated  April 20,  1998 by and among the  Holding  Company,  Finlay
     Jewelry  and  Goldman,  Sachs & Co. on  behalf of each of the  Underwriters
     (incorporated  by  reference  to Exhibit  1.1 filed as part of the  Current
     Report on Form 8-K filed by Finlay Jewelry on May 11, 1998).

10.2 - Form of Agreement  and  Certificate  of Option  Pursuant to the Long Term
     Incentive Plan of the Holding Company (incorporated by reference to Exhibit
     10.1  filed as part of the  Quarterly  Report on Form  10-Q for the  period
     ended July 31, 1993 filed by Finlay Jewelry on September 14, 1993).





                                       51

<PAGE>

Item
Number
------

10.3 -  The  Holding   Company's   Restated   Retirement  Income  Plan  (401(k))
     (incorporated  by reference to Exhibit 10.6 filed as part of the  Quarterly
     Report on Form 10-Q for the period ended July 29,  filed by Finlay  Jewelry
     on September 9, 1995).

10.3(a) - Amendment No. 1 to the Holding  Company's  Restated  Retirement Income
     Plan (401(k))  (incorporated  by reference to Exhibit 10.7 filed as part of
     the Quarterly  Report on Form 10-Q for the period ended July 29, 1995 filed
     by Finlay Jewelry on September 9, 1995).

10.3(b) -  Amendment  No. 2 to the  Holding  Company's  Retirement  Income  Plan
     (incorporated  by reference to Exhibit 10.1 filed as part of the  Quarterly
     Report  on Form  10-Q for the  period  ended  May 4,  1996  filed by Finlay
     Jewelry on June 14, 1996).

10.3(c) -  Amendment  No. 3 to the  Holding  Company's  Retirement  Income  Plan
     (401(k))  (incorporated  by reference to Exhibit 10.11 filed as part of the
     Quarterly  Report on Form 10-Q for the period ended  November 1, 1997 filed
     by Finlay Jewelry on December 16, 1997).

10.4 - Executive Medical Benefits Plan of Finlay Jewelry and the Holding Company
     (incorporated  by  reference  to  Exhibit  10.3  of Form  S-1  Registration
     Statement, Registration No. 33-59380).

10.5(a) -  Employment  Agreement  dated  as of May 26,  1993  between  David  B.
     Cornstein  and Finlay  Jewelry  (incorporated  by reference to Exhibit 19.2
     filed as part of the Quarterly Report on Form 10-Q for the period ended May
     1, 1993 filed by Finlay Jewelry on June 30, 1993).

10.5(b) -  Amendment  to  Employment  Agreement  dated as of  December  20, 1995
     between David B. Cornstein and Finlay Jewelry (incorporated by reference to
     Exhibit  10.1  filed as part of the  Quarterly  Report on Form 10-Q for the
     period ended April 29, 1995 filed by Finlay Jewelry on June 3, 1995).

10.5(c) - Amendment to  Employment  Agreement  between  David B.  Cornstein  and
     Finlay Jewelry  (incorporated by reference to Exhibit 10.9 filed as part of
     the  Quarterly  Report on Form 10-Q for the period  ended  November 1, 1997
     filed by Finlay Jewelry on December 16, 1997).

10.5(d) - Letter  Agreement  dated February 1, 1999 by and among Finlay Jewelry,
     the Holding Company and David B. Cornstein.

10.5(e) - Consulting  Agreement dated February 1, 1999 among Finlay Jewelry, the
     Holding Company and Pinnacle Advisors Limited.

10.6(a) -  Employment  Agreement  dated as of January 3, 1995 among the  Holding
     Company,  Finlay Jewelry and Arthur E. Reiner (incorporated by reference to
     Exhibit  10.7(a)  of Form  S-1  Registration  Statement,  Registration  No.
     33-88938).

10.6(b) - Executive  Securities  Purchase  Agreement dated as of January 3, 1995
     between the Holding Company and Arthur E. Reiner (incorporated by reference
     to Exhibit 10.7(b) of Form S-1  Registration  Statement,  Registration  No.
     33-88938).



                                       52

<PAGE>

Item
Number
------

10.6(c) - Limited Recourse  Secured  Promissory Note dated as of January 3, 1995
     by Arthur E. Reiner in favor of the Holding Company (and satisfied in April
     1998)   (incorporated   by  reference  to  Exhibit   10.7(c)  of  Form  S-1
     Registration Statement, Registration No. 33-88938).

10.6(d) - Stock Pledge Agreement dated as of January 3, 1995 between the Holding
     Company and Arthur E. Reiner (and  terminated in April 1998)  (incorporated
     by  reference  to  Exhibit  10.7(d)  of Form  S-1  Registration  Statement,
     Registration No. 33-88938).

10.6(e) - Amendment to Employment  Agreement  dated as of May 17, 1995 among the
     Holding  Company,  Finlay  Jewelry  and Arthur E. Reiner  (incorporated  by
     reference  to Exhibit  10.8(e)  filed as part of the Annual  Report on Form
     10-K for the period ended  February 1, 1997 filed by Finlay  Jewelry on May
     1, 1997).

10.6(f) -  Amendment  No. 2 to  Employment  Agreement  dated as of March 5, 1997
     among  the   Holding   Company,   Finlay   Jewelry  and  Arthur  E.  Reiner
     (incorporated  by  reference  to Exhibit 10 filed as part of the  Quarterly
     Report  on Form  10-Q for the  period  ended  May 3,  1997  filed by Finlay
     Jewelry on June 17, 1997).

10.6(g) - Amendment No. 3 to Employment  Agreement  dated July 1, 1997 among the
     Holding  Company,  Finlay  Jewelry  and Arthur E. Reiner  (incorporated  by
     reference  to Exhibit  10.6(g)  filed as part of the Annual  Report on Form
     10-K for the period  ended  January 31,  1998,  filed by Finlay  Jewelry on
     March 24, 1998).

10.7(a) -  Consulting  and  Option  Agreement  dated  as of July 7,  1993 by and
     between Finlay Jewelry and Norman S. Matthews (incorporated by reference to
     Exhibit  10.00  filed as part of the  Annual  Report  on Form  10-K for the
     period ended January 29, 1994 filed by Finlay Jewelry on April 27, 1994).

10.7(b) - Amendment to Consulting and Option Agreement dated as of March 6, 1995
     between Norman S. Matthews and Finlay Jewelry (incorporated by reference to
     Exhibit  10.2  filed as part of the  Quarterly  Report on Form 10-Q for the
     period ended April 29, 1995 filed by Finlay Jewelry on June 3, 1995).

10.8 - Employment  Agreement dated as of April 18, 1997 between Joseph M. Melvin
     and Finlay Jewelry (incorporated by reference to Exhibit 10.8 filed as part
     of the Annual  Report on Form 10-K for the period  ended  January 31, 1998,
     filed by Finlay Jewelry on March 24, 1998).

10.9 - Tax Allocation Agreement dated as of November 1, 1992 between the Holding
     Company and Finlay Jewelry (incorporated by reference to Exhibit 19.5 filed
     as part of the  Quarterly  Report on Form 10-Q for the period  ended May 1,
     1993 filed by the Company on June 30, 1993).

10.10- Management  Agreement dated as of May 26, 1993 among the Holding Company,
     Finlay  Jewelry and Thomas H. Lee Company  (incorporated  by  reference  to
     Exhibit  28.2  filed as part of the  Current  Report  on Form 8-K  filed by
     Finlay Jewelry on June 10, 1993).




                                       53

<PAGE>

Item
Number
------

10.11- Management  Agreement dated as of May 26, 1993 among the Holding Company,
     Finlay Jewelry and Desai Capital Management  Incorporated  (incorporated by
     reference to Exhibit  28.1 filed as part of the Current  Report on Form 8-K
     filed by the Company on June 10, 1993).

10.12(a) - Long Term Incentive Plan of the Company (incorporated by reference to
     Exhibit  19.5  filed as part of the  Quarterly  Report on Form 10-Q for the
     period ended May 1, 1993 filed by Finlay Jewelry on June 30, 1993).

10.12(b) - Amendment No. 1 to the Holding  Company's  Long Term  Incentive  Plan
     (incorporated by reference to Exhibit 10.14(b) of the Form S-1 Registration
     Statement, Registration No. 33-88938).

10.13- 1997 Long Term  Incentive  Plan  (incorporated  by  reference  to Exhibit
     10.13 filed as part of the Annual  Report on Form 10-K for the period ended
     January 31, 1998, filed by Finlay Jewelry on March 24, 1998).

10.14(a) - Amended  and  Restated  Credit  Agreement  dated as of March 28, 1995
     among GE Capital,  individually  and its capacity as agent,  certain  other
     lenders and financial institutions,  the Holding Company and Finlay Jewelry
     (the "Amended and Restated Credit Agreement") (incorporated by reference to
     Exhibit  10.15  filed as part of the  Annual  Report  on Form  10-K for the
     period ended January 28, 1995 filed by the Company on April 12, 1995).

10.14(b) -  Amendment  No. 1,  dated as of June 15,  1995,  to the  Amended  and
     Restated Credit Agreement  (incorporated by reference to Exhibit 10.4 filed
     as part of the Quarterly  Report on Form 10-Q for the period ended July 29,
     1995 filed by Finlay Jewelry on September 9, 1995).

10.14(c) - Amendment No. 2 to the Amended and Restated Credit Agreement dated as
     of February 1, (incorporated by reference to Exhibit 10.15(c) filed as part
     of the Annual  Report on Form 10-K for the period  ended  February  3, 1996
     filed by Finlay Jewelry on May 3, 1996).

10.14(d) - Amendment No. 3 to the Amended and Restated Credit Agreement dated as
     of January 31, 1997  (incorporated  by  reference  to Exhibit 10.1 filed as
     part of the  Quarterly  Report on Form 10-Q for the period  ended August 2,
     1997 filed by Finlay Jewelry on September 16, 1997).

10.15(a) - Amended and Restated Revolving Note dated as of March 28, 1995 by the
     Holding  Company  and  Finlay  Jewelry  to the order of GE  Capital  in the
     principal  amount of  $98,000,000  (incorporated  by  reference  to Exhibit
     10.16(a)  filed as part of the  Annual  Report on Form 10-K for the  period
     ended January 28, 1995 filed by Finlay Jewelry on April 12, 1995).

10.15(b) - Amended and Restated Revolving Note dated as of March 28, 1995 by the
     Holding  Company  and Finlay  Jewelry  to the order of Shawmut  Bank in the
     principal  amount of  $37,000,000  (incorporated  by  reference  to Exhibit
     10.16(b)  filed as part of the  Annual  Report on Form 10-K for the  period
     ended January 28, 1995 filed by the Company on April 12, 1995).

10.16- Security  Agreement  dated as of May 26, 1993 by Finlay  Jewelry in favor
     of GE Capital, as agent (incorporated by reference to Exhibit 19.9 filed as
     part of the Quarterly  Report on Form 10-Q for the period ended May 1, 1993
     filed by Finlay Jewelry on June 30, 1993). 


                                       54

<PAGE>

Item 
Number
------

10.17- Security  Agreement  and  Mortgage--Trademarks,  Patents and  Copyrights,
     dated as of May 26, 1993 by Finlay Jewelry in favor of GE Capital, as agent
     (incorporated  by reference to Exhibit 19.10 filed as part of the Quarterly
     Report  on Form  10-Q for the  period  ended  May 1,  1993  filed by Finlay
     Jewelry on June 30, 1993).

10.18- Assignment of Life Insurance  Policy as Collateral  dated May 26, 1993 by
     the Holding Company to GE Capital, as agent (upon the life of each David B.
     Cornstein,  Ronald B. Grudberg and Robert S.  Lowenstein)  (incorporated by
     reference to Exhibit  19.11 filed as part of the  Quarterly  Report on Form
     10-Q for the period  ended May 1, 1993 filed by Finlay  Jewelry on June 30,
     1993).

10.19- Assignment of Business Interruption  Insurance Policy as Collateral dated
     February 28, 1994 by Finlay Jewelry to GE Capital,  as agent  (incorporated
     by  reference  to Exhibit  10.M filed as part of the Annual  Report on Form
     10-K for the period ended January 29, 1994 filed by Finlay Jewelry on April
     27, 1994).

10.20(a) -  Guarantee  dated as of May 26,  1993 by Finlay  Jewelry,  Inc. to GE
     Capital, as agent (incorporated by reference to Exhibit 19.13 filed as part
     of the Quarterly Report on Form 10-Q for the period ended May 1, 1993 filed
     by Finlay Jewelry on June 30, 1993).

10.20(b) - Guarantee  dated as of October 28, 1994 by Sonab Holdings in favor of
     GE Capital  (incorporated by reference to Exhibit 10.5 filed as part of the
     Quarterly  Report on Form 10-Q for the period ended  October 29, 1994 filed
     by Finlay Jewelry on December 13, 1994).

10.20(c) -  Guarantee  dated as of October 28,  1994 by Sonab  International  in
     favor of GE Capital  (incorporated  by  reference  to Exhibit 10.6 filed as
     part of the Quarterly  Report on Form 10-Q for the period ended October 29,
     1994 filed by Finlay Jewelry on December 13, 1994).

10.20(d) -  Guarantee  dated  as of  October  28,  1994 by  Sonab in favor of GE
     Capital  (incorporated  by  reference  to Exhibit 10.7 filed as part of the
     Quarterly  Report on Form 10-Q for the period ended  October 29, 1994 filed
     by Finlay Jewelry on December 13, 1994).

10.21(a) - Pledge  Agreement  dated as of May 26,  1993 by Finlay  Jewelry to GE
     Capital, as agent (incorporated by reference to Exhibit 19.14 filed as part
     of the Quarterly  Report on Form 10-Q for the period ended October 29, 1994
     filed by Finlay Jewelry on December 13, 1994).

10.21(b) - Amendment Agreement dated October 28, 1994 to the Pledge Agreement by
     Finlay Jewelry in favor of GE Capital (incorporated by reference to Exhibit
     10.8  filed as part of the  Quarterly  Report on Form  10-Q for the  period
     ended October 29, 1994 filed by Finlay Jewelry on December 13, 1994).

10.22(a) - Share Pledge Agreement  (Translation) dated October 28, 1994 by Sonab
     Holdings in favor of GE Capital  (incorporated by reference to Exhibit 10.9
     filed as part of the  Quarterly  Report on Form 10-Q for the  period  ended
     October 29, 1994 filed by Finlay Jewelry on December 13, 1994).



                                       55

<PAGE>

Item
Number
------

10.22(b) - Share Pledge Agreement  (Translation) dated October 28, 1994 by Sonab
     International in favor of GE Capital  (incorporated by reference to Exhibit
     10.10  filed as part of the  Quarterly  Report on Form 10-Q for the  period
     ended October 29, 1994 filed by Finlay Jewelry on December 13, 1994).

10.23- Master  Agreement for the  Assignment of Accounts  Receivable as Security
     (Translation)  dated  October  28,  1994 by Sonab  in  favor of GE  Capital
     (incorporated  by reference to Exhibit 10.11 filed as part of the Quarterly
     Report on Form 10-Q for the period  ended  October 29, 1994 filed by Finlay
     Jewelry on December 13, 1994).

10.24- Note Pledge  Agreement  dated as of October 28, 1994 by Finlay Jewelry in
     favor of GE Capital  (incorporated  by reference to Exhibit  10.12 filed as
     part of the Quarterly  Report on Form 10-Q for the period ended October 29,
     1994 filed by Finlay Jewelry on December 13, 1994).

10.25(a) - Amended and Restated Credit  Agreement dated as of September 11, 1997
     among G. E.  Capital,  individually  and in its capacity as agent,  certain
     other lenders and financial  institutions,  the Holding  Company and Finlay
     Jewelry ("Amended  Revolving Credit Agreement")  (incorporated by reference
     to Exhibit 10.2 filed as part of the Quarterly  Report on Form 10-Q for the
     period ended August 2, 1997 filed by Finlay Jewelry on September 16, 1997).

10.25(b) -  Amendment  No.  1 dated  as of  September  11,  1997 to the  Amended
     Revolving Credit Agreement (incorporated by reference to Exhibit 10.3 filed
     as part of the Quarterly Report on Form 10-Q for the period ended August 2,
     1997 filed by Finlay Jewelry September 16, 1997).
 
10.25(c) - Amendment No. 2 dated October 6, 1997 to the Amended Revolving Credit
     Agreement (incorporated by reference to Exhibit 10.2 as part of the Current
     Report on Form 8-K filed by Finlay Jewelry on October 17, 1997).

10.25(d) - Amendment  No. 3 dated as of April 24, 1998 to the Amended  Revolving
     Credit  Agreement  (incorporated by reference to Exhibit 10.1 filed as part
     of Finlay  Jewelry's  Current  Report on Form 8-K dated April 24, 1998,  as
     filed on May 11, 1998)

10.25(e) - Amendment No. 4 dated as of October 28, 1998 to the Amended Revolving
     Credit Agreement.

10.25(f) - Amendment No. 5 dated as of October 28, 1998 to the Amended Revolving
     Credit Agreement.

10.26- Share Purchase  Agreement  dated as of October 28, 1994 among Societe Des
     Grands  Magasins  Galeries   Lafayette,   Union  Pour  Les  Investissements
     Commerciaux,  Societe  Anonyme Des Galeries  Lafayette,  Sonab Holdings and
     Sonab  International  (incorporated  by  reference to Exhibit 10.1 filed as
     part of the Quarterly  Report on Form 10-Q for the period ended October 29,
     1994 filed by Finlay Jewelry on December 13, 1994).




                                       56

<PAGE>

Item
Number
------

10.27- Form of Officer's and Director's  Indemnification Agreement (incorporated
     by reference to Exhibit 10.4 filed as part of the Quarterly  Report on Form
     10-Q for the period ended April 29, 1995 filed by Finlay Jewelry on June 3,
     1995).

10.28(a) - Gold  Consignment  Agreement  dated as of June 15,  1995  (the  "Gold
     Consignment  Agreement")  between Finlay Jewelry and Rhode Island  Hospital
     Trust  National  Bank ("RIHT")  (incorporated  by reference to Exhibit 10.1
     filed as part of the  Quarterly  Report on Form 10-Q for the  period  ended
     July 29, 1995 filed by Finlay Jewelry on September 9, 1995).

10.28(b) - Amendment No. 1 and Limited Consent to the Gold Consignment Agreement
     (incorporated  by reference to Exhibit 10.31(b) filed as part of the Annual
     Report on Form 10-K for the period  ended  February 3, 1996 filed by Finlay
     Jewelry on May 3, 1996).

10.28(c) - Amendment No. 2 and Limited Consent dated as of September 10, 1997 to
     the Gold Consignment  Agreement,  as amended, by and between Finlay Jewelry
     and RIHT  (incorporated  by  reference to Exhibit 10.4 filed as part of the
     Quarterly  Report on Form 10-Q for the period ended August 2, 1997 filed by
     Finlay Jewelry on September 16, 1997).

10.28(d) - Amendment No. 3 and Limited Consent dated as of September 11, 1997 to
     the Gold Consignment  Agreement,  as amended, by and between Finlay Jewelry
     and RIHT  (incorporated  by  reference to Exhibit 10.5 filed as part of the
     Quarterly  Report on Form 10-Q for the period ended August 2, 1997 filed by
     Finlay Jewelry on September 16, 1997).

10.28(e) - Amendment  No. 4 and Limited  Consent  dated as of October 6, 1997 to
     the Gold Consignment  Agreement,  as amended, by and between Finlay Jewelry
     and RIHT  (incorporated by reference to Exhibit 10.3 as part of the Current
     Report on Form 8-K filed by Finlay Jewelry on October 17, 1997).

10.28(f) - Amendment  No. 6 dated as of April 24,  1998 to the Gold  Consignment
     Agreement, as amended, by and between Finlay Jewelry and RIHT (incorporated
     by  reference  to Exhibit  10.2 filed as part of Finlay  Jewelry's  Current
     Report on Form 8-K dated April 24, 1998, as filed on May 11, 1998).

10.28(g) - Amendment  No. 7 and Limited  Consent  dated as of October 28,  1998,
     between Finlay Jewelry and BankBoston,  N.A., as  successor-in-interest  to
     RIHT.

10.29- Security  Agreement  dated as of June 15, 1995 between Finlay Jewelry and
     RIHT  (incorporated  by  reference  to  Exhibit  10.2  filed as part of the
     Quarterly  Report on Form 10-Q for the period  ended July 29, 1995 filed by
     Finlay Jewelry on September 9, 1995).

10.30- Cash  Collateral  Agreement  dated as of June  15,  1995  between  Finlay
     Jewelry and RIHT  (incorporated  by reference to Exhibit 10.3 filed as part
     of the  Quarterly  Report on Form 10-Q for the period  ended July 29,  1995
     filed by Finlay Jewelry on September 9, 1995).




                                       57

<PAGE>

Item
Number
------

10.31- Intercreditor  Agreement dated as of June 15, 1995 between GE Capital and
     RIHT and  acknowledged  by Finlay  Jewelry  (incorporated  by  reference to
     Exhibit  10.5  filed as part of the  Quarterly  Report on Form 10-Q for the
     period ended July 29, 1995 filed by Finlay Jewelry on September 9, 1995).

10.32- Asset  Purchase  Agreement  dated  September  3,  1997 by and  among  the
     Holding Company,  Finlay Jewelry, Zale Corporation and Zale Delaware,  Inc.
     (incorporated  by reference to Exhibit 10.6 filed as part of the  Quarterly
     Report on Form 10-Q for the  period  ended  August 2, 1997  filed by Finlay
     Jewelry on September 16, 1997).

21.1 - Subsidiaries of Finlay Jewelry.

27   - Financial Data Schedule.

   (b) Reports on Form 8-K

    No reports on Form 8-K were filed during the fourth quarter of 1998.














                                       58

<PAGE>

                                   SIGNATURES

     Pursuant  to the  requirements  of  section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                               Finlay Fine Jewelry Corporation

Date: April 29, 1999                           By: /s/ ARTHUR E. REINER
                                                   ---------------------------
                                                       Arthur E. Reiner
                                                    Chairman of the Board

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
Report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities and on the dates indicated:

          Name                                 Title                    Date
          ----                                 -----                    ----

/s/ ARTHUR E. REINER       Chairman of the Board, President,      April 29, 1999
-------------------------  Chief Executive Officer and Director
    Arthur E. Reiner       (Principal Executive Officer) 
                            

/s/ BARRY D. SCHECKNER     Senior Vice President and Chief        April 29, 1999
-------------------------  Financial Officer (Principal
    Barry D. Scheckner     Financial Officer)  
                            

/s/ BRUCE E. ZURLNICK      Treasurer (Principal Accounting        April 29, 1999
-------------------------  Officer)
    Bruce E. Zurlnick        

/s/ DAVID B. CORNSTEIN     Director                               April 29, 1999
-------------------------
    David B. Cornstein

/s/ NORMAN S. MATTHEWS     Director                               April 29, 1999
-------------------------
    Norman S. Matthews

/s/ JAMES MARTIN KAPLAN    Director                               April 29, 1999
-------------------------
    James Martin Kaplan

/s/ ROHIT M. DESAI         Director                               April 29, 1999
-------------------------
    Rohit M. Desai

/s/ THOMAS H. LEE          Director                               April 29, 1999
-------------------------
    Thomas H. Lee

/s/ WARREN C. SMITH, JR.   Director                               April 29, 1999
-------------------------
    Warren C. Smith, Jr.

/s/ HANNE M. MERRIMAN      Director                               April 29, 1999
-------------------------
    Hanne M. Merriman



                                       59

<PAGE>



                         FINLAY FINE JEWELRY CORPORATION
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                            PAGE
                                                                            ----

Report of Independent Public Accountants.....................................F-2

Consolidated Statements of Operations for the years ended February 1, 1997,
  January 31, 1998 and January 30, 1999......................................F-3

Consolidated Balance Sheets as of January 31, 1998 and January 30, 1999......F-4

Consolidated Statements of Changes in Stockholder's Equity for the years 
  ended February 1, 1997, January 31, 1998 and January 30, 1999..............F-5

Consolidated Statements of Cash Flows for the years ended February 1, 1997,
  January 31, 1998 and January 30, 1999......................................F-6

Notes to Consolidated Financial Statements...................................F-7
                                              



















                                      F-1
<PAGE>



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of Finlay Fine Jewelry Corporation:

     We have audited the accompanying consolidated balance sheets of Finlay Fine
Jewelry Corporation (a Delaware  corporation) and subsidiaries as of January 31,
1998  and  January  30,  1999,  and  the  related  consolidated   statements  of
operations,  changes in  stockholder's  equity and cash flows for the  fifty-two
weeks ended  February 1, 1997,  January  31,  1998 and January 30,  1999.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

     In our opinion,  the financial statements referred to above present fairly,
in all  material  respects,  the  financial  position  of  Finlay  Fine  Jewelry
Corporation  and  subsidiaries  as of January 31, 1998 and January 30, 1999, and
the results of their  operations  and their cash flows for the  fifty-two  weeks
ended  February 1, 1997,  January 31, 1998 and January 30, 1999,  in  conformity
with generally accepted accounting principles.

                                                             ARTHUR ANDERSEN LLP

New York, New York
March 24, 1999


















                                      F-2
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (in thousands)


<TABLE>
<CAPTION>


                                                                                             Year Ended
                                                                          -----------------------------------------------
                                                                           February 1,      January 31,      January 30,
                                                                              1997             1998             1999
                                                                          -------------    -------------    -------------

<S>                                                                       <C>              <C>              <C>        
Sales................................................................     $   685,274      $   769,862      $   863,428
Cost of sales........................................................         330,300          371,085          421,450
                                                                          -------------    -------------    -------------
    Gross margin.....................................................         354,974          398,777          441,978
Selling, general and administrative expenses.........................         289,145          325,752          364,002
Depreciation and amortization........................................          10,840           12,163           15,672
                                                                          -------------    -------------    -------------
    Income (loss) from operations....................................          54,989           60,862           62,304
Interest expense, net................................................          22,526           24,413           24,612
Nonrecurring interest associated with refinancing....................          -                -                   417
                                                                          -------------    -------------    -------------
    Income (loss) before income taxes and                                                                      
      extraordinary charges..........................................          32,463           36,449           37,275
Provision (benefit) for income taxes.................................          14,501           15,528           15,323
                                                                          -------------    -------------    -------------
    Income (loss) before extraordinary charges.......................          17,962           20,921           21,952
Extraordinary charges from early extinguishment of debt,                                                       
      net of income tax benefit of $3,236............................          -                -                 4,755
                                                                          -------------    -------------    -------------
    Net income (loss)................................................     $    17,962      $    20,921      $    17,197
                                                                          =============    =============    =============

</TABLE>












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











                                      F-3
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                 (in thousands, except share and per share data)
<TABLE>
<CAPTION>

                                                                                      January 31,        January 30,
                                                                                         1998              1999
                                                                                     -------------     -------------
                                      ASSETS
Current assets
<S>                                                                                  <C>               <C>        
  Cash and cash equivalents....................................................      $    12,655       $    16,631
  Accounts receivable - department stores......................................           20,772            19,147
  Other receivables............................................................            6,861            23,349
  Merchandise inventories......................................................          279,766           295,265
  Prepaid expenses and other...................................................            1,782             2,367
                                                                                     -------------     -------------
     Total current assets......................................................          321,836           356,759
                                                                                     -------------     -------------
Fixed assets
  Equipment, fixtures and leasehold improvements...............................           95,257           106,735
  Less - accumulated depreciation and amortization.............................           28,249            36,620
                                                                                     -------------     -------------
     Fixed assets, net.........................................................           67,008            70,115
                                                                                     -------------     -------------
Deferred charges and other assets..............................................            8,339            13,982
Goodwill.......................................................................          104,271           100,547
                                                                                     -------------     -------------
     Total assets..............................................................      $   501,454       $   541,403
                                                                                     =============     =============

                       LIABILITIES AND STOCKHOLDER'S EQUITY

Current liabilities
  Accounts payable - trade.....................................................      $   160,424       $   160,424
  Accrued liabilities:
     Accrued salaries and benefits.............................................           12,694            15,760
     Accrued miscellaneous taxes...............................................            5,013             4,704
     Accrued insurance.........................................................              215               755
     Accrued interest..........................................................            3,902             3,448
     Accrued management transition and consulting..............................            1,092               676
     Other.....................................................................           14,639            14,644
  Income taxes payable.........................................................           15,853            23,991
  Deferred income taxes........................................................            1,220             2,166
  Due to parent................................................................           41,079             3,468
                                                                                     -------------     -------------
     Total current liabilities.................................................          256,131           230,036
Long-term debt.................................................................          135,000           150,000
Other non-current liabilities..................................................            8,497             9,284
                                                                                     -------------     -------------
     Total liabilities.........................................................          399,628           389,320
                                                                                     -------------     -------------
Stockholder's equity:
  Common Stock, par value $.01 per share; authorized 5,000 shares;
     issued and outstanding 1,000 shares.......................................           -                  -
  Additional paid-in capital ..................................................           44,851            82,975
  Retained earnings............................................................           63,818            73,897
  Foreign currency translation adjustment......................................           (6,843)           (4,789)
                                                                                     -------------     -------------
     Total stockholder's equity................................................          101,826           152,083
                                                                                     -------------     -------------
     Total liabilities and stockholder's equity................................      $   501,454       $   541,403
                                                                                     =============     =============

</TABLE>

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





                                      F-4
<PAGE>


                         FINLAY FINE JEWELRY CORPORATION
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
                        (in thousands, except share data)



<TABLE>
<CAPTION>

                                                                                          
                                             Common Stock                                  Foreign               
                                         ------------------    Additional                  Currency        Total
                                           Number               Paid-in      Retained    Translation   Stockholder's   Comprehensive
                                         of shares   Amount     Capital      Earnings     Adjustment       Equity          Income
                                         ---------- -------   -----------   ----------   ------------  --------------  -------------
<S>               <C>                       <C>     <C>       <C>           <C>          <C>           <C>         
Balance, February 3, 1996.............      1,000   $  -      $   44,851    $  28,283    $     (747)   $     72,387
  Net income (loss)...................        -        -           -           17,962          -             17,962    $     17,962
  Foreign currency translation
     adjustment.......................        -        -           -            -            (2,303)         (2,303)         (2,303)
                                                                                                                       -------------
  Comprehensive income................        -        -           -            -              -              -        $     15,659
  Dividends on Common Stock...........        -        -           -           (1,636)         -             (1,636)   =============
                                         ---------- -------   -----------   ----------   ------------  --------------  
Balance, February 1, 1997.............      1,000      -          44,851       44,609        (3,050)         86,410
  Net income (loss)...................        -        -           -           20,921          -             20,921    $     20,921
  Foreign currency translation
     adjustment.......................        -        -           -            -            (3,793)         (3,793)         (3,793)
                                                                                                                       -------------
  Comprehensive income................        -        -           -            -              -              -        $     17,128
  Dividends on Common Stock...........        -        -           -           (1,712)         -             (1,712)   =============
                                         ---------- -------   -----------   ----------   ------------  --------------  
Balance, January 31, 1998.............      1,000      -          44,851       63,818        (6,843)        101,826
  Net income (loss)...................        -        -           -           17,197          -             17,197    $     17,197
  Capital contribution from parent....        -        -          38,124         -             -             38,124
  Foreign currency translation
     adjustment.......................        -        -           -             -            2,054           2,054           2,054
                                                                                                                       -------------
  Comprehensive income................        -        -           -             -             -              -        $     19,251
  Dividends on Common Stock...........        -        -           -           (7,118)         -             (7,118)   =============
                                         ---------- -------   -----------   ----------   ------------  --------------  
Balance, January 30, 1999.............      1,000   $  -      $   82,975    $  73,897    $   (4,789)   $    152,083
                                         ========== =======   ===========   ==========   ============  ==============  
</TABLE>










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








                                      F-5
<PAGE>


                         FINLAY FINE JEWELRY CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>



                                                                                                 Year Ended
                                                                                ----------------------------------------------
                                                                                 February 1,      January 31,     January 30,
                                                                                    1997            1998             1999
                                                                                -------------    -------------   -------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                             <C>              <C>             <C>        
  Net income (loss)........................................................     $    17,962      $    20,921     $    17,197
  Adjustments to reconcile net income (loss) to net cash provided
     from  (used in) operating activities:
  Depreciation and amortization............................................          11,871           13,195          16,703
  Write-off of deferred financing costs....................................           -                -               2,023
  Redemption premium.......................................................           -                -               5,378
  Other, net...............................................................           1,845            1,495             381
  Changes in operating assets and liabilities, net of effects from purchase
     of Diamond Park assets (Note 11):
     (Increase) decrease in accounts and other receivables.................           1,560           (8,806)        (14,606)
     Increase in merchandise inventories...................................         (28,380)         (15,360)        (10,635)
     (Increase) decrease in prepaid expenses and other.....................              66              385            (548)
     Increase in accounts payable and accrued liabilities..................           9,300           22,038          11,367
     Increase (decrease) in deferred income taxes..........................             (27)             416             946
     Increase (decrease) in due to parent..................................           -               40,030         (41,224)
                                                                                -------------    -------------    -------------
        NET CASH PROVIDED FROM (USED IN) OPERATING
          ACTIVITIES.......................................................          14,197           74,314         (13,018)
                                                                                -------------    -------------    -------------
                                                                                
CASH FLOWS FROM INVESTING ACTIVITIES
  Purchases of equipment, fixtures and leasehold improvements..............         (17,533)         (19,338)        (12,991)
  Payment for purchase of Diamond Park assets..............................           -              (57,642)         (4,857)
  Deferred charges and other...............................................            (839)          (2,386)         (5,286)
                                                                                -------------    -------------    -------------
        NET CASH USED IN INVESTING ACTIVITIES..............................         (18,372)         (79,366)        (23,134)
                                                                                -------------    -------------    -------------

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from revolving credit facility..................................         442,947          564,510         735,637
  Principal payments on revolving credit facility..........................        (442,947)        (564,510)       (735,637)
  Prepayment of Old Notes..................................................           -                -            (135,000)
  Payment of redemption premium............................................           -                -              (5,378)
  Capital contribution from parent.........................................           -                -              38,124
  Proceeds from senior note offering.......................................           -                -             150,000
  Payment of dividends.....................................................            (818)           -              (3,506)
  Capitalized financing costs..............................................           -               (2,347)         (4,173)
  Other, net...............................................................            (206)              (2)          -
                                                                                -------------    -------------    -------------
        NET CASH PROVIDED FROM (USED IN) FINANCING
           ACTIVITIES......................................................          (1,024)          (2,349)         40,067
                                                                                -------------    -------------    -------------
        EFFECT OF EXCHANGE RATE CHANGES ON CASH............................            (146)            (336)             61
                                                                                -------------    -------------    -------------
        INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                             (5,345)          (7,737)          3,976
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............................          25,737           20,392          12,655
                                                                                -------------    -------------    -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD...................................     $    20,392       $   12,655      $   16,631
                                                                                =============    =============    =============
</TABLE>



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


                                      F-6
<PAGE>


                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--ORGANIZATION OF THE COMPANY AND SIGNIFICANT TRANSACTIONS

     Finlay Fine Jewelry Corporation,  a Delaware corporation (together with its
wholly owned  subsidiaries,  "Finlay Jewelry"),  is a wholly owned subsidiary of
Finlay Enterprises,  Inc. (the "Holding  Company"),  References to "Finlay" mean
collectively,  the Holding Company and Finlay  Jewelry.  Finlay is a retailer of
fine jewelry products and primarily operates leased fine jewelry  departments in
department stores throughout the United States and France. All references herein
to  leased  departments  refer  to  departments  operated  pursuant  to  license
agreements or other arrangements with host department stores.

1998 Offering and Refinancing

     On April 24,  1998,  the Holding  Company  completed  a public  offering of
1,800,000 shares of its common stock, par value $.01 per share ("Common Stock"),
at a price of $27.50 per share (the "1998  Offering"),  of which 567,310  shares
were sold by the  Holding  Company  and  1,232,690  shares  were sold by certain
selling stockholders.  Concurrently with the 1998 Offering,  the Holding Company
and Finlay  Jewelry  completed the public  offering of $75.0  million  aggregate
principal  amount  of  9%  Senior  Debentures  due  May  1,  2008  (the  "Senior
Debentures")  and $150.0  million  aggregate  principal  amount of 8-3/8% Senior
Notes due May 1, 2008 (the "Senior Notes"),  respectively. In addition, on April
24, 1998, the revolving credit agreement (the "Revolving Credit  Agreement") was
amended to increase the line of credit  thereunder to $275.0 million and to make
certain other changes.

     On May 26,  1998,  the net  proceeds to the Holding  Company  from the 1998
Offering,  the sale of the Senior  Debentures,  together  with  other  available
funds, were used to redeem the Holding Company's 12% Senior Discount  Debentures
due 2005 (the "Old Debentures"), including associated premiums. Also, on May 26,
1998,  Finlay Jewelry used the net proceeds from the sale of the Senior Notes to
redeem  Finlay  Jewelry's  10-5/8%  Senior  Notes due 2003  (the  "Old  Notes"),
including  associated  premiums.  The  above  transactions,  excluding  the 1998
Offering, are referred to herein as the "Refinancing".  Finlay Jewelry recorded,
in the second quarter of 1998, a pre-tax  extraordinary  charge of approximately
$8.0 million, including $5.4 million for the redemption premium on the Notes and
$2.0  million to write off  deferred  financing  costs  associated  with the Old
Notes.

1997 and 1995 Public Offerings and Related Transactions

     On October 21, 1997, the Holding  Company  completed a public offering (the
"1997  Offering")  of 3,450,000  shares of its Common Stock at a price of $19.00
per  share,  of which  2,196,971  shares  were  issued  and sold by the  Holding
Company. An additional 1,253,029 shares were sold by existing stockholders.  Net
proceeds to the Holding  Company from the 1997  Offering were  $38,124,000.  The
Holding Company purchased inventory using the net proceeds and subsequently sold
this  inventory to Finlay  Jewelry.  In addition,  Finlay  Jewelry was charged a
service fee by the Holding Company of $1.9 million which is included in Selling,
general and administrative expenses in the accompanying  Consolidated Statements
of Operations.

     On April 6, 1995, the Holding Company  completed an initial public offering
(the "Initial  Public  Offering") of 2,500,000  shares of its Common Stock, at a
price  of  $14.00  per  share.  An  additional   115,000  shares  were  sold  by
non-management  selling  stockholders.  Net  proceeds  from the  Initial  Public
Offering  were  $30,200,000  and were  used to  repurchase  $6,103,000  accreted
balance  of the Old  Debentures  with the  balance of the net  proceeds  used to
reduce a portion of the outstanding indebtedness 



                                      F-7
<PAGE>


                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--ORGANIZATION OF THE COMPANY AND SIGNIFICANT TRANSACTIONS
             (continued)

under  Finlay's   revolving   credit  facility  with  General  Electric  Capital
Corporation ("G.E. Capital") and the other lenders named thereto.

     Immediately  prior to the  completion of the Initial Public  Offering,  the
holders  of the  Holding  Company's  10%  Series C  Cumulative  Preferred  Stock
("Series  C  Preferred  Stock")  exchanged  all  outstanding  shares of Series C
Preferred  Stock with the Holding  Company for 2,581,784  shares of Common Stock
(the "Series C Exchange")  at the initial  public  offering  price of $14.00 per
share.

The 1993 Recapitalization

     In May 1993,  an  affiliate  of Thomas H. Lee  Company  (together  with its
affiliated  transferees,  the "Lee Investors") and partnerships managed by Desai
Capital Management Incorporated (collectively, the "Desai Investors'),  acquired
36.8% and 24.5%,  respectively,  of the  outstanding  voting  securities  of the
Holding  Company in a series of  transactions  which  recapitalized  the Holding
Company  (the "1993  Recapitalization").  Following  the 1993  Recapitalization,
management maintained a substantial equity interest in the Holding Company.

     The 1993  Recapitalization  included an investment by the Lee Investors and
the Desai  Investors  in units  consisting  of the Series C Preferred  Stock and
Common Stock.  Concurrently,  certain other existing  classes of preferred stock
and all  outstanding  warrants to purchase  Common  Stock were  redeemed.  These
equity  related  transactions  resulted  in the  Lee  Investors  and  the  Desai
Investors obtaining 52.6% beneficial  ownership of the outstanding Common Stock.
The 1993  Recapitalization  also  included  the public  issuance  by the Holding
Company of units  consisting of the Old Debentures and Common Stock,  the public
issuance by Finlay Jewelry of the Old Notes and the refinancing of Finlay's then
outstanding term loans and revolving indebtedness.

Organization and the 1988 Leveraged Recapitalization

     Finlay Jewelry was initially  incorporated on August 2, 1985 as SL Holdings
Corporation ("SL Holdings").  The Holding Company,  incorporated on November 22,
1988, was organized by certain officers and directors (the "Investor  Group") of
SL Holdings to acquire certain operations of SL Holdings. In connection with the
reorganization ("1988 Leveraged Recapitalization"), which resulted in the merger
of a wholly  owned  subsidiary  of the  Holding  Company  into SL  Holdings,  SL
Holdings changed its name to Finlay Fine Jewelry Corporation and became a wholly
owned subsidiary of the Holding Company.

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES

     Basis  of  Accounting  and  Presentation:   The  accompanying  Consolidated
Financial  Statements  have been  prepared on the accrual basis of accounting in
accordance with generally  accepted  accounting  principles,  which, for certain
financial statement accounts, requires the use of management's estimates. Actual
results may differ from these estimates.

     Fiscal Year:  Finlay  Jewelry's fiscal year ends on the Saturday closest to
January 31.  References to 1996, 1997, 1998, and 1999 relate to the fiscal years
ended on February 1, 1997,  January 31,  1998,  January 30, 1999 and January 29,
2000. Each of the fiscal years includes 52 weeks.



                                      F-8

<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (continued)

     Merchandise  Inventories:  Consolidated inventories are stated at the lower
of cost or  market  with  cost for the  domestic  operations  determined  by the
last-in, first-out ("LIFO") method. Market represents estimated realizable value
after  providing  for a  normal  profit  margin.  The  cost  to  Finlay  of gold
merchandise sold on consignment,  which typically varies with the price of gold,
is not fixed until the sale is reported to the vendor  following the sale of the
merchandise.  Finlay at times enters into futures contracts,  such as options or
forwards,  based upon the  anticipated  sales of gold  product in order to hedge
against the risk arising from those payment arrangements.  Changes in the market
value of futures contracts are accounted for as an addition to or reduction from
the inventory  cost. For the years ended February 1, 1997,  January 31, 1998 and
January 30, 1999,  the  gain/loss on open futures  contracts  was not  material.
Finlay Jewelry did not have any open positions in futures  contracts for gold at
January 31, 1998 or January 30, 1999.

     In June 1998, the Financial  Accounting Standards Board issued Statement of
Financial  Accounting  Standards  ("SFAS") No. 133,  "Accounting  for Derivative
Instruments and Hedging Activities". This Statement requires that all derivative
instruments  be recorded in the  balance  sheet as either an asset or  liability
measured at its fair value and that  changes in the  derivative's  fair value be
recognized  currently  in earnings.  SFAS No. 133 is effective  for fiscal years
beginning  after  June  15,  1999  and,  based  on  current  levels  of  hedging
activities,  is not  expected  to have a  material  impact on  Finlay  Jewelry's
financial position or results of operations.

     Depreciation and Amortization:  Depreciation and amortization, except where
otherwise indicated, are computed by the straight-line method over the estimated
useful lives of the fixed assets  ranging from three to  thirty-nine  years.  In
1997,  Finlay Jewelry  capitalized  $660,000 of interest in connection  with the
construction of its central distribution  facility. The capitalized interest was
recorded  as part of the asset to which it related and is being  amortized  over
the asset's estimated useful life.

     Principles of Consolidation:  The consolidated financial statements include
the  accounts  of  Finlay  Jewelry  and  its  wholly  owned  subsidiaries.   All
significant intercompany transactions have been eliminated in consolidation.

     Software  Development  Costs:  Costs incurred for the routine operation and
maintenance of management  information  systems are expensed as incurred.  It is
Finlay Jewelry's policy to capitalize  significant  amounts relating to software
purchased from third party software vendors as well as external consulting costs
incurred in the development and improvement of management information systems.

     In 1998,  Statement  of Position  No.  98-1,  "Accounting  for the Costs of
Computer  Software  Developed or Obtained for Internal Use" was issued,  whereby
Finlay Jewelry will be required to capitalize certain internal payroll costs for
employees directly associated with the development of software for internal use.
Finlay  Jewelry has adopted this  statement  in 1999,  and does not expect it to
have a material impact on its consolidated financial statements.

     Intangible Assets Arising from Acquisition:  The excess purchase price paid
over the fair market value of net assets acquired  ("Goodwill")  was recorded in
accordance with Accounting  Principles Board ("APB") Opinion No. 16 -"Accounting
for Business  Combinations" and is being amortized on a straight-line basis. The
Goodwill related to the 1988 Leveraged Recapitalization and the Diamond Park



                                      F-9

<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (continued)

Acquisition  (as  defined  in Note 11) is being  amortized  over 40 years and 20
years, respectively. Finlay Jewelry continually evaluates the carrying value and
the economic useful life of Goodwill based on Finlay Jewelry's operating results
and the expected  future net cash flows and will adjust the  carrying  value and
the related  amortization  periods,  if and when  appropriate.  Amortization  of
Goodwill for 1996, 1997 and 1998 totaled $3,143,000,  $3,367,000 and $3,724,000,
respectively.  Accumulated  amortization  of  Goodwill  at January  31, 1998 and
January 30, 1999 totaled $27,825,000 and $31,612,000, respectively.

     Foreign  Currency  Translation:  Results of operations for Finlay Jewelry's
foreign  subsidiary are translated into U.S.  dollars using the average exchange
rates  during the period,  while assets and  liabilities  are  translated  using
current rates in accordance  with SFAS No. 52, "Foreign  Currency  Translation".
The  resulting  translation  adjustments  are recorded  directly into a separate
component of Stockholder's equity.  Transaction gains and losses are reported in
net income and were not significant in any year.

     Comprehensive  Income:  In 1998,  Finlay  Jewelry  adopted  SFAS  No.  130,
"Reporting  Comprehensive  Income",  which requires  disclosure of comprehensive
income in a financial statement. Comprehensive income is defined as the total of
net income and all other  nonowner  changes in  equity,  which  under  generally
accepted  accounting  principles are recorded  directly to stockholder's  equity
and,  therefore,  bypass net  income.  Finlay  Jewelry  has  chosen to  disclose
comprehensive   income,  which  encompasses  net  income  and  foreign  currency
translation   adjustments,   in  the  Consolidated   Statements  of  Changes  in
Stockholder's Equity.

     Debt Issuance  Costs:  Debt issuance costs are amortized using the straight
line method over the term of the related debt  agreements.  Debt issuance  costs
totaled  approximately  $4,700,000 at January 31, 1998 and $5,697,000 at January
30,  1999.  The debt  issuance  costs are  reflected  as a component of Deferred
charges  and  other  assets in the  accompanying  Consolidated  Balance  Sheets.
Amortization  of debt issuance costs for 1996,  1997 and 1998 totaled  $889,000,
$889,000 and $1,030,000,  respectively, and have been recorded as a component of
Interest expense, net in the accompanying Consolidated Statements of Operations.

     Revenue  Recognition:  Finlay Jewelry  recognizes  revenue upon the sale of
merchandise,  either owned or consigned, to its host department store customers,
net of anticipated returns.

     Cost of Sales:  Cost of sales includes the cost of merchandise sold, repair
expense,  shipping,  shrinkage and inventory losses.  Buying and occupancy costs
such as  lease  and  rental  fees  are not  included  in Cost of  sales  and are
reflected in Selling,  general and  administrative  expenses in the accompanying
Consolidated Statements of Operations.

     Advertising  Costs:  All costs  associated with advertising are expensed in
the month that the  advertising  takes  place.  For 1996,  1997 and 1998,  gross
advertising expenses,  before vendor support, were $43,747,000,  $47,913,000 and
$55,287,000,   respectively   and  are   included   in   Selling,   general  and
administrative   expenses  in  the  accompanying   Consolidated   Statements  of
Operations.

     Statements of Cash Flows:  Finlay Jewelry considers cash on hand,  deposits
in banks  and  deposits  in  money  market  funds as cash and cash  equivalents.
Interest paid during 1996, 1997 and 1998 was  $21,480,000,  $23,347,000  (net of
capitalized interest) and $24,453,000, respectively. Income taxes paid


                                      F-10

<PAGE>


                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (continued)

in  1996,   1997  and  1998  totaled   $9,320,000,   $10,630,000  and  $396,000,
respectively. Refer to Note 11 for a discussion of the Diamond Park Acquisition.

     Fair Value of Financial Instruments: Cash, accounts receivable,  short-term
borrowings,  accounts  payable  and accrued  liabilities  are  reflected  in the
consolidated  financial  statements  at fair  value  because  of the  short-term
maturity  of  these  instruments.  Marketable  securities  are  recorded  in the
consolidated  financial  statements at current market values, which approximates
cost. The fair values of Finlay  Jewelry's debt and off-balance  sheet financial
instruments are disclosed in Note 4.

     Stock-Based Compensation:  Stock-based compensation is recognized using the
intrinsic  value  method.  For  disclosure  purposes,  pro forma net  income and
earnings  per share are  disclosed,  in Note 5, as if the fair value  method had
been applied.

     Accounting  for  the  Impairment  of  Long-Lived  Assets:   SFAS  No.  121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of", requires long-lived assets as well as identifiable  intangibles
be reviewed for impairment whenever events or changes in circumstances  indicate
the carrying amount of the assets may not be recoverable.  Upon adoption of this
Statement in 1996 and to date, there was no impact on Finlay Jewelry's financial
position or results of operations.

     Seasonality:  A significant  portion of Finlay's  revenues are generated in
the fourth  quarter  due to the  seasonality  of the retail  industry.  As such,
results for interim periods are not indicative of annual results.  Refer to Note
10 for unaudited quarterly financial data.

NOTE 3--MERCHANDISE INVENTORIES

     Merchandise inventories consisted of the following:
<TABLE>
<CAPTION>
                                                                            January 31,         January 30,
                                                                               1998                1999
                                                                          --------------       --------------
                                                                                       (in thousands)
   Jewelry goods - rings, watches and other fine jewelry
<S>                                                                       <C>                  <C>          
       (specific identification basis)...............................     $    286,289         $     300,777
   Less:  Excess of specific identification cost over LIFO
       inventory value...............................................            6,523                 5,512
                                                                          --------------       ---------------
                                                                          $    279,766          $    295,265
                                                                          ==============       ===============
</TABLE>

     The LIFO method had the effect of decreasing  Income before income taxes in
1996 by $1,919,000 and increasing Income before income taxes in 1997 and 1998 by
$2,330,000 and $1,011,000,  respectively.  Finlay  determines its LIFO inventory
value by utilizing  selected  producer  price indices  published for jewelry and
watches by the Bureau of Labor Statistics. Due to the application of APB Opinion
No.  16,  inventory  valued  at  LIFO  for  income  tax  reporting  purposes  is
approximately  $22,000,000 lower than that for financial  reporting  purposes at
January 30, 1999.

     Approximately $219,822,000 and $283,793,000 at January 31, 1998 and January
30, 1999, respectively, of merchandise received on consignment has been excluded
from  Merchandise  inventories and Accounts  payable-trade  in the  accompanying
Consolidated   Balance  Sheets.  



                                      F-11

<PAGE>

                    FINLAY FINE JEWELRY CORPORATION NOTES TO
                       CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3--MERCHANDISE INVENTORIES (continued)

     Finlay  Jewelry  is  party  to a  gold  consignment  agreement  (the  "Gold
Consignment   Agreement"),   which  expires  on  December  31,  2001.  The  Gold
Consignment Agreement enables Finlay Jewelry to receive merchandise by providing
gold, or otherwise  making  payment,  to certain  vendors who  currently  supply
Finlay with merchandise on consignment.  While the merchandise  involved remains
consigned,  title to the gold  content  of the  merchandise  transfers  from the
vendors to the gold consignor.

     Finlay can obtain,  pursuant to the Gold Consignment  Agreement,  up to the
lesser of (i)  85,000  fine troy  ounces or (ii)  $32.0  million  worth of gold,
subject to a formula as prescribed by the Gold Consignment Agreement. At January
31, 1998 and January 30, 1999,  amounts  outstanding  under the Gold Consignment
Agreement  totaled 39,676 and 78,836 fine troy ounces,  respectively,  valued at
approximately $12.1 million and $22.5 million,  respectively. The purchase price
per  ounce is based on the  daily  Second  London  Gold  Fixing.  For  financial
statement   purposes,   the  consigned  gold  is  not  included  in  Merchandise
inventories on Finlay Jewelry's  Consolidated Balance Sheets and, therefore,  no
related  liability  has been  recorded.  Under the Gold  Consignment  Agreement,
Finlay is required to pay a daily  consignment  fee on the dollar  equivalent of
the fine  gold  value of the  ounces  of gold  consigned  thereunder.  The daily
consignment  fee is based on a floating  rate which,  as of January 31, 1998 and
January 30, 1999, was approximately 4.3% and 3.2%,  respectively,  per annum. In
addition,  Finlay is required to pay an unused line fee of 0.5% if the amount of
gold  consigned  has a value  equal to or less than $12.0  million.  Included in
interest  expense  for the year ended  January 31, 1998 and January 30, 1999 are
consignment fees of $725,000 and $615,000, respectively.

     In conjunction with the Gold Consignment Agreement,  Finlay Jewelry granted
the gold consignor a first priority  perfected lien on, and a security  interest
in,  specified  gold jewelry of  participating  vendors  approved under the Gold
Consignment  Agreement  and a lien on  proceeds  and  products  of such  jewelry
subject to the terms of an  intercreditor  agreement  between the gold consignor
and G.E. Capital.

     The Gold  Consignment  Agreement  requires  Finlay  Jewelry to comply  with
certain  covenants,   including   restrictions  on  the  incurrence  of  certain
indebtedness,   the  incurrence  or  creation  of  liens,  engaging  in  certain
transactions  with affiliates and related parties and limitations on the payment
of dividends.  The Gold Consignment  Agreement also contains  various  financial
covenants,  including  fixed  charge  coverage  ratio  requirements  and certain
maximum  debt  limitations.  Finlay  Jewelry was in  compliance  with all of its
financial covenants as of and for the year ended January 30, 1999.

NOTE 4--SHORT AND LONG-TERM DEBT

     The Holding Company and Finlay Jewelry are parties to the Revolving  Credit
Agreement with G.E.  Capital and the other lenders thereto which provides Finlay
with a senior  secured  revolving  line of credit of up to $275.0  million  (the
"Revolving  Credit  Facility"),  a portion of which is  available to the Holding
Company under certain  circumstances.  The Revolving  Credit  Facility  provides
Finlay  with a facility  maturing  in March  2003,  for  borrowings  based on an
advance rate of (i) up to 85% of eligible accounts receivable and (ii) up to 60%
of eligible owned  inventory  after taking into account such reserves or offsets
as G.E.  Capital  may  deem  appropriate  (the  "Borrowing  Base").  Eligibility
criteria are established by G.E. Capital,  which retains the right to adjust the
Borrowing Base in its reasonable judgement by revising standards of eligibility,
establishing  reserves  and/or  increasing or  decreasing  from time to time the
advance rates (except that any increase in the  borrowing  base rate  percentage
shall require the consent of the lenders). Finlay Jewelry is permitted to use up
to $30 million of the Revolving Credit Agreement 


                                      F-12

<PAGE>

                        FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4--SHORT AND LONG-TERM DEBT (continued)

for the  issuance or  guarantee  of letters of credit  issued for the account of
Finlay Jewelry.  The outstanding  revolving  credit balance and letter of credit
balance  under the  Revolving  Credit  Agreement are required to be reduced each
year to $50  million  or less and $20  million or less,  respectively,  for a 30
consecutive day period (the "Balance  Reduction  Requirement").  Funds available
under the Revolving  Credit  Agreement are utilized to finance  working  capital
needs.

     Amounts outstanding under the Revolving Credit Agreement bear interest at a
rate equal to, at Finlay's option, (i) the Index Rate (as defined) plus a margin
ranging from zero to 1.0% or (ii) adjusted LIBOR plus a margin ranging from 1.0%
to 2.0%, in each case depending on the financial  performance of Finlay.  "Index
Rate" is defined as the higher of (i) the rate publicly quoted from time to time
by The Wall Street  Journal as the "base rate on  corporate  loans at large U.S.
money  center  commercial  banks" and (ii) the Federal  Funds Rate plus 50 basis
points per annum. A letter of credit fee of 1.5% per annum of the face amount of
letters of credit  guaranteed  under the Revolving  Credit  Agreement is payable
monthly in arrears.  An unused  facility fee on the average unused daily balance
of the Revolving  Credit  Facility is payable monthly in arrears equal to 0.375%
per annum up to $225.0  million and 0.25% per annum up to $275.0  million.  Upon
the  occurrence  (and during the  continuance)  of an event of default under the
Revolving  Credit  Agreement,  interest  would  accrue at a rate  which is 2% in
excess of the rate otherwise applicable, and would be payable upon demand.

     The Revolving  Credit  Agreement is secured by a first  priority  perfected
security interest in all of Finlay Jewelry's (and any subsidiary's)  present and
future tangible and intangible  assets,  excluding any of Finlay Jewelry's lease
agreements which are not assignable without the lessor's consent.

     The Revolving  Credit Agreement  contains  customary  covenants,  including
limitations  on  or  relating  to  capital  expenditures,  liens,  indebtedness,
investments,   mergers,   acquisitions,   affiliate   transactions,   management
compensation  and the payment of dividends  and other  restricted  payments.  In
addition,  the lenders have the right to approve certain private sales of Common
Stock. The Revolving Credit Agreement also contains various financial covenants,
including  minimum  earnings and fixed charge  coverage ratio  requirements  and
certain  maximum  debt  limitations.  Finlay was in  compliance  with all of its
financial covenants as of and for the year ended January 30, 1999.

     There were no amounts  outstanding  at January 31, 1998 or January 30, 1999
under the Revolving Credit Agreement.  The maximum amounts outstanding under the
Revolving  Credit  Agreement  during  1996,  1997  and 1998  were  $114,100,000,
$189,200,000 and $176,000,000, respectively. The average amounts outstanding for
the same periods were $75,371,000,  $107,700,000 and $123,800,000  (adjusted for
the impact of the  temporary  paydown of the  Revolving  Credit  Facility due to
certain call  requirements  associated  with the Old Notes),  respectively.  The
weighted  average  interest  rates were 8.0%,  7.9% and 7.6% for 1996,  1997 and
1998, respectively.

     At January  31, 1998 and  January  30,  1999,  Finlay had letters of credit
outstanding  totaling  $10.3  million  and  $6.7  million,  respectively,  which
guarantee various trade activities. The contract amount of the letters of credit
approximate their fair value.



                                      F-13

<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4--SHORT AND LONG-TERM DEBT (continued)

     Long-term debt consisted of the following:
<TABLE>
<CAPTION>
                                                                          January 31,       January 30,
                                                                             1998              1999
                                                                         -------------     -------------
                                                                                 (in thousands)
<S>                                                                      <C>               <C>     
         Old Notes (a)............................................       $    135,000      $      -
         Senior Notes (b).........................................              -               150,000
                                                                         -------------     -------------
                                                                         $    135,000      $    150,000
                                                                         =============     =============
</TABLE>
____________________________
(a)  On May 26, 1998, Finlay Jewelry retired the Old Notes. Refer to Note 1.

(b)  On April 24, 1998, as part of the Refinancing, Finlay Jewelry issued 8-3/8%
     Senior  Notes  due  May 1,  2008  with an  aggregate  principal  amount  of
     $150,000,000.  Interest on the Senior Notes is payable semi-annually on May
     1 and November 1 of each year, and commenced on November 1, 1998. Except in
     the case of certain equity  offerings,  the Senior Notes are not redeemable
     prior to May 1, 2003. Thereafter,  the Senior Notes will be redeemable,  in
     whole or in part, at the option of Finlay,  at specified  redemption prices
     plus accrued and unpaid interest, if any, to the date of the redemption. In
     the event of a Change of Control (as defined in the  indenture  relating to
     the Senior Notes (the "Senior Note Indenture")),  each holder of the Senior
     Notes  will have the right to require  Finlay  Jewelry  to  repurchase  its
     Senior  Notes at a purchase  price  equal to 101% of the  principal  amount
     thereof plus accrued and unpaid  interest  thereon to the repurchase  date.
     The  Senior  Notes  rank  senior in right of  payment  to all  subordinated
     indebtedness  of  Finlay  and  pari  passu in  right  of  payment  with all
     unsubordinated   indebtedness  of  Finlay  Jewelry.  However,  because  the
     Revolving Credit Agreement is secured by a pledge of substantially  all the
     assets of Finlay Jewelry, the Senior Notes are effectively  subordinated to
     the  borrowings  under the  Revolving  Credit  Agreement.  The Senior  Note
     Indenture  contains  restrictions  relating  to,  among other  things,  the
     payment of dividends,  the issuance of  disqualified  stock,  the making of
     certain  investments  or  other  restricted  payments,  the  incurrence  of
     additional  indebtedness,  the  creation of certain  liens,  entering  into
     certain transactions with affiliates, the disposition of certain assets and
     engaging in mergers and consolidations.

     The fair value of the Senior Notes at January 30, 1999, determined based on
     market quotes, was $141,000,000.

     On April 24, 1998, as part of the  Refinancing,  the Holding Company issued
     9% Senior Debentures due May 1, 2008 with an aggregate  principal amount of
     $75,000,000.  Interest on the Senior Debentures is payable semi-annually on
     May 1 and November 1 of each year,  and commenced on November 1, 1998.  The
     Senior  Debentures  are secured by a first  priority  lien on and  security
     interest  in all of the issued  and  outstanding  stock of Finlay  Jewelry.
     However, the operations of the Holding Company are conducted through Finlay
     Jewelry and, therefore, the Holding Company is dependent upon the cash flow
     of Finlay Jewelry to meet its obligations,  including its obligations under
     the Senior  Debentures.  As a result, the Senior Debentures are effectively
     subordinated  to all  indebtedness  and all  other  obligations  of  Finlay
     Jewelry. The Senior Debenture Indenture contains  restrictions relating to,
     among other things, the payment of dividends,  the issuance of disqualified
     stock, the making of certain investments or other restricted payments,  the
     incurrence  of  additional  indebtedness,  the  creation of certain  liens,
     entering into


                                      F-14

<PAGE>

 
                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4--SHORT AND LONG-TERM DEBT (continued)

     certain transactions with affiliates, the disposition of certain assets and
     engaging in mergers and consolidations.

     Finlay was in compliance  with all of the provisions of the Senior Note and
     Senior Debenture Indentures as of and for the year ended January 30, 1999.

     The aggregate  amounts of long-term  debt payable in each of the five years
in the period ending February 1, 2004 and thereafter are as follows:
<TABLE>
<CAPTION>

                                                                 (in thousands)
                                                                 ---------------
<S>                                                              <C>     
   1999................................................          $      -
   2000................................................                 -
   2001................................................                 -
   2002................................................                 -
   2003................................................                 -
   Thereafter..........................................                150,000
                                                                 ---------------
                                                                 $     150,000
                                                                 ===============
</TABLE>

     Interest expense for 1996, 1997 and 1998 was  $22,609,000,  $24,448,000 and
$24,898,000  (including  $417,000 of nonrecurring  interest  associated with the
Refinancing),  respectively.  Interest  income for the same periods was $83,000,
$35,000 and $108,000, respectively.

NOTE 5-LONG TERM INCENTIVE PLANS AND MANAGEMENT PURCHASE OF 
       COMMON STOCK

     The Holding  Company's  Long Term  Incentive Plan (the "1993 Plan") permits
the Holding  Company to grant to key  employees  of the Holding  Company and its
subsidiaries,  consultants  and certain  other  persons,  and  directors  of the
Holding Company (other than members of the Compensation Committee of the Holding
Company's  Board of  Directors),  the following:  (i) stock options;  (ii) stock
appreciation   rights  in  tandem  with  stock  options;   (iii)  limited  stock
appreciation   rights  in  tandem  with  stock  options;   (iv)   restricted  or
nonrestricted  stock  awards  subject  to  such  terms  and  conditions  as  the
Compensation  Committee shall determine;  (v) performance  units which are based
upon  attainment of  performance  goals during a period of not less than two nor
more than five years and which may be settled in cash or in Common  Stock at the
discretion  of the  Compensation  Committee;  or  (vi)  any  combination  of the
foregoing.  Under the 1993 Plan,  the Holding  Company  may grant stock  options
which are either  incentive  stock options  within the meaning of Section 422 of
the Internal  Revenue Code of 1986,  as amended (the "Code"),  or  non-incentive
stock  options.  As of January 30, 1999,  an aggregate of 732,596  shares of the
Holding  Company's  Common Stock has been reserved for issuance  pursuant to the
1993 Plan, of which a total of 575,251 shares are subject to options  granted to
certain senior management, key employees and a director.

     On March 6, 1997, the Board of Directors of the Holding Company adopted the
1997 Long Term  Incentive  Plan (the "1997  Plan"),  which was  approved  by the
Holding Company's  stockholders in June 1997. The 1997 Plan, which is similar to
the 1993 Plan,  is intended as a successor to the 1993 Plan and provides for the
grant of the same  types of awards  as are  currently  available  under the 1993
Plan.  The Board of Directors  adopted an amendment to the 1997 Plan,  which was
approved by the Holding Company's  stockholders in June 1998, whereby the number
of options  available  for issuance  under the 


                                      F-15


<PAGE>

                        FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5-LONG TERM INCENTIVE PLANS AND MANAGEMENT PURCHASE OF 
       COMMON STOCK (continued)

1997 Plan were  increased  to  850,000.  Of the  850,000  shares of the  Holding
Company's Common Stock that have been reserved for issuance pursuant to the 1997
Plan, a total of 542,582 shares,  as of January 30, 1999, are subject to options
granted to certain senior management,  key employees and directors. The exercise
prices of such options range from $13.875 per share to $24.313 per share.

     Finlay  has  adopted  the  disclosure-only  provisions  of  SFAS  No.  123,
"Accounting for Stock-Based  Compensation,"  which became  effective in 1996. As
permitted by SFAS No. 123, Finlay elected to continue to account for stock-based
compensation  using the intrinsic  value method.  Accordingly,  no  compensation
expense has been recognized for its stock-based compensation plans. Had the fair
value method of accounting  been applied to the Holding  Company's  stock option
plans, which requires  recognition of compensation cost ratably over the vesting
period of the stock  options,  net income would have been reduced by $219,000 in
1996, $330,000 in 1997 and $601,000 in 1998. This pro forma impact only reflects
options  granted  since  the  beginning  of 1995  and  therefore  the  resulting
compensation  cost may not be  representative  of that to be  expected in future
years.

     The fair value of  options  granted  in 1996,  1997 and 1998 was  estimated
using the  Black-Scholes  option-pricing  model  based on the  weighted  average
market  price at the grant date of $13.56 in 1996,  $14.95 in 1997 and $16.15 in
1998 and the following weighted average assumptions:  risk free interest rate of
6.67%, 6.57% and 5.17% for 1996, 1997 and 1998,  respectively,  expected life of
seven years for each of 1996,  1997 and 1998 and  volatility of 35.10% for 1996,
32.98% for 1997 and 44.95% for 1998. The weighted  average fair value of options
granted in 1996, 1997 and 1998 was $6.88, $7.33 and $8.88, respectively.

     The following summarizes the transactions pursuant to the Holding Company's
1993 Plan and 1997 Plan for 1996, 1997 and 1998:
<TABLE>
<CAPTION>

                                                  1996                           1997                           1998
                                        --------------------------     --------------------------    ---------------------------
                                         Number of      Wtd. Avg.       Number of      Wtd. Avg.      Number of       Wtd. Avg.
                                          Options       Ex. Price        Options       Ex. Price       Options        Ex. Price
                                        -----------    -----------     -----------    -----------    -----------     -----------
<S>                                        <C>         <C>                <C>         <C>               <C>          <C>       
Outstanding at beginning of year...        545,834     $    11.61         523,767     $    11.93        989,500      $    13.55
Granted............................         21,333          13.56         505,167          14.95        201,067           16.15
Exercised..........................        (27,826)          7.23         (23,241)          8.74        (56,993)           8.69
Forfeited..........................        (15,574)         11.45         (16,193)         11.25        (15,741)          13.03
                                        -----------    -----------     -----------    -----------    -----------     -----------
Outstanding at end of year.........        523,767          11.93         989,500          13.55      1,117,833           10.27
                                        ===========    ===========     ===========    ===========    ===========     ===========
Exercisable at end of year.........        207,122     $    10.94         282,020     $    11.47        349,660      $    11.32
</TABLE>

     The options  outstanding  at January 30, 1999 have exercise  prices between
$7.23 and  $24.31,  with a  weighted  average  exercise  price of  $10.27  and a
weighted average  remaining  contractual life of 7.54 years.  Options  generally
vest in five years and expire in ten years from their dates of grant.

     Upon the  commencement of his  employment,  a senior officer of the Holding
Company purchased 138,525 shares of Common Stock (the "Purchased Shares"),  at a
price of $7.23 per share. The aggregate  purchase price of these shares was paid
in the form of a note issued to the Holding Company in the amount of $1,001,538.
On April 24, 1998, the senior  officer sold 100,000 of the Purchased  Shares and
repaid the note.




                                      F-16

<PAGE>
                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5-LONG TERM INCENTIVE PLANS AND MANAGEMENT PURCHASE OF 
       COMMON STOCK (continued)

     On December 1, 1998, the  Compensation  Committee of the Board of Directors
of the  Holding  Company  approved  the  repricing  of  292,103  of the  Holding
Company's  outstanding  stock  options  at an  exercise  price of  $8.25,  which
excludes  stock options  previously  granted to certain  senior  executives  and
members of the Board of  Directors.  Shares  acquired  upon the exercise of such
repriced  options may not be sold for a period of one year. On December 1, 1998,
60,000 stock  options were  granted to three  senior  executives  at an exercise
price of $8.25.  Such options vest over a period of three years,  50% in each of
the second and third years.

NOTE 6--LEASE AGREEMENTS

     Finlay conducts  substantially all of its operations as leased  departments
in department  stores.  All of these leases, as well as rentals for office space
and equipment,  are accounted for as operating  leases. A substantial  number of
such operating leases expire on various dates through 2008.

     Substantially  all of the department store leases provide that the title to
certain fixed assets of Finlay  transfers upon  termination  of the leases,  and
that Finlay will receive the  undepreciated  value of such fixed assets from the
host store in the event such  transfers  occur.  The values of such fixed assets
are recorded at the inception of the lease  arrangement and are reflected in the
accompanying Consolidated Balance Sheets.

     In many cases,  Finlay is subject to limitations under its lease agreements
with host department stores which prohibit Finlay from operating departments for
other store groups within a certain geographical radius of the host store.

     The store leases  provide for the payment of fees based on sales,  plus, in
some instances,  installment payments for fixed assets. Lease expense,  included
in Selling, general and administrative expenses, is as follows (in thousands):
<TABLE>
<CAPTION>
                                                                          Year Ended
                                                         ---------------------------------------------
                                                          February 1,      January 31,     January 30,
                                                              1997            1998            1999
                                                         -------------    ------------    ------------
<S>                                                      <C>              <C>             <C>        
           Minimum fees..............................    $      6,188     $     9,732     $    24,824
           Contingent fees...........................         103,319         115,331         115,720
                                                         -------------    ------------    ------------
                Total................................    $    109,507     $   125,063     $   140,544
                                                         =============    ============    ============
</TABLE>

     Future  minimum  payments  under  noncancellable  operating  leases  having
initial or  remaining  noncancellable  lease  terms in excess of one year are as
follows as of January 30, 1999:
<TABLE>
<CAPTION>                                                                    
                                                               (in thousands)
                                                               --------------
<S> <C>                                                        <C>         
    1999.................................................      $     22,264
    2000.................................................            17,839
    2001                                                              3,428
    2002                                                              2,633
    2003                                                              2,444
    Thereafter...........................................             9,106
                                                               --------------
         Total minimum payments required.................      $     57,714
                                                               ==============
</TABLE>

                                      F-17

<PAGE>
                                            
                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7--PENSION PLANS

     Finlay  maintains  a defined  contribution  profit-sharing  plan to provide
retirement  benefits for all personnel.  This plan provides for company matching
contributions of $.25 for each $1.00 of employee  contribution,  up to 5% of the
employee's salary, as limited by the Code.  Additionally,  Finlay contributes 2%
of the employees' earnings annually, as limited by the Code. Vesting in Finlay's
contributions begins upon completion of three years of employment and accrues at
the rate of 20% per year.

     Finlay also provides fixed retirement benefits for certain former employees
not covered by existing pension plans. The estimated liability for such benefits
has  been  accrued  for  in  these  financial  statements  and is  reflected  as
components of Other accrued liabilities and Other non-current liabilities.

     The cost of the  defined  contribution  plan  maintained  by Finlay and the
retirement  benefits  for  certain  former  employees   aggregated   $1,753,000,
$1,771,000 and $2,043,000 for 1996, 1997 and 1998, respectively.

















                                      F-18

<PAGE>
                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8--INCOME TAXES

     For income tax reporting  purposes,  Finlay  Jewelry has an October 31 year
end.  Finlay  Jewelry files a  consolidated  Federal  income tax return with its
wholly owned subsidiaries and its parent, the Holding Company.  Finlay Jewelry's
provision  for  income  taxes  and  deferred  tax  assets  and  liabilities  was
calculated as if Finlay Jewelry filed its tax return on a stand-alone basis.

     Deferred  income  taxes  at  year  end  reflect  the  impact  of  temporary
differences  between  amounts of assets and  liabilities  for  financial and tax
reporting purposes.

     Deferred tax assets and liabilities at year end are as follows:
<TABLE>
<CAPTION>
                                                                                              Year Ended
                                                                                    ------------------------------
                                                                                     January 31,      January 30,
                                                                                        1998              1999
                                                                                    ------------      ------------
                                                                                           (in thousands)
Deferred Tax Assets
<S>                                                                                 <C>               <C>        
  Uniform inventory capitalization...............................................   $     3,569       $     3,483
  Expense not currently deductible...............................................         3,492             2,832
  ITC carryover..................................................................           950               301
  AMT credit.....................................................................           566               566
                                                                                    ------------      ------------
                                                                                          8,577             7,182
  Valuation allowance............................................................         1,050               401
                                                                                    ------------      ------------
     Total current...............................................................         7,527             6,781
                                                                                    ------------      ------------
  Deferred financing costs-non-current...........................................           293               191
                                                                                    ------------      ------------
     Total non-current...........................................................           293               191
                                                                                    ------------      ------------
        Total deferred tax assets................................................         7,820             6,972
                                                                                    ------------      ------------
Deferred Tax Liabilities
  LIFO inventory valuation.......................................................         8,747             8,947
                                                                                    ------------      ------------
     Total current...............................................................         8,747             8,947
                                                                                    ------------      ------------
  Depreciation...................................................................         8,295             9,214
                                                                                    ------------      ------------
     Total non-current...........................................................         8,295             9,214
                                                                                    ------------      ------------
        Total deferred tax liabilities...........................................        17,042            18,161
                                                                                    ------------      ------------
          Net deferred income tax liabilities....................................   $     9,222       $    11,189
                                                                                    ============      ============
     Net current deferred income tax liabilities.................................   $     1,220       $     2,166
     Net non-current deferred income tax liabilities.............................         8,002             9,023
                                                                                    ------------      ------------
          Net deferred income tax liabilities....................................   $     9,222       $    11,189
                                                                                    ============      ============
</TABLE>
     The components of income tax expense are as follows (in thousands):
<TABLE>
<CAPTION>

                                                                          Year Ended
                                                         ---------------------------------------------
                                                          February 1,     January 31,     January 30,
                                                             1997            1998            1999
                                                         ------------    ------------    ------------
<S>                                                      <C>             <C>             <C>        
           Current domestic taxes....................    $    12,291     $   13,1104     $    14,880
           Current foreign taxes.....................          1,045             600          (1,759)
           Deferred taxes............................          1,165           1,818           2,202
                                                         ------------    ------------    ------------
           Income tax expense........................    $    14,501     $    15,528     $    15,323
                                                         ============    ============    ============
</TABLE>
                                      F-19
<PAGE>


                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8--INCOME TAXES (continued)

     A  reconciliation  of the income tax  provision  computed by  applying  the
federal statutory rate to Income (loss) before income taxes to the Provision for
income taxes on the  accompanying  Consolidated  Statements  of Operations is as
follows (in thousands):
<TABLE>
<CAPTION>
                                                                          Year Ended
                                                         ---------------------------------------------
                                                          February 1,     January 31,     January 30,
                                                              1997           1998            1999
                                                         ------------    ------------    ------------
<S>                                                      <C>             <C>             <C>        
     Federal Statutory provision....................     $    11,367     $    12,757     $    13,046
     Foreign taxes..................................           1,045             600          (1,759)
     State tax, net of federal benefit..............           1,934           1,589           1,096
     Non-deductible amortization....................           1,037           1,037           1,037
     Loss (benefit) of foreign tax credit...........          (1,045)           (600)          1,759
     Other..........................................             163             145             144
                                                         ------------    ------------    ------------
     Provision for income taxes.....................     $    14,051     $    15,528     $    15,323
                                                         ============    ============    ============
</TABLE>

     Section  382 of the  Code  restricts  utilization  of  net  operating  loss
("NOLs")  carryforwards  after an ownership change exceeding 50%. As a result of
the  1993  Recapitalization,  a  change  in  ownership  of the  Holding  Company
exceeding 50% occurred  within the meaning of Section 382 of the Code (a "Change
of  Control").   Similar   restrictions  will  apply  to  other   carryforwards.
Consequently, there is a material limitation on the annual utilization of Finlay
Jewelry's net operating loss and other  carryforwards  which requires a deferral
or loss of the utilization of such  carryforwards.  At October 31, 1998,  Finlay
Jewelry has a NOL  carryforward  for tax purposes of  approximately  $11,500,000
which is subject to an annual limit of  approximately  $2,000,000  per year,  of
which $7,500,000  expires in 2004 and $4,000,000 expires in 2005. At October 31,
1998,   Finlay  Jewelry  had   investment  tax  credit  ("ITC")   carryovers  of
approximately  $301,000,  of which $264,000 expires in 1999 and $37,000 in 2000.
At October 31,  1998,  Finlay  Jewelry also had  Alternative  Minimum Tax Credit
("AMT")  carryovers of $566,000 which may be used indefinitely to reduce federal
income taxes.  An additional  change in ownership  within the meaning of Section
382 of the Code occurred as a result of the 1997 Offering.  However,  there were
no additional  restrictions upon Finlay Jewelry's ability to utilize its NOLs or
other carryforwards as a result of such ownership change.

     SFAS No. 109 "Accounting  for Income Taxes,"  requires that the tax benefit
of such  NOLs  and tax  credits  be  recorded  as an asset  to the  extent  that
management  assesses  the  utilization  to be "more  likely  than  not".  As the
accompanying  Consolidated Financial Statements include profits earned after the
tax year end at October 31  (the profit of the  year-end  holiday  season),  for
financial  reporting  purposes only, the NOL  carryforward  has been absorbed in
full and no NOL carryfoward exists as of January 30, 1999. Management determined
at January 30,  1999,  that based upon  Finlay  Jewelry's  history of  operating
earnings  and its  expectations  for the  future,  no  change  to the  valuation
allowance is  warranted,  with the  exception of amounts  utilized to offset the
expiration during 1998 of an ITC carryover.






                                      F-20

<PAGE>
                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9--COMMITMENTS AND CONTINGENCIES

     Finlay Jewelry, from time to time, is involved in litigation concerning its
business  affairs.  Management  believes  that  the  resolution  of all  pending
litigation will not have a material adverse effect on the consolidated financial
statements.

     Finlay Jewelry has an employment  agreement with one senior executive which
provides for a minimum salary level as well as incentive  compensation  based on
meeting  specific  financial  goals.  Such agreement has a remaining term of two
years and has a remaining  aggregate minimum value of approximately $1.5 million
as of January 30, 1999.

     The Revolving  Credit  Agreement,  the Gold  Consignment  Agreement and the
Senior  Note  Indenture  currently  restrict  annual  distributions  from Finlay
Jewelry to the Holding  Company to 0.25% of Finlay  Jewelry's  net sales for the
preceding  fiscal year and also allow  distributions  to the Holding  Company to
enable it to make  interest  payments  on the Senior  Debentures.  During  1998,
dividends of $7,118,000  were declared and  $3,506,000  was  distributed  to the
Holding  Company.  During 1997,  dividends of $1,712,000  were declared.  During
1996,  dividends of $1,636,000 were declared and $818,000 was distributed to the
Holding Company.

     The Company's concentration of credit risk consists principally of accounts
receivable.  Approximately  75%, 72% and 68% of Finlay's domestic sales in 1996,
1997 and 1998  respectively,  were from operations in The May Department  Stores
Company  ("May") and  departments  operated in store  groups  owned by Federated
Department Stores, of which 51%, 49% and 47% represented Finlay's domestic sales
in May in the respective years. Finlay Jewelry believes that the risk associated
with these receivables,  other than those from department store groups indicated
above,  would not have a material adverse effect on Finlay  Jewelry's  financial
position or results of operations.












                                      F-21

<PAGE>
                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10--QUARTERLY FINANCIAL DATA (UNAUDITED)

     The following table summarizes the quarterly  financial data for 1996, 1997
and 1998 (dollars in thousands, except per share data):
<TABLE>
<CAPTION>
                                                                        Year Ended February 1, 1997
                                                      ----------------------------------------------------------
                                                         First          Second          Third          Fourth
                                                        Quarter         Quarter        Quarter         Quarter
                                                      -----------     -----------    -----------     -----------
<S>                                                   <C>             <C>            <C>             <C>       
  Sales..........................................     $  130,719      $  137,188     $  136,140      $  281,227
  Gross margin...................................         66,681          71,343         70,360         146,590
  Net income (loss)..............................         (2,929)            (15)        (1,091)         21,997
</TABLE>

<TABLE>
<CAPTION>                                                                                                      

                                                                        Year Ended January 31, 1998
                                                      ----------------------------------------------------------
                                                         First          Second          Third          Fourth
                                                        Quarter         Quarter        Quarter         Quarter
                                                      -----------     -----------    -----------     -----------
<S>                                                   <C>             <C>            <C>             <C>       
  Sales..........................................     $  134,592      $  148,060     $  148,770      $  338,440
  Gross margin...................................         68,870          75,948         77,107         176,852
  Net income (loss)..............................         (2,599)            351         (2,549)         25,718
</TABLE>

<TABLE>
<CAPTION>                                                                                                       
                                                                        Year Ended January 30, 1999
                                                      ----------------------------------------------------------
                                                         First          Second          Third          Fourth
                                                        Quarter        Quarter(a)      Quarter         Quarter
                                                      -----------     -----------    -----------     -----------
<S>                                                   <C>             <C>            <C>             <C>       
  Sales..........................................     $  160,992      $  177,366     $  165,894      $  359,176
  Gross margin...................................         82,888          90,057         84,687         184,346 
  Net income (loss)..............................         (2,574)         (5,093)        (2,655)         27,519
                                                                                                          
</TABLE>
____________________________
(a)  The second  quarter of 1998  includes  $417,000  of  nonrecurring  interest
     expense   associated   with  the  refinancing  of  the  Old  Notes  and  an
     extraordinary  charge,  net of tax, of $4,755,000 in  conjunction  with the
     repayment of the Old Notes.

NOTE 11--ACQUISITION

     On October 6, 1997,  Finlay  completed the acquisition of certain assets of
the Diamond Park Fine Jewelers division of Zale Corporation  ("Diamond Park"), a
leading operator of leased departments,  for approximately $63.0 million,  which
includes  approximately  $4.9 million for the purchase of  additional  inventory
acquired in March 1998 and the reimbursement of certain expenses incurred by the
Zale  Corporation.  By acquiring  Diamond Park, Finlay added 139 departments and
also added new host store  relationships  with  Marshall  Field's,  Parisian and
Dillard's,  formerly the Mercantile  Stores.  Finlay financed the acquisition of
Diamond  Park  (the  "Diamond  Park  Acquisition")  with  borrowings  under  the
Revolving Credit Agreement.

     The Diamond Park  Acquisition  has been  accounted for as a purchase,  and,
accordingly,  the operating  results of the former Diamond Park departments have
been included in Finlay Jewelry's  consolidated  financial  statements since the
date of the acquisition.  Finlay Jewelry has recorded  goodwill of approximately
$12.4 million.

                                      F-22

<PAGE>
                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11-ACQUISITION (continued)

     The purchase price allocation as of January 30, 1999 is as follows:
<TABLE>
<CAPTION>

<S>                                                                                         <C>      
  Payment for purchase of Diamond Park assets....................                    $  62,481
    Inventory....................................................     $  47,112
       Fixed assets..............................................         4,443
       Prepaid and other assets..................................           900
       Acquisition and integration costs.........................        (1,520)
       Other.....................................................          (836)
                                                                      ----------
  Fair value of assets acquired and costs incurred...............                       50,099
                                                                                     ----------
  Goodwill.......................................................                    $  12,382
                                                                                     ==========
</TABLE>

     The  following   summarized,   unaudited  pro  forma  combined  results  of
operations  for the years ended  February 1, 1997 and January 31, 1998 have been
prepared assuming the Diamond Park Acquisition  occurred at the beginning of the
respective  periods.  The pro forma  information  is provided for  informational
purposes  only.  It is  based  on  historical  information,  as well as  certain
assumptions and estimates,  and does not necessarily  reflect the actual results
that would have occurred nor is it  necessarily  indicative of future results of
operations of the combined company (dollars in thousands):
<TABLE>
<CAPTION>
                                                                            (Unaudited)
                                                                             Year Ended
                                                                    -----------------------------
                                                                     February 1,     January 31,
                                                                       1997             1998
                                                                    ------------    ------------
<S>                                                                 <C>             <C>        
  Sales ......................................................      $   778,145     $   822,820
  Net income (loss)...........................................      $    18,961     $    19,654
</TABLE>










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