FAIRFIELD COMMUNITIES INC, 424B4, 1996-11-22

FAIRFIELD COMMUNITIES INC
424B4, 1996-11-22
OPERATIVE BUILDERS

Previous: FAIRFIELD COMMUNITIES INC, S-8, 1996-11-22

Next: NUVEEN TAX EXEMPT UNIT TRUST SERIES 112-NATIONAL TRUST 112, 485BPOS, 1996-11-22

<PAGE>

PROSPECTUS Filed pursuant to Rule 424(b)(4)
SEC File No. 33-14875
[LOGO OF FAIRFIELD 2,077,153 SHARES
APPEARS HERE]
FAIRFIELD COMMUNITIES, INC.

COMMON STOCK

Of the 2,077,153 shares of Common Stock, par value $0.01 per share ("Common
Stock"), of Fairfield Communities, Inc. ("Fairfield") offered hereby, 900,000
shares are being sold by Fairfield and 1,177,153 shares are being sold by
Physicians Insurance Company of Ohio, an Ohio corporation ("Physicians"), or a
direct or indirect subsidiary thereof (together with Physicians, the "Selling
Stockholder"). See "Principal and Selling Stockholders" and "Underwriting."
Fairfield will not receive any part of the proceeds from the sale of the
shares by the Selling Stockholder.

Fairfield's Common Stock is listed on the New York Stock Exchange (the
"NYSE") under the trading symbol "FFD." On November 21, 1996, the closing sale
price of the Common Stock as reported by the NYSE was $22.

SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON
STOCK.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDER(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................ $21.625 $1.25 $20.375 $20.375
- --------------------------------------------------------------------------------
Total(3)................. $44,918,433 $2,596,441 $18,337,500 $23,984,492
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) See "Underwriting" for information relating to indemnification of the
Underwriters.
(2) Before deducting expenses estimated at $275,000, of which $247,000 will be
payable by Fairfield and $28,000 will be payable by the Selling
Stockholder.
(3) The Selling Stockholder has granted the Underwriters a 30-day option to
purchase up to 311,573 shares of Common Stock on the same terms as set
forth above to cover over-allotments, if any. If the option is exercised
in full, Price to Public, Underwriting Discounts and Commissions, and
Proceeds to Selling Stockholder will be 51,656,200, 2,985,908, and
30,332,792, respectively. See "Underwriting."

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

The shares of Common Stock are offered severally by the Underwriters named
herein, subject to prior sale, when, as and if delivered to and accepted by
the Underwriters. The Underwriters reserve the right to reject orders in whole
or in part and to withdraw, cancel or modify the offer without notice. It is
expected that delivery of certificates representing the shares of Common Stock
will be made on or about November 26, 1996.

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

STEPHENS INC. DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

The date of this Prospectus is November 21, 1996.
<PAGE>

[This page includes a map of the United States with the Fairfield Destination
Resorts, Regional Resorts and off-site sales offices identified.]

IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF FAIRFIELD AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

2
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes thereto appearing elsewhere
in this Prospectus. In this Prospectus, the term "Fairfield" refers to
Fairfield Communities, Inc., a Delaware corporation, and its subsidiaries.
Except as otherwise specified herein, all information reflects the public
offering price of $21.625 per share. This Prospectus contains forward-looking
statements which involve certain risks and uncertainties. See "Forward-Looking
Information." Actual results and events may differ significantly from those
discussed in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed under "Risk
Factors" herein. Unless indicated otherwise, all statistics in this Prospectus
relating to the timeshare industry generally (other than Fairfield statistics)
are from, or have been derived from, 1995 information published in Vacation
Ownership World or 1994 information (the most recent year for which industry
statistics are available) published or provided by the American Resort
Development Association ("ARDA"), a non-profit industry organization.

THE COMPANY

Fairfield is the largest vacation ownership company in the United States in
terms of property owners and vacation ownership units constructed. Fairfield's
15 resorts are located in 11 states; five resorts are in destination areas with
popular vacation attractions ("Destination Resorts") and 10 regional resorts
are in scenic locations ("Regional Resorts"). Fairfield's principal business is
selling vacation ownership interests ("VOIs"), commonly known as timeshares,
primarily through its innovative points-based vacation system, FairShare
Plus(R). Fairfield also offers financing for VOI purchasers, which results in
the creation of high-quality, medium-term contracts receivable with attractive
yields. Fairfield intends to continue to grow its timeshare business by
developing new and existing timeshare resorts in destination locations,
expanding its sales and marketing programs, and making strategic acquisitions.

Since 1980, Fairfield has sold more than $1.0 billion of VOIs. Fairfield's
net revenue from sales of VOIs has increased from $33.5 million in 1993 to
$85.5 million in 1995. Fairfield had net revenues from VOI sales of $63.5
million and $84.5 million for the nine-month periods ended September 30, 1995
and 1996, respectively. At September 30, 1996, Fairfield had undeveloped
property at its Destination Resorts on which the present master plans provide
for approximately 816 additional units, which if sold at current prices would
represent approximately $544 million in sales. Fairfield's interest income from
its financing activities totaled $19.1 million and $14.6 million in 1995 and
the nine-month period ended September 30, 1996, respectively. At September 30,
1996, Fairfield had a portfolio of approximately 43,400 contracts receivable
amounting to $149.4 million with outstanding borrowings of $62.3 million
secured by the contracts receivable. These contracts receivable had a weighted
average maturity of approximately five years and a weighted average interest
rate of 13.6%, compared to a weighted average cost of associated debt of 8.8%
at September 30, 1996.

During the 15 years ended 1994 (the most recent year for which statistics are
available), the total annual sales volume for the timeshare industry increased
from $490 million to $4.76 billion. Fairfield believes that the industry has
benefited recently from increased consumer acceptance of the timeshare concept
due in part to effective governmental regulation of the industry, increased
vacation flexibility resulting from the growth of VOI exchange networks, and
the entry into the industry of national lodging and hospitality companies such
as Marriott International, Inc., The Walt Disney Company, Hilton Hotels
Corporation, Hyatt Corporation and others. Traditionally, the timeshare
industry has been highly fragmented with a large number of local and regional
resort developers and operators, each with small resort holdings generally of
differing quality. Fairfield believes that the industry will experience
consolidation as only large and financially strong companies will be able to
(i) satisfy increasing customer demand for higher quality resorts, (ii) ensure
that customers can exchange their vacation ownership products for other
desirable accommodations, seasons, and types of vacation experiences, and (iii)
maintain favorable margins and obtain financing on competitive terms.

3
<PAGE>

Fairfield believes that it is well positioned to take advantage of these
industry trends and to satisfy changing customer demands. Fairfield was one of
the leaders in implementing an innovative points-based vacation system that
responds to VOI owners' desires for greater flexibility to vary location,
season, length of stay, and size and type of unit. In addition, the prices of
Fairfield's VOIs typically range from $5,700 to $17,200 per Equivalent Week (as
defined herein), with an average sales price for the nine-month period ended
September 30, 1996 of approximately $12,300 per Equivalent Week. Because of its
pricing structure, Fairfield's target market consists of approximately 48
million households, which is believed to be broader than the segments of the
timeshare market targeted by most of the national lodging and hospitality
companies. Fairfield also believes that the high quality of its resorts
provides it with a competitive advantage when potential customers evaluate the
vacation opportunities available through Fairfield. Of Fairfield's 15 resorts,
11 have been awarded the Gold Crown Resort Designation, the highest level of
distinction, from Resorts Condominiums International, Inc. ("RCI").

Fairfield's points-based vacation system, FairShare Plus (R), represents the
next generation of vacation ownership products under which a VOI owner
purchases a deeded real estate interest in one or more vacation ownership units
with a corresponding annual allotment of points that may be used to customize
the owner's vacation experience through the FairShare Plus (R) reservation
system. Through the FairShare Plus (R) vacation system, a Fairfield VOI owner
is not limited to a vacation at a single location but can apply his or her
annual points for a single extended stay or several shorter stay vacations at
any location or type of unit or during any season desired by the VOI owner in
accordance with established exchange rates. To achieve maximum flexibility, a
VOI owner may under certain circumstances borrow future years' points or rent
points for a fee to obtain his or her desired vacation.

In 1992, Fairfield successfully reorganized under Chapter 11 of the
Bankruptcy Code. Before Fairfield's reorganization, it focused its VOI business
on the development of Regional Resorts, which required construction and
development of large-scale amenities such as golf courses and other
recreational facilities to attract vacationers to those resorts. Since the
reorganization, Fairfield has focused on its core business of marketing and
financing vacation ownership products and has sold over $120 million of non-
core assets, the proceeds of which have been used to reduce indebtedness and
reinvest in VOI operations. Fairfield has also changed the focus of its
vacation ownership business from developing Regional Resorts to constructing
units in Destination Resorts, thereby eliminating the need for developing
large-scale amenities to attract vacationers, lowering development expense,
reducing development risk, and increasing its access to a steady source of
potential customers.

. Acquire and develop properties in destination locations. Since 1992,
Fairfield has opened four Destination Resorts in the destination cities
of Branson, Missouri; Nashville, Tennessee; and Orlando, Florida and has
added a second development at Myrtle Beach, South Carolina. In addition
to developing its existing Destination Resorts, Fairfield intends to
acquire and develop approximately one to two additional Destination
Resorts each year.

. Expand sales and more efficiently focus its marketing programs to
prospective buyers. The development of a points-based vacation system has
enabled Fairfield to more rapidly expand its marketing and sales efforts
by opening off-site sales offices in population centers remote from its
resorts, maintain successful sales operations at Regional Resorts where
Fairfield is not currently constructing additional units, and sell more
effectively at destination locations. Fairfield also expects to further
expand its resort management and affiliation businesses to enhance its
marketing and sales efforts.

. Pursue acquisitions of other timeshare operations that would complement
Fairfield's operations. Fairfield believes that its strong balance sheet,
further enhanced by this offering, and access to the public and private
capital markets will permit it to take advantage of attractive
acquisition opportunities that may occur as a result of industry
consolidation. Fairfield will evaluate acquisition opportunities on the
basis of expected financial benefits, quality and location of resorts,
property owner base, quality of contracts receivable, experience of sales
personnel and other factors.

4
<PAGE>

Fairfield's principal executive offices are located at 2800 Cantrell Road,
Little Rock, Arkansas 72202, and its telephone number is (501) 664-6000.

THE OFFERING

Common Stock offered by Fairfield.........
900,000 shares

Common Stock offered by the Selling 1,177,153 shares(1)
Stockholder..............................

Total................................. 2,077,153 shares(1)

Common Stock to be outstanding after the
offering................................. 10,989,446 shares(2)

Use of proceeds........................... Fairfield expects to use the net
proceeds of this offering to repay
certain existing indebtedness and
for general corporate purposes. See
"Use of Proceeds."

New York Stock Exchange symbol............ FFD
- --------
(1) Does not include up to 311,573 shares of Common Stock subject to an over-
allotment option granted by the Selling Stockholder to the Underwriters.
See "Underwriting."
(2) Does not include 1,107,000 shares of Common Stock reserved for issuance
pursuant to Fairfield's employee stock purchase plan (200,000), management
warrant plan (847,000) and restricted stock agreement (60,000).
Additionally, does not include 680,420 shares of Common Stock that
Fairfield has (i) estimated may be issuable under its plan of
reorganization to satisfy various claims other than the FCI Notes and (ii)
included in calculating net earnings per share data included herein. See
"Use of Proceeds."

5
<PAGE>

SUMMARY FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND AVERAGE PRICE DATA)

The following table sets forth summary historical financial and certain other
data of Fairfield. The balance sheet data of Fairfield as of December 31, 1994
and 1995 and operating and net earnings per share data for each of the years
ended December 31, 1993, 1994 and 1995 have been derived from audited financial
statements of Fairfield included elsewhere in this Prospectus. The balance
sheet data of Fairfield as of December 31, 1993 have been derived from audited
financial statements which are not included in this Prospectus. The operating
and net earnings per share data and balance sheet data of Fairfield as of and
for the nine months ended September 30, 1995 and 1996 have been derived from
unaudited financial statements of Fairfield and, in the opinion of Fairfield's
management, reflect all adjustments (which include only normal recurring
adjustments) necessary to present fairly the information set forth therein. The
interim results are not necessarily indicative of fiscal year performance
because of the impact of seasonal and short-term variations. The summary
financial data should be read in conjunction with "Management's Summary
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and notes thereto included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------- ------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Revenues:
Vacation ownership, net..... $ 33,472 $ 53,085 $ 85,460 $ 63,459 $ 84,460
Lots, net................... 7,399 7,981 7,817 5,185 7,217
Resort management........... 10,876 11,413 14,554 11,205 12,675
Interest.................... 24,089 20,366 19,111 14,259 14,577
Other....................... 14,270 13,709 15,209 11,189 9,985
Gain on sale of First
Federal, net............... -- 5,200 -- -- --
Savings and loan
operations................. 18,762 -- -- -- --
-------- -------- -------- -------- --------
108,868 111,754 142,151 105,297 128,914
-------- -------- -------- -------- --------
Expenses:
Cost of sales:
Vacation ownership.......... 9,275 14,958 23,838 17,841 21,260
Lots........................ 1,705 1,855 1,970 1,349 1,684
Provision for loan losses... 3,252 4,430 6,505 4,925 4,186
Selling..................... 20,715 31,176 50,738 37,451 46,801
Resort management........... 11,057 9,991 13,106 9,908 10,631
General and administrative.. 9,390 10,456 11,844 8,545 10,718
Interest.................... 14,449 10,528 8,562 6,518 5,119
Other....................... 9,353 13,213 12,550 9,021 8,660
Savings and loan
operations................. 19,345 -- -- -- --
-------- -------- -------- -------- --------
98,541 96,607 129,113 95,558 109,059
-------- -------- -------- -------- --------
Earnings before provision for
income taxes................ 10,327 15,147 13,038 9,739 19,855
Provision for income taxes... 3,157 2,878 5,009 3,701 7,810
-------- -------- -------- -------- --------
Net earnings................. $ 7,170 $ 12,269 $ 8,029 $ 6,038 $ 12,045
======== ======== ======== ======== ========
NET EARNINGS PER SHARE DATA
Primary...................... $ .65 $ 1.11 $ .72 $ .55 $ 1.07
Fully diluted................ $ .61 $ 1.05 $ .69 $ .51 $ 1.01
Weighted average shares
outstanding (in thousands):
Primary..................... 11,038 11,069 11,080 11,065 11,287
Fully diluted............... 11,693 11,674 11,688 11,768 11,967
OTHER DATA
EBITDA(a).................... $ 27,296 $ 21,734 $ 23,731 $ 17,720 $ 27,140
Net cash provided by (used
in):
Operating activities........ $ 9,500 $ 12,927 $ 8,654 $ 6,586 $ 26,535
Investing activities........ $ 12,661 $ (5,253) $ 2,061 $ 1,274 $(14,193)
Financing activities........ $(78,607) $ 1,492 $(22,261) $(18,897) $(11,922)
Number of resorts at period
end......................... 13 15 15 15 15
Number of off-site sales
offices..................... 1 2 2 2 3
Number of Equivalent Weeks
sold(b)..................... 3,796 4,918 7,411 5,336 6,994
Average price of Equivalent
Weeks sold(b)............... $ 9,035 $ 10,747 $ 11,597 $ 11,912 $ 12,321
BALANCE SHEET DATA (AT PERIOD
END)
Loans receivable, net........ $167,465 $139,810 $139,674 $140,037 $146,858
Total assets................. 245,073 224,726 215,518 214,294 234,901
Total financing
arrangements................ 112,581 111,943 86,982 91,430 73,528
Stockholders' equity......... 47,148 66,935 81,227 76,463 104,253
</TABLE>

6
<PAGE>

(a) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization and excludes savings and loan operations in
1993 and the gain on the sale of First Federal Savings and Loan Association
of Charlotte in 1994, but includes interest income. See "Management's
Summary Discussion and Analysis of Financial Condition and Results of
Operations--Reorganization." Management believes that EBITDA is a useful
measure of operating performance because it is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
EBITDA does not represent cash flow from operations as defined by generally
accepted accounting principles ("GAAP"), is not necessarily indicative of
cash available to fund all cash flow needs and should not be considered as
an alternative to net income under GAAP for purposes of evaluating
Fairfield's results of operations.
(b) The number of equivalent vacation weeks ("Equivalent Weeks") represents the
number of allocated points under the FairShare Plus(R) vacation system
equivalent to 1/52 of the total annual points allocated to a vacation
ownership unit. As the Fairshare Plus(R) vacation system is not limited to
fixed weeks, Fairfield does not report sales of fixed weeks. However, to
facilitate the comparison of Fairfield's sales to others in the industry,
Fairfield has calculated Equivalent Weeks for purposes of this Prospectus.

7
<PAGE>

RISK FACTORS

In addition to the other information contained in this Prospectus, the
following risks and investment considerations should be carefully considered
in evaluating Fairfield and its business before purchasing any of the shares
of Common Stock offered hereby. Each of the following factors may have a
material adverse effect on Fairfield's operations, financial results,
financial condition, liquidity, market valuation or market liquidity in future
periods.

TIMESHARE INDUSTRY OPERATING RISKS

Fairfield's business is subject to all of the operating risks inherent in
the timeshare industry. These risks include an oversupply of timeshare units,
a reduction in demand for timeshare units, changes in travel and vacation
patterns, changes in governmental regulations of the timeshare industry and
increases in construction costs or taxes, as well as negative publicity
concerning the industry. The timeshare industry is highly fragmented,
containing a large number of developers. In the past the timeshare industry as
a whole has experienced a negative image as a result of various developers
employing high pressure sales and marketing tactics, constructing low quality
units and engaging in other potentially misleading practices. Consequently,
negative publicity with respect to any one or more developers in the timeshare
industry could have a disproportionate effect on all of the developers in the
industry.

RISKS ASSOCIATED WITH ACQUISITIONS AND NEW DEVELOPMENT

Fairfield intends to continue to acquire and develop new Destination
Resorts. However, the ability to acquire attractive locations may be limited
due to competition or higher prices than those of locations in less-developed
areas. Moreover, to successfully implement its business strategies, Fairfield
must integrate the newly acquired or developed resorts into its existing sales
and marketing programs, including its FairShare Plus(R) vacation system and
proprietary timeshare exchange program.

During the start-up phase of a new resort, Fairfield expects to experience
lower margins at that resort until the resort's operations mature. The lower
margins could be substantial and could negatively impact Fairfield's earnings.
However, as more of Fairfield's Destination Resorts achieve mature operations,
Fairfield believes the start-up phase for each new resort will have less of an
effect on earnings than occurred in 1995, when three of its five Destination
Resorts had not reached mature operations.

REGULATION OF MARKETING AND SALES OF VOIS

Fairfield's marketing and sales of VOIs and other operations are subject to
extensive regulation by the federal government and by the states in which
Fairfield's resorts are located and in which its VOIs are marketed and sold.
The federal government and many states have adopted specific laws and
regulations regarding the sale of timeshares, telemarketing and certain of
Fairfield's other activities. Fairfield believes that it is in substantial
compliance with all laws and regulations to which it is currently subject.
However, no assurance can be given that the cost of complying with laws and
regulations in all jurisdictions in which Fairfield desires to conduct sales
would not be significant, would not impair the cost-effectiveness of its
marketing programs, or that Fairfield is in fact in compliance with all
applicable laws and regulations.

RISKS ASSOCIATED WITH FINANCING; HEDGING ACTIVITIES

Fairfield offers financing to buyers of VOIs at Fairfield's resorts, which
bears interest at fixed rates and is collateralized by a first mortgage on, or
retention of title under an installment sales contract for, the underlying
VOI. Fairfield and its wholly owned finance subsidiary, Fairfield Acceptance
Corporation ("FAC"), have revolving credit facilities that provide an
aggregate of up to approximately $25.0 million and $35.0 million,
respectively, of borrowings available to finance Fairfield's contracts
receivable. At September 30, 1996, Fairfield and FAC had approximately $24.2
million and $1.0 million, respectively, of additional borrowing availability,
although FAC subsequently obtained additional borrowing availability as a
result of a recent securitization

8
<PAGE>

transaction completed by FAC's wholly owned subsidiary. See "Management's
Summary Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." Neither Fairfield nor FAC
presently has a binding agreement to refinance those facilities or extend the
maturity dates beyond January 1, 1998, and there can be no assurance that any
extension or refinancing could be achieved on terms that are satisfactory to
Fairfield or FAC or at all. Accordingly, future sales of VOIs may be limited
if Fairfield does not have sufficient borrowing availability to finance the
initial negative cash flow that results from sales that are financed by
Fairfield or if Fairfield is unable to offer customer financing on terms that
customers will accept.

In addition, Fairfield's current bank credit facilities which finance
contracts receivable are, and are expected to continue to be, at variable
interest rates. Any significant increase in interest rates on Fairfield's
financing or prepayment rates on the contracts receivable could have an
adverse effect on the profitability of Fairfield's portfolio of contracts
receivable. Fairfield attempts to retain borrowing availability under its
revolving credit facility by periodically selling contracts receivable to FAC.
Fairfield uses the proceeds from these sales to reduce the outstanding balance
under its revolving credit facility. FAC and its subsidiaries periodically
securitize such receivables through financings with third parties, the most
recent of which was underwritten at variable interest rates. The proceeds from
the securitization transactions are then used to reduce the balances of FAC's
revolving credit facility. In October 1996, FAC and its subsidiaries completed
their most recent securitized receivables transaction, which included an
agreement by a third party financing source to finance two additional
securitizations of up to $55.0 million in the aggregate during the following
12 months. However, there can be no assurance that Fairfield and FAC will be
able to successfully continue such securitizations, and any failure to
continue such securitizations could result in Fairfield and FAC having
insufficient borrowing availability under their credit facilities to maintain
their operations at current levels. In connection with FAC's more recent
securitization transactions, FAC has sought to limit its exposure to possible
future increases in interest rates by purchasing interest rate caps. No
assurance can be given that FAC will be able to obtain interest rate caps or
other hedging instruments in connection with future securitization
transactions or the cost associated with interest rate caps or other hedging
instruments will not increase FAC's operating costs.

IMPACT OF ECONOMIC CYCLES

The business risks associated with Fairfield's business become more acute in
an economic slowdown or recession. Such an environment is generally
characterized by decreased spending for vacations and other discretionary
items. Economic downturns may also adversely affect the availability and costs
of financing for Fairfield and its customers and the collectability of
Fairfield's contracts receivable. Delinquencies, foreclosures and loan losses
generally increase during economic slowdowns and recessions.

POSSIBLE ENVIRONMENTAL LIABILITIES

Under various federal, state and local laws, ordinances and regulations, the
current or previous owner, manager or operator of real property may be liable
for the costs of removal or remediation of certain hazardous or toxic
substances located on or in, or emanating from, such property, as well as
related costs of investigation and property damage. Such laws often impose
such liability without regard to whether the owner, manager or operator knew
of, or was responsible for, the presence of such hazardous or toxic
substances. Fairfield believes that it is in compliance in all material
respects with all federal, state and local laws, ordinances and regulations
regarding hazardous or toxic substances, but no assurance can be given that
hazardous or toxic substances will not be found on its properties or
properties that it previously owned.

COMPLIANCE WITH LAWS GOVERNING ACCESS

A number of state and federal laws, including the Fair Housing Act and the
Americans with Disabilities Act, impose requirements related to access and use
by disabled persons of a variety of public accommodations and facilities.
Although Fairfield believes that its resorts are substantially in compliance
with these laws, Fairfield may incur additional costs of complying with such
laws. The ultimate amount of the cost of compliance with such legislation is
not currently ascertainable, and, while such costs are not expected to have a
material effect on Fairfield, such costs could be substantial.

9
<PAGE>

UNINSURED LOSS; NATURAL DISASTERS

There are certain types of losses (such as losses arising from acts of war)
that are not generally insured because they are either uninsurable or not
economically insurable and for which Fairfield does not have insurance
coverage. Should an uninsured loss or a loss in excess of insured limits
occur, Fairfield could lose its capital invested in a resort, as well as the
anticipated future revenues from such resort, and would continue to be
obligated on any mortgage indebtedness or other obligations related to the
resort. Moreover, if the property owners association fails to adequately
insure the units, any uninsured or underinsured casualty may affect the
collectability of the contracts receivable related to those units. In
addition, Fairfield's resorts could suffer significant damage as a result of
hurricanes, earthquakes, floods and other natural disasters. Any such damage,
as well as adverse weather conditions generally, could reduce Fairfield's
ability to sell VOIs at its resorts.

COMPETITION

As Fairfield develops Destination Resorts, Fairfield may experience
significant competition for qualified personnel, favorable sites and customers
at those resorts from other entities engaged in the business of resort
development, sales and operation, including VOI ownership, condominiums,
hotels and motels. Many well-known lodging, hospitality and entertainment
companies have begun to develop and sell VOIs in resort properties. While many
of those companies have targeted a more narrow market segment than Fairfield's
historical market segment, there can be no assurance that Fairfield and those
companies will not compete more broadly at destination locations. In such
event, Fairfield will be required to compete with companies that may have
significantly greater resources. See "Business--Competition."

ANTI-TAKEOVER MATTERS

Fairfield is subject to various factors that could have the effect of making
it more difficult for a party to acquire control of Fairfield, which could
adversely affect the market price of the Common Stock. Fairfield's Certificate
of Incorporation grants Fairfield's Board of Directors (the "Board") the
authority to issue up to 5,000,000 shares of preferred stock, par value $0.01
per share ("Preferred Stock"), having such rights, preferences and privileges
as designated by the Board without stockholder approval. The rights of the
holders of the Common Stock will be subject to, and may be adversely affected
by, the rights of the holders of any Preferred Stock that may be issued in the
future. See "Description of Capital Stock--Preferred Stock." In addition,
Fairfield has adopted a Rights Agreement which provides for the issuance of
one right (a "Right") for each outstanding share of Common Stock. The Rights
entitle the holder to purchase, under certain circumstances, one one-hundredth
of a share of Fairfield's Series A Junior Participating Preferred Stock at
$25.00 per share. The Rights may have the effect of discouraging an
unsolicited takeover proposal. See "Description of Capital Stock--Rights
Agreement." Section 203 of the Delaware General Corporation Law is also
applicable to Fairfield and contains provisions that restrict certain business
combinations with interested stockholders. Section 203 may have the effect of
inhibiting a non-negotiated merger or other business combination involving
Fairfield. See "Description of Capital Stock--Delaware Law Anti-Takeover
Provisions."

10
<PAGE>

USE OF PROCEEDS

The net proceeds from the sale of the 900,000 shares of Common Stock offered
hereby by Fairfield are estimated to be approximately $18.1 million after
deducting underwriting discounts and estimated expenses of the offering
payable by Fairfield.

Approximately $9.1 million of the net proceeds from this offering will be
used to repay certain indebtedness (the "VM Note"), issued in connection with
Fairfield's reorganization, which bears interest at an annual rate of 10% and
matures on March 1, 2000. Monthly payments of interest and principal under the
VM Note commence on April 1, 1997. Fairfield believes that it is beneficial to
retire this debt through the proceeds of this offering in order to maintain
availability under its credit facilities for use in expanding its core
vacation ownership business.

Up to approximately $8.0 million of the proceeds from this offering is
expected to be used to repurchase or repay a portion of Fairfield's 10% Senior
Subordinated Secured Notes, maturing March 1, 1997 (the "FCI Notes"), issued
on a nonrecourse basis in connection with Fairfield's reorganization. Under
the indenture governing the FCI Notes (the "Indenture"), Fairfield is
obligated to issue up to a maximum of 588,235 shares of its Common Stock (the
"Reserved Shares"), at a fixed valuation of $8.50 per share, to cover the
first $5.0 million of shortfall (the "Deficiency") in the event that the
appraised value of the collateral securing the FCI Notes (the "Collateral
Value"), together with funds on deposit with the Indenture trustee, fail to
cover the principal and accrued interest of the FCI Notes at maturity. Under
the Indenture, the appraisals which are to be used to determine the Collateral
Value cannot be dated prior to December 31, 1996. Accordingly, Fairfield is
currently unable to determine the amount of the Deficiency. When the amount of
the Deficiency is determined, Fairfield will calculate the cost per Reserved
Share of paying off the Deficiency. If such calculated per share cost is less
than the market price of Fairfield's Common Stock, Fairfield expects to repay
or, if possible, repurchase at a discount, a portion of the FCI Notes in order
to eliminate the Deficiency. Fairfield believes that this strategy will
benefit stockholders by preventing the issuance of Common Stock at what would
otherwise be a substantial discount from the current market price. The Company
has engaged Chanin Capital Partners, Inc., an affiliate of Chanin & Company,
to assist in the negotiation of the repayment or repurchase of the FCI Notes.
Russell A. Belinsky, a director of the Company, is managing director of Chanin
& Company.

The balance of the net proceeds, if any, after repayment of the VM Note and
the repayment or repurchase of a portion of the FCI Notes is expected to be
used for working capital and other general corporate purposes. Pending any
such additional uses, Fairfield will apply the proceeds to its revolving
credit facilities with The First National Bank of Boston ("FNBB") or invest
the excess proceeds in short-term investment grade securities.

Fairfield will not receive any proceeds from the sale of shares of Common
Stock by the Selling Stockholder.

11
<PAGE>

PRICE RANGE OF COMMON STOCK

The Common Stock has traded on the NYSE since December 1995 under the symbol
"FFD." Prior to that time, the Common Stock was traded on the Nasdaq National
Market System. The following table sets forth, for the fiscal periods
indicated, the high and low sales prices per share of Common Stock on the NYSE
or the Nasdaq National Market System, as applicable.

<TABLE>
<CAPTION>
PRICE
---------------
PERIOD HIGH LOW
------ ------- -------
<S> <C> <C>
Year Ended December 31, 1994
First Quarter............................................ $ 6 1/2 $ 4
Second Quarter........................................... 6 1/4 5 1/4
Third Quarter............................................ 7 5
Fourth Quarter........................................... 6 3/8 4 1/8
Year Ended December 31, 1995
First Quarter............................................ 6 1/8 4 1/2
Second Quarter........................................... 6 5 1/4
Third Quarter............................................ 8 1/4 5 1/2
Fourth Quarter........................................... 8 1/4 5 7/8
Year Ended December 31, 1996
First Quarter............................................ 9 1/4 6 1/2
Second Quarter........................................... 15 1/4 8 5/8
Third Quarter............................................ 21 5/8 13 1/4
Fourth Quarter through November 21, 1996................. 24 3/8 18 3/8
</TABLE>

The closing price per share of Common Stock on the NYSE on November 21, 1996
was $22. As of November 21, 1996, there were approximately 2,700 holders of
record of the Common Stock.

DIVIDEND POLICY

Fairfield has not paid any cash dividends on the Common Stock and does not
anticipate doing so in the foreseeable future. Fairfield intends to retain
earnings to provide funds for the continued growth and development of
Fairfield's business. In addition, the agreements governing Fairfield's credit
facilities and the VM Note prohibit the payment of dividends on the Common
Stock. Any determination to pay cash dividends in the future will be at the
discretion of the Board and will be dependent upon Fairfield's results of
operations, financial condition, contractual restrictions and other factors
deemed relevant by the Board.

12
<PAGE>

CAPITALIZATION

The following table sets forth unaudited information concerning the
capitalization of Fairfield as of September 30, 1996, and as adjusted to give
effect to the sale by Fairfield of 900,000 shares of Common Stock and the
application of the estimated net proceeds therefrom. The information below
should be read in conjunction with "Management's Summary Discussion and
Analysis of Financial Condition and Result of Operations" and the financial
statements and notes thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Financing arrangements(1)............................ $ 67,132 $ 65,899
VM Note(2)........................................... 9,007 --
Net liabilities of assets held for sale(3)........... 7,081 --
-------- --------
83,220 65,899
-------- --------
Stockholders' equity:
Common Stock, $0.01 par value, 12,456,741 shares
issued at September 30, 1996 and 13,356,741 shares
issued, as adjusted(4)............................ 125 134
Paid-in capital.................................... 63,366 81,686
Retained earnings.................................. 40,762 40,762
Less treasury stock, at cost, 2,395,295 shares..... -- --
-------- --------
Total stockholders' equity....................... 104,253 122,582
-------- --------
Total capitalization........................... $187,473 $188,481
======== ========
</TABLE>

As a result of this offering, the weighted average shares outstanding of
Common Stock included in future primary and fully diluted earnings per share
calculations will increase by the issuance of the 900,000 shares.
Additionally, the weighted average shares outstanding used in future fully
diluted earnings per share calculations will not include the 588,235
contingent shares related to the FCI Notes assuming the use of the proceeds to
repay or repurchase the FCI Notes. See "Use of Proceeds."

Furthermore, as required by GAAP, the historical fully diluted earnings per
share calculations, which have included the 588,235 contingent shares, will be
restated to reflect the elimination of this contingent issuance.
- --------
(1) Exclusive of the VM Note.
(2) Includes accrued interest of $2,611,000.
(3) At September 30, 1996, net liabilities of assets held for sale consisted
of the outstanding balance of the FCI Notes ($14,786,000), net of the
carrying value of the assets collateralizing the FCI Notes.
(4) Does not include 1,135,000 shares of Common Stock reserved for issuance
pursuant to Fairfield's employee stock purchase plan (200,000), management
warrant plan (875,000) and restricted stock agreement (60,000) at
September 30, 1996. Additionally, does not include 680,420 shares of
Common Stock that Fairfield has (i) estimated may be issuable under its
plan of reorganization to satisfy various claims other than the FCI Notes
and (ii) included in calculating net earnings per share data included
herein.

13
<PAGE>

SELECTED FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND AVERAGE PRICE DATA)

The following table sets forth selected historical financial and certain
other data of Fairfield. The balance sheet data of Fairfield as of December
31, 1994 and 1995 and operating and net earnings per share data for each of
the years ended December 31, 1993, 1994 and 1995 have been derived from
audited financial statements of Fairfield included elsewhere in this
Prospectus. The balance sheet data of Fairfield as of December 31, 1993 have
been derived from audited financial statements of Fairfield which are not
included in this Prospectus. The operating and net earnings per share data and
balance sheet data of Fairfield as of and for the nine months ended September
30, 1995 and 1996 have been derived from unaudited financial statements of
Fairfield and, in the opinion of Fairfield's management, reflect all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the information set forth therein. The interim results are not
necessarily indicative of fiscal year performance because of the impact of
seasonal and short-term variations. The selected financial data should be read
in conjunction with "Management's Summary Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and notes
thereto included elsewhere in this Prospectus.

14
<PAGE>

- --------
(a) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization and excludes savings and loan operations in
1993 and the gain on the sale of First Federal in 1994, but includes
interest income. See "Management's Summary Discussion and Analysis of
Financial Condition and Results of Operations--Reorganization." Management
believes that EBITDA is a useful measure of operating performance because
it is a widely accepted financial indicator of a company's ability to
service and/or incur indebtedness. EBITDA does not represent cash flow
from operations as defined by GAAP, is not necessarily indicative of cash
available to fund all cash flow needs and should not be considered as an
alternative to net income under GAAP for purposes of evaluating
Fairfield's results of operations.
(b) The number of Equivalent Weeks represents the number of allocated points
under the FairShare Plus(R) vacation system equivalent to 1/52 of the
total annual points allocated to a vacation ownership unit. As the
Fairshare Plus(R) vacation system is not limited to fixed weeks, Fairfield
does not report sales of fixed weeks. However, to facilitate the
comparison of Fairfield's sales to others in the industry, Fairfield has
calculated Equivalent Weeks for purposes of this Prospectus.

15
<PAGE>

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

Certain statements contained herein and elsewhere in this Prospectus which
are not historical facts are forward-looking statements that involve risks and
uncertainties, including, but not limited to, the risks detailed in "Risk
Factors" and referenced elsewhere in this Prospectus. See "Forward-Looking
Information."

GENERAL

Fairfield is the largest vacation ownership company in the United States in
terms of property owners and vacation ownership units constructed. Fairfield's
15 resorts are located in 11 states; five resorts are Destination Resorts and
10 resorts are Regional Resorts. Fairfield's principal business is selling
VOIs, commonly known as timeshares, primarily through its innovative points-
based vacation system, FairShare Plus(R). Fairfield also offers financing for
VOI purchasers, which results in the creation of high-quality, medium-term
contracts receivable with attractive yields. Fairfield intends to continue to
grow its timeshare business by developing new and existing timeshare resorts
in destination locations, expanding its sales and marketing programs, and
making strategic acquisitions.

REORGANIZATION

Fairfield successfully reorganized under Chapter 11 of the Bankruptcy Code
pursuant to plans of reorganization confirmed in August 1992. The events that
led Fairfield to file for bankruptcy resulted from a combination of real
estate market conditions, lack of credit availability and a business strategy
under which Fairfield attempted to diversify its business to include
activities in the development and construction of primary residences and
retirement communities, and entering into joint ventures unrelated to its core
business.

Since the reorganization, Fairfield has focused on its core business of
marketing and financing vacation ownership products. By the end of 1995,
Fairfield had sold over $120 million of non-core assets, the proceeds of which
have been used to reduce debt and reinvest in vacation ownership operations.
Among the assets sold were several of Fairfield's hotels and restaurants, all
but one of its golf courses, and substantially all of its Arizona and Florida
based home building and lot sales operations. In September 1994, Fairfield
sold First Federal Savings and Loan Association of Charlotte ("First
Federal").

Fairfield has also changed the focus of its vacation ownership business from
developing Regional Resorts to constructing units in Destination Resorts,
thereby eliminating the need for developing large-scale amenities to attract
vacationers, lowering development expense, reducing development risk, and
increasing its access to a steady source of potential customers. Since 1992,
Fairfield has developed Destination Resorts in the destination cities of
Branson, Missouri; Myrtle Beach, South Carolina; Nashville, Tennessee; and
Orlando, Florida, thereby increasing its vacation opportunities to 15 resorts
in 11 states.

RESULTS OF OPERATIONS

Comparison of Nine Months Ended September 30, 1996 to Nine Months Ended
September 30, 1995

Vacation Ownership. Gross revenues of VOIs totaled $86.5 million and $63.6
million for the nine months ended September 30, 1996 and 1995, respectively.
Of this increase, $18.1 million is attributable to increased sales volumes at
Fairfield's newer locations, including off-site sales offices, and $4.8
million is attributable to increased sales volumes at Fairfield's more mature
locations.

Net VOI revenues increased to $84.5 million for the nine months ended
September 30, 1996 from $63.5 million for the nine months ended September 30,
1995. The increase in net VOI revenues is attributable to the same factors as
noted above, which was partially offset by net deferred revenue of $2.0
million during the nine months ended September 30, 1996, related to the
percentage of completion method of accounting, as compared to net deferred
revenue of $0.2 million during the nine months ended September 30, 1995. Under
the percentage

16
<PAGE>

of completion method of accounting, the portion of revenues attributable to
costs incurred as compared to total estimated construction costs and selling
expenses, is recognized in the period of sale. The remaining revenue is
deferred and recognized as the remaining costs are incurred.

Cost of sales of VOIs, as a percentage of related net revenues, was 25.2%
and 28.1% for the nine months ended September 30, 1996 and 1995, respectively.
This decrease resulted primarily from increased sales of residual fixed week
inventory at Fairfield's more mature locations. Sales of this limited fixed
week inventory are not expected to occur to this extent in the future, but
will occur from time to time.

Selling. Selling expenses, including commissions, for both VOI and lot
sales, as a percentage of related revenues, were 50.7% and 54.3%, for the nine
months ended September 30, 1996 and 1995, respectively. The decrease in
selling expenses, as a percentage of related revenues, is primarily
attributable to anticipated efficiencies experienced at Fairfield's newer
destination sites located in Orlando, Florida and Nashville, Tennessee.
Management continues to work to improve sales efficiencies at its newer
locations and future efficiencies should be realized as these projects mature
and their base of property owners expands.

Interest. Interest income increased slightly during the nine months ended
September 30, 1996 as compared to the same period in 1995 ($14.6 million for
the nine months ended September 30, 1996 as compared to $14.3 million for the
nine months ended September 30, 1995). For the nine months ended September 30,
1996 as compared to the same period in 1995, interest earned on short-term
investments decreased $0.3 million, which was offset by (i) an increase in the
average balance of outstanding contracts receivable ($140.1 million and $135.1
million for the nine months ended September 30, 1996 and 1995, respectively)
and (ii) an increase in the weighted average stated interest rate on
Fairfield's contracts receivable (13.6% and 13.2% at September 30, 1996 and
1995, respectively).

Interest expense totaled $5.1 million and $6.5 million for the nine months
ended September 30, 1996 and 1995, respectively. This decrease is primarily
attributable to the reduction in the average outstanding balance of interest-
bearing debt. The average outstanding balance of interest-bearing debt
decreased from $101.2 million for the nine months ended September 30, 1995 to
$78.0 million for the nine months ended September 30, 1996. The weighted
average interest rate for Fairfield's financing arrangements collateralized by
contracts receivable was 8.6% and 8.0% for the nine months ended September 30,
1996 and 1995, respectively.

General and Administrative. General and administrative expenses increased
from $8.5 million during the nine months ended September 30, 1995 to $10.7
million during the nine months ended September 30, 1996. This increase is
primarily attributable to additional expenses incurred resulting from the
increased VOI sales volumes as previously discussed and additional accruals
recorded related to Fairfield's employee incentive plans. As a percentage of
total revenues, general and administrative expenses remained relatively
constant between periods (8.3% for the nine months ended September 30, 1996
versus 8.1% for the nine months ended September 30, 1995).

Provision for Loan Losses. Provision for loan losses, as a percentage of net
lot and VOI revenues, decreased from 7.1% for the nine months ended September
30, 1995 to 4.5% for the nine months ended September 30, 1996. This decrease
primarily reflects management's continuing evaluation of the allowance for
contracts receivable based upon historical cancellation experience and its
estimate of future loan losses. Fairfield anticipates this reduction to
continue during the remainder of 1996.

Other. Other revenues for the nine months ended September 30, 1996 and 1995
include home sales totaling $6.8 million and $4.4 million, respectively. Other
expenses for the nine months ended September 30, 1996 and 1995 include homes
costs of sales, including selling expenses, totaling $6.3 million and $4.0
million, respectively. Other revenues for the nine months ended September 30,
1996 and 1995 also include $0.1 million and $1.3 million, respectively,
related to Fairfield's 35% partnership interest in Harbour Ridge, Ltd., a
limited partnership engaged in the development of a tract of land near Stuart,
Florida.

17
<PAGE>

Comparison of Years Ended December 31, 1995, 1994 and 1993

Vacation Ownership. Gross revenues of VOIs totaled $86.2 million, $52.9
million and $34.4 million for 1995, 1994 and 1993, respectively. Of the
increase in gross VOI revenues from 1994 to 1995, $15.8 million (47.5%) is
attributable to increased sales volumes at Fairfield's existing sites and
$15.6 million (47.0%) is attributable to the additional sales volumes at
Fairfield's newest destination sites located in Orlando, Florida and
Nashville, Tennessee, both of which began sales efforts in December 1994.
During 1994, Fairfield experienced revenue increases at several of its
developments, including its destination locations in Myrtle Beach, South
Carolina and Branson, Missouri, which began sales efforts in June 1993.

Net VOI revenues increased to $85.5 million for the year ended December 31,
1995 from $53.1 million in 1994 and $33.5 million in 1993. The increase in net
VOI revenues is attributable to the same factors as noted above, which was
partially offset, during 1995, by a net deferral of VOI revenues totaling $0.7
million related to the percentage of completion method of accounting.
Fairfield recognized $0.2 million of previously deferred revenue during 1994
as compared to net revenue deferred of $0.9 million during 1993. Under the
percentage of completion method of accounting, the portion of revenues
attributable to costs incurred as compared to total estimated construction
costs and selling expenses is recognized in the period of sale. The remaining
revenue is deferred and recognized as remaining costs are incurred.

Selling. Selling expenses, including commissions, for both VOI and lot
sales, as a percentage of related revenues, were 54.1%, 50.6% and 49.8%, for
1995, 1994 and 1993, respectively. The increase in selling expenses, as a
percentage of related revenues, is primarily attributable to anticipated
inefficiencies experienced at Fairfield's newest destination sites in Orlando,
Florida and Nashville, Tennessee. Exclusive of these new projects, selling
expenses, as a percentage of related revenues, were 48.1% for the year ended
December 31, 1995. New projects typically experience lower operating margins
in the "start-up" phase of operations as Fairfield develops its property owner
base and establishes an efficient sales and marketing program at each new
location. Management continues to work to improve sales efficiencies at the
Orlando and Nashville projects and future efficiencies are expected to be
realized as both of these projects mature and expand their base of property
owners.

General and Administrative. Increases in general and administrative expenses
during 1995 and 1994 resulted primarily from the additional expenses incurred
related to the increased VOI sales volumes as previously discussed.
Additionally, Fairfield experienced increases in expenses in 1994, as compared
to 1993, related to Fairfield's employee benefit plans (see Note 11 to the
Consolidated Financial Statements). As a percentage of total revenues, general
and administrative expenses decreased to 8.3% in 1995 from 9.8% in 1994,
exclusive of the gain on sale of First Federal. During 1993, general and
administrative expenses, as a percentage of total revenues, were 10.4%,
exclusive of the savings and loan operations.

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

Included in "Restricted cash and escrow accounts" at December 31, 1995 is
$2.9 million representing certain assets retained and/or pledged to the buyer
to securitize Fairfield's obligation to indemnify the buyer against general
indemnities and three existing lawsuits/claims which have been asserted
against First Federal (see Note 13 to the Consolidated Financial Statements).

Interest. Interest income totaled $19.1 million, $20.4 million and $24.1
million in 1995, 1994 and 1993, respectively. The decrease in interest income
is primarily attributable to lower average balances of contracts receivable
outstanding ($135.8 million for 1995, $146.2 million for 1994 and $177.4
million for 1993). Loan originations began to exceed principal collections in
1995 and interest income is expected to increase in tandem with the net
increase in contracts receivable.

18
<PAGE>

Interest expense totaled $8.6 million, $10.5 million and $14.4 million in
1995, 1994 and 1993, respectively. These decreases are primarily attributable
to reductions in the average outstanding balances of interest-bearing debt,
resulting primarily from collections on contracts receivable exceeding
Fairfield's cash requirements. The average outstanding balance of interest-
bearing debt has decreased from $191.8 million in 1993 to $137.8 million in
1994 and $94.9 million in 1995. Exclusive of First Federal, the weighted
average interest rate for Fairfield's financing arrangements collateralized by
contracts receivable was 8.1%, 8.4% and 8.6% for the years ended December 31,
1995, 1994 and 1993, respectively.

Other. Other revenues in 1995, 1994 and 1993 include cash distributions
totaling $1.6 million, $1.2 million and $2.0 million, respectively, related to
Fairfield's 35% partnership interest in Harbour Ridge, Ltd., a limited
partnership engaged in the development of a tract of land in St. Lucie,
Florida. Cash distributions from this partnership interest are anticipated to
continue at a reduced amount through 1996; however, the amounts and timing of
future distributions are not under the control of Fairfield, but are entirely
within the control of the general partner.

Also included in other revenues and other expenses for 1995 are home sales
and related cost of sales totaling $6.7 million and $6.0 million,
respectively. For 1994, home sales and related cost of sales totaled $5.9
million and $5.4 million, respectively, and for 1993 totaled $4.7 million and
$4.4 million, respectively.

As previously noted, Fairfield began sales efforts in December 1994 at its
destination sites located in Orlando, Florida and Nashville, Tennessee. The
results of operations for 1994 reflect $1.0 million in start-up expenses
associated with these sites (included in "Other expenses" in the 1994
Consolidated Statement of Earnings). These expenses resulted from costs
associated with establishing marketing operations in both projects prior to
commencement of the prime selling season, which normally corresponds with
Fairfield's second and third quarters.

LIQUIDITY AND CAPITAL RESOURCES

Fairfield offers financing for its vacation ownership and lot sales,
resulting in the creation of installment contracts receivable which produce
cash flows as payments are received. Certain costs have been historically
funded to support these sales (primarily development and marketing costs) from
operating cash flows, borrowings and asset sales, including sales of contracts
receivable. Fairfield historically has relied upon these sources of funds to
finance timing differences between incurring the costs to develop and market
its real estate products and receiving the proceeds from the sale of such
products. In the recent past, Fairfield has obtained borrowed funds primarily
through various revolving credit agreements and, in its effort to lower the
costs of borrowed funds and maintain borrowing availability under its credit
facilities, began to securitize its contracts receivable. Fairfield expects to
finance its short and long-term cash needs from (i) the net proceeds of this
offering, (ii) contract payments generated from its contracts receivable
portfolio, (iii) operating cash flows, (iv) borrowings under its credit
facilities and securitization program as described below and (v) future
financings, including additional securitizations of contracts receivable.

At September 30, 1996, Fairfield had no borrowings outstanding under its
Amended and Restated Revolving Credit Agreement (the "FCI Agreement") with
FNBB. The FCI Agreement provides for revolving loans of up to $25.0 million,
including up to $7.0 million for letters of credit. The revolving loans mature
on January 1, 1998, if not extended in accordance with the terms of the FCI
Agreement. At September 30, 1996, Fairfield had borrowing availability under
the FCI Agreement of $24.2 million, net of outstanding letters of credit
totaling $0.8 million.

At September 30, 1996, FAC had borrowings outstanding of $24.7 million under
its Third Amended and Restated Revolving Credit Agreement (the "FAC
Agreement") with FNBB. The FAC Agreement provides for revolving loans of up to
$35.0 million, including up to $1.0 million for letters of credit. The
revolving loans mature on January 1, 1998, if not extended in accordance with
the terms of the FAC Agreement, with Fairfield being a guarantor pursuant to
the FAC Agreement. At September 30, 1996, FAC had borrowing availability of
$1.0 million under the FAC Agreement.

19
<PAGE>

In October 1996, Fairfield Capital Corporation ("FCC"), a wholly owned
subsidiary of FAC, amended its credit agreement (the "FCC Agreement") to
provide for additional borrowings of up to $80.0 million for the purchase of
contracts receivable from FAC pursuant to the Amended and Restated Receivables
Purchase Agreement, among Fairfield as originator, FAC as seller and FCC as
purchaser. The initial purchase of contracts receivable and the respective
funding under the FCC Agreement resulted in borrowings totaling $24.1 million,
of which $22.9 million was used to reduce borrowings under FAC's revolving
credit agreement and $1.2 million was used primarily to pay transaction fees.
Borrowings under the FCC Agreement mature principally within 84 months and
bear interest at varying rates, based on commercial paper rates, subject to an
interest rate cap of 9.2%. The FCC Agreement provides for two additional
fundings of up to a total of $55.0 million during the following twelve months.
Upon completion of this transaction and following Fairfield's sale of
additional contracts receivable to FAC, Fairfield and FAC had borrowing
availability under their credit facilities in excess of $40.0 million.

In the future, Fairfield may negotiate additional credit facilities or issue
corporate debt or equity securities, the proceeds of which could be used to
finance acquisitions, refinance debt or for other general corporate purposes.
Any debt incurred or issued by Fairfield may be secured or unsecured, bear
interest at fixed or variable rates and be subject to such other terms as
management deems prudent.

QUARTERLY COMPARISONS

The following table sets forth certain quarterly operating data for each of
the four quarters in 1994 and 1995 and the first three quarters in 1996.
Although this quarterly information is unaudited, it has been prepared on the
same basis as Fairfield's audited financial statements and, in management's
opinion, reflects all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the information for the
periods presented. The operating results for any quarter are not necessarily
indicative of results for any future period and reflect fluctuations as a
result of, among other things, the seasonal nature of Fairfield's resort
locations. See "--Seasonality."

<TABLE>
<CAPTION>
1994 1995 1996
---------------------------------- ------------------------------- -----------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST SECOND THIRD
QUARTER QUARTER QUARTER(1) QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ---------- ------- ------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues.......... $18,607 $29,518 $37,512 $26,117 $24,559 $37,789 $42,949 $36,854 $30,210 $49,008 $49,696
Total expenses.......... 17,067 25,698 28,714 25,128 24,314 33,544 37,700 33,555 27,067 40,898 41,094
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings before
provision for income
taxes.................. 1,540 3,820 8,798 989 245 4,245 5,249 3,299 3,143 8,110 8,602
Provision for income
taxes.................. 462 1,146 1,079 191 93 1,613 1,995 1,308 1,250 3,171 3,389
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net earnings............ $ 1,078 $ 2,674 $ 7,719 $ 798 $ 152 $ 2,632 $ 3,254 $ 1,991 $ 1,893 $ 4,939 $ 5,213
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Net earnings per share:
Primary................. $ .10 $ .24 $ .70 $ .07 $ .01 $ .24 $ .29 $ .18 $ .17 $ .44 $ .46
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Fully diluted........... $ .09 $ .23 $ .66 $ .07 $ .01 $ .23 $ .28 $ .17 $ .16 $ .41 $ .43
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- --------
(1) Revenues in the third quarter of 1994 include a non-taxable gain of $5.2
million related to the sale of First Federal.

20
<PAGE>

PROVISION FOR INCOME TAXES

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

As of June 30, 1992, Fairfield implemented the recommended accounting for
entities emerging from reorganization set forth in Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization under the Bankruptcy Code,"
issued by the American Institute of Certified Public Accountants ("Fresh Start
Reporting"). Fresh Start Reporting requires Fairfield to report federal income
tax expense on income before utilization of pre-confirmation net operating
loss carryforwards and recognition of the benefit of pre-confirmation
deductible temporary differences. Benefits realized from the utilization of
pre-confirmation net operating loss carryforwards and recognition of pre-
confirmation deductible temporary differences are recorded as reductions of
the valuation allowance and as additions to paid-in capital. Fairfield
recorded benefits from the utilization of pre-confirmation tax attributes
totaling $10.0 million, $6.3 million, $7.5 million and $3.0 million for the
nine months ended September 30, 1996 and for the years ended December 31,
1995, 1994 and 1993, respectively.

At September 30, 1996, Fairfield had net operating loss carryforwards
totaling $59.0 million which reflect the amount available to offset taxable
income in the current and future periods. Under limitations imposed by
Internal Revenue Code Section 382 ("Section 382"), certain potential changes
in ownership of Fairfield, which may be outside Fairfield's knowledge or
control, may restrict future utilization of these carryforwards. More
specifically, changes in ownership occurring within a rolling three year
period, taking into consideration filings with the Securities and Exchange
Commission (the "Commission") on Schedules 13D and 13G by holders of more than
5% of the Common Stock, whether involving the acquisition or disposition of
Common Stock, may impose a material limitation on Fairfield's use of these
carryforwards. At September 30, 1996, available carryovers, if not utilized,
expire as follows: 2005--$12.6 million; 2006--$7.8 million; 2007--$13.9
million; 2008--$5.4 million; 2009--$3.2 million; and 2010--$16.1 million.

Prior to 1994, Fairfield's deferred tax assets were reduced by a 100%
valuation allowance based on the lack of a historical earnings record for
Fairfield and the uncertainty as to the potential limitations that could have
been imposed under Section 382 during the two-year period following the
effective date of the plans of reorganization. In 1994, management determined
that it was more likely than not that a portion of the deferred tax assets
would be realized. Management concluded that Fairfield had not undergone an
ownership change as defined under Section 382 during the two-year period
following the effective date of the plans of reorganization and would
therefore realize a certain portion of the deferred tax assets through (i)
future taxable earnings and (ii) the reversal of deferred tax liabilities
during periods in which Fairfield has available net operating loss
carryforwards and other deductible temporary differences.

Fairfield has reported operating earnings since the effective date of the
plans of reorganization and management believes that it is more likely than
not that future taxable earnings will be sufficient to realize a portion, if
not all, of the tax benefits associated with the future deductible temporary
differences and net operating loss carryforwards prior to their expiration.
Reductions in the valuation allowance were based on (i) current realization of
certain prior year deferred tax liabilities, (ii) offset of deferred tax
assets against remaining deferred tax liabilities and (iii) utilization of
deferred tax assets to offset estimated taxable earnings for the following
year. Management believes that its projections of the following year's
earnings are achievable and provide adequate support for reducing the
valuation allowance. Future realization of the remaining unrealized deferred
tax assets will depend principally on Fairfield's ability to generate taxable
earnings sufficient to offset net operating losses and deductions for
temporary differences which comprise these assets. To the extent this
realization of tax assets

21
<PAGE>

occurs, substantially all of the valuation allowance, totaling $10.4 million
at September 30, 1996, will be eliminated and an equal amount credited to
paid-in capital.

SEASONALITY

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

IMPACT OF INFLATION

Although inflation has slowed in recent years, it is still a factor in the
economy, and Fairfield continues to seek ways to mitigate its impact. In
general, to the extent permitted by competition, Fairfield passes increased
costs on to its customers through increased sales prices. The value of a land
parcel is determined by factors such as location, zoning, topography and,
perhaps most importantly, plans for its ultimate use. As some of these factors
change, sometimes as a result of Fairfield's own actions, the value of the
land may increase or decrease independently of inflationary pressures.
Management believes that capitalizing interest on land during development
reasonably provides for increases in land value due to inflation. Due to
Fairfield's relatively high turnover rate in VOIs and lots, historical costs
closely approximate current costs.

22
<PAGE>

BUSINESS

GENERAL

Fairfield is the largest vacation ownership company in the United States in
terms of property owners and vacation ownership units constructed. Fairfield's
15 resorts are located in 11 states; five resorts are Destination Resorts and
10 resorts are Regional Resorts. Fairfield's principal business is selling
VOIs, commonly known as timeshares, primarily through its innovative points-
based vacation system, FairShare Plus(R). Fairfield also offers financing for
VOI purchases, which results in the creation of high-quality, medium-term
contracts receivable with attractive yields. Fairfield intends to continue to
grow its timeshare business by developing new and existing timeshare resorts
in destination locations, expanding its sales and marketing programs, and
making strategic acquisitions.

Since 1980, Fairfield has sold more than $1.0 billion of VOIs. Fairfield's
net revenue from sales of VOIs has increased from $33.5 million in 1993 to
$85.5 million in 1995. Fairfield had net revenues from VOI sales of $63.5
million and $84.5 million for the nine-month periods ended September 30, 1995
and 1996, respectively. At September 30, 1996, Fairfield had undeveloped
property at its Destination Resorts on which the present master plans provide
for approximately 816 additional units, which if sold at current prices would
represent approximately $544 million in sales. Fairfield's interest income
from its financing activities totaled $19.1 million and $14.6 million in 1995
and the nine-month period ended September 30, 1996, respectively. At September
30, 1996, Fairfield had a portfolio of approximately 43,400 contracts
receivable amounting to $149.4 million with outstanding borrowings of $62.3
million secured by the contracts receivable. These contracts receivable had a
weighted average maturity of approximately five years and a weighted average
interest rate of 13.6%, compared to a weighted average cost of funds of 8.8%
at September 30, 1996.

THE TIMESHARE INDUSTRY

The resort component of the vacation industry is serviced primarily by two
alternatives for overnight accommodations: commercial lodging establishments
and timeshares, or "vacation ownership" resorts. Commercial lodging consists
of hotels and motels in which a room is rented on a nightly, weekly or monthly
basis for the duration of the visit and is supplemented by rentals of
privately-owned condominium units or homes. For many vacationers, particularly
those with families, a lengthy stay at a quality commercial lodging
establishment can be very expensive, and the space provided to the guest is
not convenient for an extended stay. In addition, room rates and availability
at such establishments are subject to change periodically.

First introduced in Europe in the mid-1960s, timeshare ownership has been
one of the fastest growing segments of the hospitality industry over the past
two decades. During the 15 years ended 1994 (the most recent year for which
statistics are available), the total annual sales volume for the timeshare
industry increased from $490 million to $4.76 billion. Despite the growth in
the timeshare industry, VOI ownership has achieved only an approximate 3.0%
market penetration among United States households with income above $35,000
per year and 3.9% market penetration among United States households with
income above $50,000 per year.

The three primary reasons cited by consumers in 1995 for purchasing a VOI
are (i) certainty of quality accommodations (cited by 83% of purchasers), (ii)
the ability to exchange the VOI for accommodations at other resorts (cited by
81% of purchasers) and (iii) the money savings over traditional resort
vacations (cited by 77% of purchasers). VOI buyers have a high rate of repeat
purchases: approximately 43% of all VOI owners own more than one interval,
representing approximately 68% of the industry inventory, and approximately
53% of all owners who bought their first VOI before 1986 have since purchased
a second VOI. In addition, customer satisfaction increases with length of
ownership, age, income, multiple location ownership and accessibility to
timeshare exchange networks.

23
<PAGE>

The prime market for VOIs is customers in the 40-55 year age range who are
reaching the peak of their earning power and are rapidly gaining more leisure
time. The median annual household income of current VOI owners in the United
States is approximately $66,000 with approximately 39% and 19% of all VOI
owners having annual household incomes in excess of $75,000 and $100,000,
respectively. As a result, Fairfield believes that opportunities for continued
expansion of the timeshare market are enhanced by the "baby boom generation"
having entered the 40-55 year age bracket (the age group which purchases the
most VOIs) and low market penetration of VOI ownership among United States
households.

Fairfield believes that the timeshare industry has benefited recently from
increased consumer acceptance of the timeshare concept due in part to
effective governmental regulation of the industry, increased vacation
flexibility resulting from the growth of VOI exchange networks, the entry into
the industry by national lodging and hospitality companies such as Marriott
International, Inc., The Walt Disney Company, Hilton Hotels Corporation and
Hyatt Corporation, the announcements by Radisson Hotels Worldwide and Promus
Hotels Corporation of their plans to enter the timeshare business or offer
franchise arrangements in the industry and the announcement by HFS
Incorporated of its proposed acquisition of RCI.

The timeshare industry traditionally has been highly fragmented with a very
large number of local and regional resort developers and operators, each with
small resort holdings generally of differing quality. Brand name lodging
companies are believed by Fairfield to have less than 10% of the timeshare
market. Fairfield believes that the industry will experience consolidation as
only large and financially strong companies will be able to (i) satisfy
increasing customer demand for higher quality resorts, (ii) ensure that
customers can exchange their vacation ownership products for other desirable
accommodations, seasons, and types of vacation experiences, and (iii) maintain
favorable margins and obtain financing on competitive terms.

Fairfield believes that it is well positioned to take advantage of these
demographic and industry trends and to satisfy changing customer demand.
Fairfield was one of the leaders in developing an innovative points-based
vacation system, which Fairfield believes represents the next generation of
vacation ownership products. Fairfield's points-based system, FairShare
Plus(R), responds to VOI owners' desires for greater flexibility to vary
location, season, length of stay, and size and type of unit. In addition, the
prices of Fairfield's VOIs typically range from $5,700 to $17,200 per
Equivalent Week, with an average sales price for the nine-month period ended
September 30, 1996 of approximately $12,300 per Equivalent Week. Because of
its pricing structure, Fairfield's target market consists of approximately 48
million households, which is believed to be broader than the segments of the
timeshare market targeted by most of the national lodging and hospitality
companies. Fairfield also believes that the high quality of its resorts
provides it with a competitive advantage when potential customers evaluate the
vacation opportunities available through Fairfield. Of Fairfield's 15 resorts,
11 have been awarded the Gold Crown Resort Designation, the highest level of
distinction, from RCI.

Because traditional mortgage lenders do not finance purchases of timeshares,
most developers in the timeshare industry find it necessary to provide
financing to their purchasers. Fairfield offers financing to customers and
earns attractive yields on the related contracts receivable. Fairfield's
ability to generate high-quality contracts receivable allows Fairfield to
obtain traditional bank financing and to securitize those contracts receivable
in the capital markets. Securitizing its contracts receivable affords
Fairfield a low cost of funds and allows it to maintain its borrowing
availability under its credit facilities. Fairfield also believes that its
strong balance sheet, further enhanced by this offering, and access to the
public and private capital markets will permit it to take advantage of
attractive acquisition opportunities that may occur as a result of industry
consolidation.

24
<PAGE>

POINTS-BASED VACATION SYSTEM

Historically, a timeshare owner purchased a fixed week vacation at a
particular location and in a specific unit during a particular week. As an
initial response to timeshare owners' desires to vacation at different
locations and during different seasons, a number of exchange programs were
created. As a member of these programs, a VOI owner could exchange his or her
VOI for a week at a different resort. Fairfield created its own fixed week
exchange network, known as FAX, to facilitate exchanges among owners of
different VOI weeks at Fairfield's resorts. The RCI exchange network, which is
the largest fixed week exchange program, was developed to facilitate exchanges
among owners of fixed week VOIs at unrelated resorts. Under these traditional
programs the VOI owner is generally limited to exchanging full weeks and has
only limited opportunities to exchange a low demand week or location for a
high demand week or location or a smaller unit for a larger unit and receives
no benefit for the residual difference of a high value week exchanged for a
lower value week.

In response to VOI owners' demand for even greater flexibility, Fairfield
was a leader in introducing the next generation of vacation ownership products
under which a VOI owner purchases a deeded real estate interest in one or more
vacation ownership units with a corresponding annual allotment of points that
may be used to customize the owner's annual vacation experience through the
FairShare Plus(R) reservation system. Through the FairShare Plus(R) vacation
system, a Fairfield VOI owner is not limited to applying his or her points at
a single location but can apply the annual points for a single extended stay
or several shorter stay vacations at any location or type of unit or during
any season desired by the customer in accordance with established exchange
rates. To achieve maximum flexibility, a VOI owner may under certain
circumstances borrow future years' points or rent points for a fee to obtain
his or her desired vacation.

As part of the sales presentation, Fairfield's sales personnel identify the
type of vacation experience desired by a customer based on, among other
factors, the customer's vacation patterns, household income and lifestyle.
This allows the customer to purchase a VOI having an annual allotment of
points that will provide the desired type of vacation experience. The
Fairshare Plus(R) vacation system allows Fairfield to offer VOIs that can be
customized to satisfy the demands of each segment of the broad timeshare
market. Moreover, VOI owners can upgrade their vacation experience by
acquiring additional VOIs with an allotment of points, which, when combined
with the owners' existing allotment of points, will permit them to increase
their length of stay, use more luxurious units, or visit resorts in higher
demand periods. Because of this flexibility, the FairShare Plus(R) vacation
system can accommodate changes in owners' lifestyles.

To further enhance the scope of vacation opportunities available through
FairShare Plus(R), Fairfield has entered into associations with other resorts
and also provides vacations on a number of major cruise lines, to increase the
locations and types of vacations available to its VOI owners. In addition, the
points-based system can still be used in traditional fixed week exchange
programs such as FAX and RCI. Moreover, if a VOI owner does not use all of his
or her annual allotment of points in an exchange, the VOI owner can use the
remaining points in the FairShare Plus(R) vacation system. As part of a
customer's purchase of a FairShare Plus(R) VOI, Fairfield pays the initial
membership fee for the purchaser to join RCI. Thereafter, each FairShare
Plus(R) VOI owner maintains his or her RCI membership as part of the annual
fee payable under the FairShare Plus(R) vacation system.

Fairfield believes it enjoys a competitive advantage because many of its
competitors could not offer a vacation ownership product similar to FairShare
Plus(R) unless they were to expend significant capital to (i) create a
portfolio of locations at which a VOI owner would have a variety of vacation
opportunities and be given credit for the residual value of an exchange and
(ii) implement the necessary infrastructure to manage an exchange program.
Fairfield believes many of its less capitalized competitors do not have
sufficient resources to offer such a system and will be forced to continue
offering less flexible fixed week products. Moreover, the development of a
points-based vacation system has enabled Fairfield to (i) more rapidly expand
its marketing and sales efforts by opening off-site sales offices in
population centers remote from its resorts, (ii) maintain successful sales
operations at its Regional Resorts where Fairfield is not currently
constructing inventory, and (iii) sell more effectively at Destination
Resorts.

25
<PAGE>

BUSINESS STRATEGY

Fairfield's objective is to be the leading provider of innovative, high-
quality vacation experiences in the timeshare industry to the broadest
spectrum of households throughout the United States. To capitalize on its
innovative FairShare Plus(R) vacation system and to achieve its objective,
Fairfield intends to (i) acquire and develop properties in destination
locations, (ii) expand sales and more efficiently focus its marketing programs
to prospective buyers, and (iii) pursue acquisitions of other timeshare
operations that would complement Fairfield's operations.

Acquire and Develop Properties in Destination Locations

Since its reorganization, Fairfield has focused its business on the
acquisition and development of properties at destination locations with
popular vacation attractions. Fairfield's focus on developing Destination
Resorts reduces the need for developing large-scale amenities to attract
vacationers, thereby lowering development expenses and reducing development
risk. More importantly, the large tourist draws of major destinations provide
Fairfield's sales offices with a steady source of potential customers.

At September 30, 1996, Fairfield had undeveloped property at its five
Destination Resorts on which the present master plans for those resorts
provide for approximately 816 additional units, which if sold at current
prices would result in approximately $544 million of sales. In addition to
developing its existing Destination Resorts, Fairfield intends to acquire and
develop approximately one to two additional Destination Resorts each year.
Fairfield seeks to develop VOI units in phases at each resort as market demand
confirms the need for additional VOIs. This approach matches the types of
units with customer demand at a resort. It also results in lower operating
costs and reduces the risk of overbuilding the number and types of units not
desired by VOI owners. Fairfield also intends to develop limited numbers of
units at its Regional Resorts as needed to satisfy customer demand.

Expand Sales and Marketing Programs

Fairfield continually monitors and evaluates its sales and marketing
programs to determine the most effective means of achieving its business
objective. As a result of its FairShare Plus(R) vacation system, exchange
programs and multiple resorts, Fairfield expects to market and sell its
vacation products through highly effective means that are not available to all
of its competitors, such as through off-site sales programs, affiliations with
other providers of vacation products and the management of resorts.

Sales Offices. Fairfield's primary means of selling VOIs is through on-site
sales offices at each of its existing resorts. Fairfield's on-site sales
presence is its most valuable and efficient means of selling VOIs because the
customer's on-site visit permits the customer to personally experience the
resort's vacation opportunities.

While a customer's visit to a property is especially critical to the sale of
a fixed week product, customers are more open to purchasing FairShare Plus(R)
vacation system VOIs without visiting a property because the sales
presentation is able to focus on the vacation experience provided by
Fairfield's resort system and third party exchange networks (e.g., RCI). As a
result, Fairfield has been able to expand its marketing and sales efforts by
opening off-site sales offices in high population areas and maintain sales
offices at Regional Resorts that no longer have VOI inventory. Fairfield's
off-site sales offices are not dependent on the development of a related
resort and, as a result, can be established quickly and with less capital
investment. In addition, because the off-site sales offices are not as
dependent on seasonal vacationers, they are expected to help mitigate the
seasonality of Fairfield's quarterly revenues. At September 30, 1996,
Fairfield had three off-site sales offices, located in Charlotte and
Greensboro, North Carolina and Atlanta, Georgia, and was establishing two
additional off-site sales offices in Washington, D.C. and St. Louis, Missouri.

26
<PAGE>

Each of Fairfield's existing sales offices offers VOIs that are deeded
interests in a Fairfield resort. The net sales revenues by type of sales
office are summarized below.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
YEAR ENDED -----------------
DECEMBER 31, 1995 1995 1996
----------------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Destination Resort sales offices (five
offices)............................. $62,525 $ 46,155 $ 58,292
Regional Resort sales offices (ten
offices)............................. 15,946 11,984 17,964
Off-site sales offices(1)............. 6,989 5,320 8,204
------- -------- --------
$85,460 $ 63,459 $ 84,460
======= ======== ========
</TABLE>
- --------
(1) Includes two off-site sales offices in 1995 and three off-site sales
offices for the nine-month period ended September 30, 1996, including one
off-site sales office which did not initiate sales until the second
quarter of 1996.

Affiliations. In 1996, Fairfield began to implement a timeshare resort
affiliation strategy that offers Fairfield's points-based system and
reservation system to non-Fairfield developed timeshare resorts. Fairfield is
presently in various stages of negotiations with several timeshare developers
to enter into affiliation arrangements. These arrangements are expected to be
similar to the relationships that exist between hotel franchising companies
and individual hotel owners who enter into franchise agreements that provide
for central reservation systems and other services to the hotel properties.
Under the affiliation arrangements, Fairfield is expected to receive a fee for
providing these benefits. The affiliation arrangements are intended to provide
an additional source of potential VOI purchasers visiting Fairfield's resorts
to whom Fairfield's on-site sales personnel can market Fairfield's vacation
products. However, there can be no assurance that Fairfield will be able to
finalize the present negotiations on favorable terms to Fairfield or at all.

Management Contracts. Fairfield seeks to maintain the management of a resort
after all of the VOIs at the resort have been sold and the related common
areas and amenities have been transferred to the property owners associations.
This continued on-site management provides greater assurance that the quality
of the vacation ownership units will be maintained, which in turn enhances the
vacation experience of the VOI owners and others visiting the units. Fairfield
presently manages approximately 2,100 units at its existing resorts. On-site
management enhances Fairfield's ability to market additional Fairfield VOIs to
its existing VOI owners and provides the opportunity to market Fairfield
products to visitors who may be guests of the VOI owners or who are visiting
the Fairfield site as result of an exchange through RCI or another network.
Fairfield's experience has demonstrated that the potential VOI purchaser with
the lowest marketing cost is an existing owner or a person who is referred by,
or a guest of, an existing owner. Fairfield is also pursuing management
contracts with other developers and property owners associations to gain
further access to potential customers.

Pursue Strategic Acquisitions of Timeshare Operations

Fairfield regularly evaluates other timeshare businesses for potential
acquisition opportunities. Fairfield believes that the timeshare industry is
highly fragmented, with many of North America's approximately 2,000 timeshare
resorts owned by small, regional companies. Fairfield expects that current
market trends will cause consolidation in the timeshare industry and intends
to take advantage of favorable opportunities. Fairfield will evaluate each
opportunity on the basis of expected financial benefits, quality and location
of resorts, property owner base, quality of contracts receivable, experience
of sales personnel and other factors. Fairfield also believes that its strong
balance sheet, further enhanced by this offering, and access to the public and
private capital markets will permit it to take advantage of attractive
acquisition opportunities that may occur as a result of industry
consolidation. While Fairfield intends to pursue potential acquisitions, there
can be no assurance that it will be able to complete any acquisition on terms
favorable to Fairfield or at all.

27
<PAGE>

SALES AND MARKETING

Fairfield believes that its points-based vacation system, FairShare Plus(R),
and geographically diverse resorts and associations are important to the
success of its on-site and off-site sales operations as they allow sales
personnel the opportunity to sell a vacation experience that can be used in
any of Fairfield's existing locations or associated locations.

Fairfield employs a variety of traditional marketing programs to generate
prospects for its sales effort, which include targeted mailings and
telemarketing, off-premise contact programs, in-house programs, overnight
mini-vacation packages, relationship/database marketing, certificate programs,
seminars, and various destination-specific local marketing efforts.
Additionally, incentive premiums are offered to guests to encourage resort
tours, in the form of entertainment tickets, hotel stays, gift certificates
and free meals. Fairfield's sales process is tailored to each prospective VOI
purchaser based upon the marketing program that brought the prospective
purchaser to the resort or off-site sales office for a sales presentation.

In 1993, Fairfield initiated the innovative Discovery Vacation program,
which allows Fairfield the opportunity to demonstrate the benefits of the
FairShare Plus(R) vacation system to a potential customer who did not
initially purchase a VOI during a sales presentation. Under the Discovery
Vacation program, a customer purchases a one-year trial membership in the
FairShare Plus(R) vacation system. While the customer is visiting the
Fairfield resort during his or her Discovery Vacation, Fairfield's on-site
sales personnel seek to further market Fairfield's vacation experiences to the
customer. If the customer elects to purchase a VOI during the Discovery
Vacation, then a portion of the customer's payment for the Discovery Vacation
can, under certain circumstances, be applied to the purchase price of the VOI.
The financing for the customer's Discovery Vacation is intended to be
structured to have a comparable monthly payment to that required to purchase
an entry-level VOI. Because participants in the Discovery Vacation program
have the opportunity to experience a vacation available at Fairfield's resorts
before making a purchase decision and as a result of the timely marketing
efforts of Fairfield's on-site personnel, Fairfield has experienced a higher
sales rate among participants in the Discovery Vacation program than in any of
its other marketing programs. Moreover, much of Fairfield's costs of initially
marketing to Discovery Vacation participants is recovered from the purchase
price of the Discovery Vacation and any additional sales effort toward that
person requires little additional cost. Fairfield sold approximately 900,
2,300, 5,100 and 6,500 Discovery Vacations during 1993, 1994, 1995 and the
nine-month period ended September 30, 1996, respectively. The 1995 and 1996
purchasers who have not yet taken their Discovery Vacations represent
potential purchasers of Fairfield VOIs who are expected to be more likely to
purchase a VOI with little additional marketing cost incurred by Fairfield.

CUSTOMER FINANCING

Most people who buy VOIs from Fairfield finance their purchase through
Fairfield. Fairfield presently offers financing generally for 7-year terms
with a 15% down payment and interest rates predominantly ranging from 14.4% to
15.9% for those who elect payment by automatic drafts and 15.4% to 16.9% for
those who do not make that election. Of those customers requiring financing,
approximately 87% agree to automatic drafts from their checking accounts to
pay the monthly payment. Fairfield believes that the medium-term amortization
period and the above industry average down payment amount of its contracts
receivable reduces the likelihood of default and increases the quality of the
contracts receivable, thereby enhancing Fairfield's ability to finance and
securitize the receivables. At September 30, 1996, approximately 2.5% of
Fairfield's contracts receivable were considered by Fairfield to be delinquent
(past due by 30 or more days).

At September 30, 1996, Fairfield had approximately 43,400 contracts
receivable amounting to $149.4 million with a weighted average maturity of
approximately five years and a weighted average interest rate of 13.6%. The
spread between the rates Fairfield receives on the contracts receivable and
the rate it pays for financing results in additional earnings to Fairfield. Of
its $149.4 million in contracts receivable at September 30, 1996, Fairfield
had associated debt against the receivables of $62.3 million with a weighted
average cost of funds of 8.8%.

28
<PAGE>

FAIRFIELD'S RESORTS

Fairfield's resort holdings spread across some of America's most desired
resort destinations, including Williamsburg, Virginia; Myrtle Beach, South
Carolina; Nashville, Tennessee; Orlando, Florida; and Branson, Missouri.
Fairfield's resorts offer a wide range of accommodations, from studios with
mini-kitchens to one-, two- or three-bedroom villas with full kitchens,
fireplaces, VCRs and stereos, washers, dryers and whirlpool tubs. Eleven of
Fairfield's resorts (including its five Destination Resorts) have been awarded
the Gold Crown Resort Designation, the highest level of distinction, from RCI.
At September 30, 1996, Fairfield had undeveloped property at its Destination
Resorts on which the present master plans for those resorts provide for
approximately 816 additional units, which if sold at current prices would
represent approximately $544 million in sales.

The following table sets forth certain information as of September 30, 1996
regarding each of Fairfield's resorts:

<TABLE>
<CAPTION>
COMPLETED UNITS ADDITIONAL
DATE UNITS AT UNDER UNITS
PROPERTY LOCATION ACQUIRED RESORT CONSTRUCTION PLANNED
-------- -------- -------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C>
DESTINATION
RESORTS
Fairfield Branson, MO
Branson* 1993 70 32 184
Fairfield Myrtle Beach, SC
Myrtle Beach* 1988 103 27 105
Fairfield Nashville, TN 1994 15 15 224
Nashville at
Music City,
USA
Fairfield Kissimmee, FL 1994 42 12 190
Orlando at
Cypress Palms
Fairfield Williamsburg, VA
Williamsburg* 1985 393 22 113
----- --- ---
Subtotals 623 108 816
----- --- ---
REGIONAL
RESORTS
Fairfield Bay Fairfield Bay, AR 1966 217 ** **
Fairfield Flagstaff, AZ
Flagstaff 1981 125 ** **
Fairfield Fairfield Glade, TN
Glade 1970 358 ** **
Harbortown Ventura, CA
Point 1985 57 ** **
Fairfield New Bern, NC
Harbour 1977 207 ** **
Fairfield Lake Lure, NC
Mountains 1977 215 ** **
Fairfield Edisto Island, SC
Ocean Ridge 1983 154 ** 32
Fairfield Pagosa Springs, CO
Pagosa 1983 172 4 16
Fairfield Villa Rica, GA
Plantation 1977 80 ** **
Fairfield Sapphire, NC
Sapphire
Valley 1981 194 ** **
----- --- ---
Subtotals 1,779 4 48
----- --- ---
Totals 2,402 112 864
===== === ===
</TABLE>
- --------
* Includes two developments.
** No additional construction or development presently occurring or planned.

DESTINATION RESORTS

Fairfield Branson

Branson, MO--Branson is now hailed as America's Country Music Show Capital.
This music mecca entertains millions of fans and families drawing some of the
biggest names in country and bluegrass music year-round. Fairfield Branson at
the Falls, Fairfield's original Branson development has 54 units. The second
Branson development, Fairfield Branson at the Meadows, is partially completed
with a planned 232-unit capacity when fully developed. As of September 30,
1996, Fairfield Branson at the Meadows had 16 units completed and 32

29
<PAGE>

units under construction. Both developments provide convenient access to the
10-mile stretch of Highway 76 where over 30 indoor theaters provide non-stop
entertainment. The Branson/Lakes area also offers boating, fishing, swimming,
waterskiing, sailing, scuba diving and parasailing on three beautiful lakes--
Table Rock, Lake Taneycomo and Bull Shoals, all complemented by popular
shopping, dining and museums. Theme parks such as Silver Dollar City and White
Water are among other family attractions in the area.

Fairfield Myrtle Beach

Myrtle Beach, SC--Fairfield Westwinds, Fairfield's original Myrtle Beach
area development, was built in 1989 in North Myrtle Beach. Fairfield Westwinds
is a 10-story, 82-unit oceanfront luxury complex on the white-sand beaches of
North Myrtle Beach. Fairfield's success with Fairfield Westwinds prompted
Fairfield to develop SeaWatch Plantation as well. The 10-acre oceanfront
resort at SeaWatch Plantation is zoned for approximately 640 units consisting
of a mixture of condominiums and hotel units. The initial phase will include
97 units as well as a pool, lagoon and beach walk. The first building of the
resort was completed in August 1996, and the entire first phase should be
completed in 1999. The Myrtle Beach area, which was rated the second most
popular drive destination in the United States by the Automobile Association
of America Travel Service, averages more than 14 million visitors per year.

Fairfield Nashville at Music City, USA

Nashville, TN--Fairfield Nashville is located on 19 acres in the music
center of Nashville, Tennessee, next to Opryland. When completed, the resort
will offer approximately 254 units. At September 30, 1996, Fairfield Nashville
had 15 units completed and 15 units under construction. Amenities at Fairfield
Nashville include indoor and outdoor swimming pools, a health club, clubhouse,
picnic tables, barbecue grills and playgrounds. As an estimated 10 million
people visited Nashville in 1995, the location of this resort is consistent
with Fairfield's strategy to expand its vacation ownership network in popular
destination locations.

Fairfield Orlando at Cypress Palms

Kissimmee, FL--Fairfield Orlando at Cypress Palms is located in close
proximity to this city's world famous attractions such as Walt Disney World(R)
Resort, Epcot Center, MGM Studios, Universal Studios and Sea World. When
completed, the resort will include 244 units, a pool and whirlpool spa.
Currently, Fairfield Orlando has 42 units completed and 12 units under
construction. Orlando and the surrounding areas also offer other major
amusement parks, exhibits and attractions drawing visitors all year, many of
whom are repeat visitors.

Fairfield Williamsburg

Williamsburg, VA--The multi-site resorts of Fairfield Williamsburg have 393
units completed and 22 units under construction just three miles from the
world famous Colonial Williamsburg Historic Area. The resort, designed to
complement the historic area, is located just 10 miles from Jamestown, the
first English speaking settlement in North America, and 15 miles from
Yorktown, where the last battle of the American Revolution was fought. Just
three miles from the resort is the Busch Gardens amusement park.

REGIONAL RESORTS

Fairfield Bay

Fairfield Bay, AR--This family resort offers 217 units in the Ozark
foothills. Mountain Ranch Golf Course is in the heart of the resort, and
Fairfield Bay's lighted 10-court tennis center has been selected as one of the
top tennis resorts in the United States by Tennis magazine. The Ozark National
Forest is available for family hiking and camping, and the Ozark Folk Center
features performances and craft shows and demonstrations year-round. Blanchard
Springs Caverns, called "one of the greatest cave finds of the 20th century,"
is nearby, as are the nationally acclaimed trout fishing waters of the White
and Little Red Rivers. Fairfield Bay is located on the 40,000-acre Greers
Ferry Lake, which has over 300 miles of shoreline.

30
<PAGE>

Fairfield Flagstaff

Flagstaff, AZ--Located in Arizona's cool high country, Fairfield Flagstaff
provides 125 units in four seasons of resort vacationing. Fairfield Flagstaff
is approximately 75 miles from the Grand Canyon and 25 miles from Sedona.
Nearby Arizona Snowbowl offers a sky-ride in the summer, as well as downhill
and cross-country skiing in the winter. The resort offers swimming, golf,
tennis, horseback riding, and convenient shopping.

Fairfield Glade

Fairfield Glade, TN--Fairfield Glade offers one 27-hole and three 18-hole
PGA championship golf courses. The resort has 358 units and is surrounded by
11 lakes. Hobby and social clubs, arts and crafts fairs, local shops and
outlet malls are nearby, along with the Cumberland County Playhouse. Horseback
riding and indoor and outdoor swimming pools and tennis courts are available
to vacationers. Nearby attractions include the Fall Creek Falls and Cumberland
Mountain State Parks, Great Smokey Mountains National Park, as well as Dolly
Parton's Dollywood and the American Museums of Atomic Energy and Fine Arts.

Harbortown Point

Ventura, CA--Harbortown Point is located in Ventura Harbor, California,
between Santa Barbara and Los Angeles and has 57 units. In addition to the
many public beaches and water activities surrounding the resort, on-site
facilities include a heated swimming pool and two glass-enclosed whirlpools.
Year-round temperatures are in the 70s and 80s, with convenient outdoor
shopping and dining. Channel Island National Park, the only aquatic national
park in the continental United States, is just beyond the resort's docks.
Harbortown Point's boat rentals include sailboats, fishing boats, paddle boats
and boardsails.

Fairfield Harbour

New Bern, NC--The banks of the broad Neuse River are the setting for the 207
units of Fairfield Harbour. A scenic Venice-like canal system crisscrosses
much of the community, and boat rentals, fishing cruises and golf are main
attractions. Fairfield Harbour is surrounded by historical towns and
attractions, such as Bath, incorporated in 1705 as the state's first town.
Beaufort, founded in 1709, features excellent restoration of 18th and 19th
century homes and businesses. Nearby Tryon Palace is a classical Georgian
mansion that once served as the North Carolina capitol. The recreation center
at Fairfield Harbour includes an indoor and outdoor pool, whirlpool spa,
exercise room with sauna, miniature golf, playground, video game room and
community center. The city of New Bern offers convenient shopping centers,
marina facilities, fine restaurants and nightclubs.

Fairfield Mountains

Lake Lure, NC--This resort offers 215 units amid all of the beauty and
pleasures of the Blue Ridge Mountains, just 45 miles east of Asheville, North
Carolina. Lake Lure and Bald Mountain Lake both offer great bass fishing, as
well as relaxing boating and beautiful private beaches. The Bald Mountain and
Apple Valley golf courses are open year-round. Guided trips are available to
Chimney Rock Park for hiking and exploring scenic caves and waterfalls, as
well as white water rafting and boat cruises. Nearby attractions include
Oconaluftee Indian Village, a replica of a Cherokee Indian Village, and the
Biltmore House and Gardens, built in the 19th century.

Fairfield Ocean Ridge

Edisto Island, SC--Edisto Island, which is located 45 miles south of
Charleston, South Carolina, is one of the least commercialized beaches in
South Carolina. Fairfield Ocean Ridge has 154 units completed. Fairfield Ocean
Ridge offers four tennis courts, an outdoor swimming pool, bicycle rental,
miniature golf, and an 18-hole golf course that has been ranked by Golf
magazine as one of South Carolina's 30 best. Shelling, swimming and sailing in
the ocean are also main attractions at Fairfield Ocean Ridge.

31
<PAGE>

Fairfield Pagosa

Pagosa Springs, CO--This resort has five lakes on the property and is
bordered by two-and-a-half million acres of national forest and wilderness.
The nearby Wolf Creek Ski Area is known for receiving the most snow in
Colorado. On-site, Fairfield Pagosa has 172 units completed and four units
under construction, 27 holes of golf, seven regulation tennis courts, mini-
golf and other family activities. The resort's recreation center features an
indoor pool, spa and racquetball courts, as well as fitness equipment and
aerobics classes.

Fairfield Plantation

Villa Rica, GA--Fairfield Plantation is an entire resort community just 45
miles west of Atlanta, Georgia. The resort features 80 units. There are three
lakes which provide fishing and water sports. The tennis center's courts are
lighted for evening play, and there is an 18-hole golf course, a miniature
golf course and a playground. For swimming, the resort has its own private
beach and three outdoor pools.

Fairfield Sapphire Valley

Sapphire, NC--Fairfield Sapphire Valley includes 194 units. The resort lies
in the foothills of the Blue Ridge Mountains, 60 miles south of Asheville,
North Carolina. The Pisgah National Forest and Great Smokey Mountains National
Park offer backpacking and other outdoor activities. The Horsepasture and the
Tuckasegee Rivers are nearby and offer outstanding trout fishing and the
Nantahala and Chattooga Rivers of western North Carolina offer white water
rafting. Sapphire Stables provides horseback riders with excursions through
the countryside. There is also skiing in the winter months and golf the rest
of the year.

OTHER OPERATIONS

While Fairfield has focused its long term strategy on its VOI business, it
has continued its successful home and lot development operations (primarily at
its Fairfield Glade resort). During 1995 and the nine months ended September
30, 1996, Fairfield had revenues of approximately $14.5 million and $14.0
million, respectively, from these operations. Fairfield expects to continue
the same level of home and lot development operations at Fairfield Glade for
the foreseeable future.

COMPETITION

As Fairfield develops Destination Resorts, it may experience significant
competition for sales personnel, favorable sites and customers at those
resorts from other companies engaged in the business of resort development,
sales and operation, including interval ownership, condominiums, hotels and
motels. Beginning in 1984 with the successful entry of Marriott International,
Inc. into the timeshare business, many of the world's most recognized lodging
and hospitality companies have begun to develop and sell VOIs. Other major
companies which now operate or are developing VOI resorts include The Walt
Disney Company, Hilton Hotels Corporation and Hyatt Corporation. In addition,
Radisson Hotels Worldwide and Promus Hotels Corporation have announced their
intention to enter the timeshare business or offer franchise arrangements in
the industry, and HFS Incorporated has announced its acquisition of RCI. These
companies may possess significantly greater financial, marketing, personnel
and other resources than those of Fairfield. Nevertheless, the industry
remains highly fragmented with many of North America's approximately 2,000
timeshare resorts owned and operated by small, regional companies.
Furthermore, there are many hotels and other vacation resorts in Fairfield's
markets and other locations that provide competitive alternatives to the
purchase of a VOI. Fairfield believes, however, that it has been able, and
will continue, to compete effectively with these other companies.

DEVELOPMENT/REGULATION

In certain of its developments, Fairfield engages in master planning of land
and management of resort and conference facilities. Many state and local
authorities have imposed restrictions and additional regulations on developers
of VOIs and lots. Although these restrictions have generally increased the
cost of selling VOIs and

32
<PAGE>

lots, Fairfield has not experienced material difficulties in complying with
such regulations or operating within such restrictions. Fairfield provides
certain purchasers with a "property report" designed to comply with the
disclosure requirements of federal and state laws which contains, among other
things, detailed information about the particular community, the development
and the purchaser's rights and obligations as a VOI owner.

LEGAL PROCEEDINGS

Fairfield is involved in various legal proceedings. See Note 13 of Notes to
Consolidated Financial Statements for the year ended December 31, 1995, as
supplemented below, for a discussion of certain of those proceedings.

On October 2, 1996, the United States Court of Appeals for the Eighth
Circuit affirmed in full the September 25, 1995 decision of the District Court
upholding Fairfield's ownership of the Pagosa recreational amenities,
including the golf courses at that resort, subject to a restrictive covenant
allowing Pagosa property owners and their guests to use the recreational
amenities. On or about October 11, 1996, the Pagosa Lakes Property Owners
Association petitioned the Eighth Circuit for a rehearing of the case,
asserting that the court in reaching its decision overlooked applicable case
law and failed to decide a critical issue in the appeal. On November 6, 1996,
the Eighth Circuit denied the Petition for Rehearing.

33
<PAGE>

MANAGEMENT

Fairfield's directors and executive officers, and their ages and positions
with Fairfield as of the date of this Prospectus, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John W. McConnell....... 54 President and Chief Executive Officer; Director
Marcel J. Dumeny........ 46 Senior Vice President, General Counsel and Secretary
Clayton G. Gring, Sr.... 65 Senior Vice President and Chief Operating Officer
Robert W. Howeth........ 48 Senior Vice President and Chief Financial Officer
Mark Nuzzo.............. 45 Vice President of Property Management
William G. Sell......... 43 Vice President, Controller and Chief Accounting Officer
Les R. Baledge.......... 39 Director
Russell A. Belinsky..... 36 Director
Ernest D. Bennett, III.. 44 Director
Philip L. Herrington.... 44 Director
Bryan D. Langton........ 59 Director
Charles D. Morgan, Jr... 53 Director
William C. Scott........ 59 Director
</TABLE>

John W. McConnell has been with Fairfield since 1986, serving as President
and Chief Executive Officer of Fairfield since 1991, President and Chief
Operating Officer from 1990 to 1991 and Senior Vice President and Chief
Financial Officer prior thereto. He has been a Director of Fairfield since
1990.

Marcel J. Dumeny has been with Fairfield since 1987, serving as Senior Vice
President and General Counsel since 1989 and Senior Vice President/Law and
Development prior thereto.

Clayton G. Gring, Sr. has been with Fairfield since 1991, serving as Senior
Vice President/Chief Operating Officer since January 1996 and Senior Vice
President/Leisure Products Group prior thereto. Mr. Gring was self-employed
from 1984 to 1991, specializing in the development and management of real
estate properties, including resort communities and hospitality related
properties.

Robert W. Howeth has been with Fairfield since 1975, serving as Senior Vice
President and Chief Financial Officer since April 1996, Senior Vice President,
Chief Financial Officer, and Treasurer from 1994 to April 1996, Senior Vice
President and Treasurer from 1993 to 1994 and Senior Vice President/Planning
and Administration from 1990 to 1993.

Mark Nuzzo has been with Fairfield since 1983, serving as Vice President of
Property Management since December 1995 and as Vice President of Resort
Operations from 1991 to December 1995.

William G. Sell has been with Fairfield since 1981, serving as Vice
President, Controller and Chief Accounting Officer since 1988.

Les R. Baledge has been a Director of Fairfield since May 1996. He has been
a member of the Rose Law Firm, a Professional Association since before 1991.

Russell A. Belinsky has been a Director of Fairfield since 1992. He has been
Managing Director of Chanin and Company, an investment banking company, since
December 1994 and a director of Furr's/Bishop's, Inc., a restaurant company,
since February 1996. Mr. Belinsky was Senior Vice President and Principal of
Chanin and Company and Senior Vice President and principal of GTC Capital
Partners from 1990 to December 1994 and an associate at the law firm of
Skadden, Arps, Slate, Meagher & Flom from 1986 to 1990.

Ernest D. Bennett, III has been a Director of Fairfield since 1992. He has
been a partner at the law firm of Taylor, Philbin, Pigue, Marchetti and
Bennett since June 1992. Mr. Bennett served as General Counsel at Robert
Orr/Sysco Food Services Company from 1989 to May 1992, and was a partner at
the law firm of Camp and Bennett from 1980 to 1989.

34
<PAGE>

Philip L. Herrington has been a Director of Fairfield since 1992. He has
been President and Chief Executive Officer of Herrington, Inc., a private
investment and business advisory firm involved in resort and real estate
development and management, since 1986 and President and Chief Operating
Officer of Destin Guardian Corporation, a real estate development company,
since 1989.

Bryan D. Langton has been a Director of Fairfield since May 1996. He has
been President and Chief Executive Officer of Holiday Inns, Inc., an owner,
franchiser and manager of hotels, since October 1996, Chairman of the Board of
Directors of Holiday since February 1996, a director of Bass PLC, a
hospitality, food, drink and electronic entertainment company and parent
company of Holiday Inns, Inc., since 1985, a director of National Service
Industries Inc., a textile rental, chemical, lighting equipment, insulation
and envelope product and services company, since 1993, and a director of
Caribiner International, Inc., a national producer of meetings, events,
training programs and related business communication services, since 1996. Mr.
Langton served as President and Chief Executive Officer of Holiday Inns, Inc.
from February 1990 to March 1996 and is a director of Wachovia Bank of Georgia
NA.

Charles D. Morgan, Jr. has been a Director of Fairfield since May 1996. He
has been President and Chief Executive Officer of Acxiom Corporation, a data
processing, facilities management and software provider to the direct
marketing, mail order, catalogue sales and publishing industries and to
marketing firms engaged in prospect generation, since 1991 and a director of
Boatmen's National Bank of Conway. Mr. Morgan was Chairman and Chief Executive
Officer of Acxiom Corporation from 1975 to 1991 and Vice President of Acxiom
Corporation from 1972 to 1975.

William C. Scott has been a Director of Fairfield since 1992. He has been
President and a director of Summit Care Corporation, a developer and operator
of retirement and convalescent centers, since 1985.

35
<PAGE>

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of Common Stock at November 21, 1996 and as adjusted to reflect the
sale of the shares of Common Stock offered hereby by (i) each person known by
Fairfield to own beneficially more than 5% of the Common Stock, (ii) each
director, the chief executive officer and each of the four other most highly
paid executive officers of Fairfield in 1995 who are currently executive
officers of Fairfield, and (iii) all directors and executive officers of
Fairfield as a group. For purposes of the table, a person or group of persons
is deemed to have "beneficial ownership" of any shares as of November 21, 1996
which such person has the right to acquire within 60 days after that date.

<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES OWNED
------------------
NUMBER OF PRIOR TO AFTER
STOCKHOLDER SHARES OWNED OFFERING OFFERING
----------- ------------ -------- --------
<S> <C> <C> <C>
John W. McConnell..................... 278,000(a) 2.7% 2.5%
Clayton G. Gring, Sr. ................ 60,024(b) * *
Marcel J. Dumeny...................... 136,000(b) 1.3 1.2
Robert W. Howeth...................... 86,000(b)(c) * *
Les R. Baledge........................ 485,761(d) 4.8 4.4
Russell A. Belinsky................... 13,000(e) * *
Ernest D. Bennett, III................ 9,000(e) * *
Philip L. Herrington.................. 9,000(e) * *
Bryan D. Langton...................... 2,500 * *
Charles D. Morgan, Jr. ............... 30,000 * *
William C. Scott...................... 29,000(f) * *
Physicians Insurance Company of
Ohio(g).............................. 1,488,726 14.8 3.1
All directors and executive officers
as a group (13 persons).............. 1,175,285 11.6(h) 10.7
</TABLE>
- --------
* Less than 1%.
(a) Includes 150,000 shares which Mr. McConnell has the right to acquire
(through the exercise of warrants) within 60 days after November 21, 1996
and 60,000 shares of restricted stock issuable under an agreement to
satisfy Fairfield's obligations to pay certain amounts that otherwise would
have been payable under Mr. McConnell's 1996 compensation arrangements.
Includes 53,000 shares held by Mr. McConnell's wife, as to which Mr.
McConnell disclaims beneficial ownership.
(b) Includes shares that each of the indicated persons has the right to acquire
(through the exercise of warrants) within 60 days after November 21, 1996,
as follows: Clayton G. Gring, Sr. (60,000), Marcel J. Dumeny (100,000), and
Robert W. Howeth (60,000).
(c) Includes 24,200 shares held by Mr. Howeth's wife, as to which Mr. Howeth
disclaims beneficial ownership, and 900 shares held in trust for Mr.
Howeth's minor child.
(d) Includes 3,176 shares held directly and indirectly by Mr. Baledge's wife,
as to which Mr. Baledge disclaims beneficial ownership.
(e) Includes 9,000 shares that each of the indicated persons has the right to
acquire (through the exercise of warrants) within 60 days after November
21, 1996.
(f) Includes 9,000 shares which Mr. Scott has the right to acquire (through the
exercise of warrants) within 60 days after November 21, 1996. Includes
20,000 shares held by Mr. Scott's wife, as to which Mr. Scott disclaims
beneficial ownership.
(g) Physicians intends to sell in this offering 1,177,153 shares (1,488,726
shares if the overallotment option is exercised in full) of Common Stock
beneficially owned by it. Percentages are calculated exclusive of the
shares subject to the overallotment option. From May 1995 to September
1996, the Chairman of the Board of Directors of Physicians served as a
director of Fairfield. Physicians' address is 13515 Yarmouth Drive, NW,
Pickerington, Ohio 43147.
(h) Calculated based on 10,531,446 shares outstanding as of November 21, 1996,
which includes 442,000 shares that the directors and executive officers
have the right to acquire (through the exercise of warrants) within 60 days
after November 21, 1996. The total amount of Common Stock to be issued and
outstanding after resolution of all claims under the plan of reorganization
will differ from the amount of Common Stock outstanding as of November 21,
1996. Consequently, the ownership interest of stockholders will be diluted.
However, for purposes of calculating the net earnings per share data
included herein, Fairfield has included the estimated shares to be issued
based on the resolution of those claims.

36
<PAGE>

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

For many years, Fairfield has utilized the services of various outside
attorneys, including Mr. Baledge, a senior member of the Rose Law Firm, a
Professional Association. During 1995, Fairfield paid the firm approximately
$782,000 for legal services and related disbursements.

DESCRIPTION OF CAPITAL STOCK

GENERAL

Fairfield's Second Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") provides that the authorized capital stock of
Fairfield consists of 25,000,000 shares of Common Stock and 5,000,000 shares
of Preferred Stock. Upon consummation of this offering, 13,384,741 shares of
Common Stock will be issued and 10,989,446 shares outstanding, and no shares
of Preferred Stock will be issued and outstanding.

COMMON STOCK

Except as may otherwise be provided in a preferred stock designation, the
holders of Common Stock are entitled to one vote per each share owned of
record on matters submitted to a vote of the stockholders. The holders of
Common Stock vote as a class with the holders of any of Fairfield's Series A
Junior Participating Preferred Stock ("Series A Stock") issued under a Rights
Agreement, as amended, between Fairfield and FNBB, as successor rights agent,
(the "Rights Agreement"). The holders of the Common Stock have Rights under
the Rights Agreement, associated with the Common Stock, to purchase Series A
Stock, under certain circumstances. See "--Rights Agreement."

Subject to any preferential rights that may be applicable to Preferred
Stock, all shares of Common Stock rank equally as to participation in any
property that may be available for distribution after satisfaction of all
other claims in the event of any liquidation, dissolution or winding up of the
affairs of Fairfield, whether voluntary or involuntary or otherwise, and as to
such dividends, if any, as may be declared from time to time by the Board in
its discretion from funds legally available therefor.

It is not presently anticipated that any dividends will be paid on the
Common Stock in the foreseeable future, and certain debt instruments of
Fairfield expressly limit, or may have the effect of limiting, the amount of
dividends payable by Fairfield. In particular, no dividends or other
distributions may be paid on the Common Stock, other than dividends payable
solely in shares of Common Stock, until certain loans made to Fairfield by
FNBB, as agent on behalf of itself and such other participating lenders as may
become party to the lending agreement, have been repaid in full, and no
obligation remains to extend future loans. The Common Stock has no preemptive
rights, no cumulative voting rights and no redemption, sinking fund or
conversion provisions.

PREFERRED STOCK

The Board is authorized to issue the shares of Preferred Stock in such
series and to fix from time to time before issuance the number of shares to be
included in any such series and the designation, relative powers, preferences,
and rights and qualifications, limitations, or restrictions of all shares of
such series, including without limitation voting powers, redemption
provisions, dividend rates, rights upon dissolution, conversion rights and
sinking fund provisions. Fairfield has reserved 1,000,000 shares of Preferred
Stock for issuance of the Series A Stock. There are currently no shares of
Series A Stock issued and outstanding. See "--Rights Agreement." The issuance
of Preferred Stock could decrease the amount of earnings and assets available
for distribution to holders of Common Stock or adversely affect the rights and
powers, including voting rights, of the holders of Common Stock. The issuance
of Preferred Stock also could have the effect of delaying, deferring or
preventing a change in control of Fairfield.

37
<PAGE>

RIGHTS AGREEMENT

In 1992, Fairfield adopted the Rights Agreement, which provides for the
issuance of one Right for each outstanding share of Common Stock. The Rights,
which entitle the holder to purchase from Fairfield one one-hundredth of a
share of Series A Stock at $25 per share, become exercisable (i) ten business
days after a person becomes the beneficial holder of 20% or more of the Common
Stock or (ii) ten business days following the commencement of a tender or
exchange offer for at least 20% of the Common Stock. Fairfield may redeem the
Rights at $0.01 per right under certain circumstances. The Rights expire on
September 1, 2002.

The Rights may have the effect of discouraging an unsolicited takeover
proposal. The Rights are intended to, among other objectives, (i) reduce
Fairfield's vulnerability to potentially coercive or unfair takeover practices
and takeover proposals that are inadequate or otherwise inconsistent with the
best interests of Fairfield and its stockholders, (ii) encourage potential
acquirors to negotiate with the Board, acting on behalf of Fairfield and its
stockholders, (iii) enhance the bargaining position of the Board in such
negotiations, (iv) provide additional time to the Board in which appropriately
to evaluate and respond to an unsolicited takeover proposal, and (v) under
appropriate circumstances, provide additional time to the Board in which to
develop or implement alternatives designed to provide superior value to
Fairfield's stockholders. Fairfield believes that the benefits of the
enhancement of the Board's ability to negotiate with the proponents of
unsolicited takeover proposals and otherwise respond to such proposals
outweigh the disadvantages of potentially discouraging such proposals and the
possibility of self-interest by management.

DELAWARE LAW ANTI-TAKEOVER PROVISIONS

Fairfield is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law. In general, Section 203 prevents an
"interested stockholder" (defined generally as a person owning 15% or more of
a corporation's outstanding voting stock) from engaging in a "business
combination" (as defined in Section 203) with a Delaware corporation for three
years following the date such person became an interested stockholder unless
(i) before such person became an interested stockholder, the board of
directors of the corporation approved the transaction in which the interested
stockholder became an interested stockholder or approved the business
combination, (ii) upon consummation of the transaction that resulted in the
interested stockholder's becoming an interested stockholder, the interested
stockholder owns at least 85% of the voting stock of the corporation
outstanding at the time such transaction commenced (excluding stock held by
directors who are also officers of the corporation and by employee stock plans
that do not provide employees with the rights to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer), or (iii) following the transaction in which such person
became an interested stockholder, the business combination is approved by the
board of directors of the corporation and authorized at a meeting of
stockholders by the affirmative vote of the holders of at least two-thirds of
the outstanding voting stock of the corporation not owned by the interested
stockholder. Under Section 203, the restrictions described above also do not
apply to certain business combinations proposed by an interested stockholder
following the announcement or notification of one of certain extraordinary
transactions involving the corporation and a person who had not been an
interested stockholder during the previous three years or who became an
interested stockholder with the approval of a majority of the corporation's
directors and which transaction is approved or not opposed by a majority of
the board of directors then in office. No person or group other than
Physicians currently is the beneficial owner of 15% or more of Fairfield's
voting stock. See "Principal and Selling Stockholders."

TRANSFER AGENT AND REGISTRAR

Fairfield has appointed BostonEquiServe as the transfer agent and registrar
for the Common Stock.

38
<PAGE>

UNDERWRITING

The Underwriters named below, for whom Stephens Inc. and Donaldson, Lufkin &
Jenrette Securities Corporation are acting as representatives (the
"Representatives"), have severally agreed, subject to the terms and conditions
of the Underwriting Agreement, to purchase, and Fairfield and the Selling
Stockholder have agreed to sell to them, the following respective number of
shares of Common Stock (assuming the over-allotment option is not exercised)
at the public offering price less the underwriting discounts and commissions
set forth on the cover of the Prospectus. The Underwriters are committed to
take and pay for all shares, if any are taken.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Stephens Inc..................................................... 548,577
Donaldson, Lufkin & Jenrette Securities Corporation.............. 548,576
Alex. Brown & Sons Incorporated.................................. 70,000
A.G. Edwards & Sons, Inc. ....................................... 70,000
Goldman, Sachs & Co. ............................................ 70,000
Montgomery Securities............................................ 70,000
Morgan Stanley & Co. Incorporated................................ 70,000
Oppenheimer & Co. Inc. .......................................... 70,000
Schroder Wertheim & Co. Incorporated............................. 70,000
Allen & Company.................................................. 70,000
Equitable Securities Corporation................................. 30,000
Jefferies & Company, Inc. ....................................... 30,000
EVEREN Securities, Inc. ......................................... 30,000
Gerard Klauer Mattison & Co., LLC................................ 30,000
Edward D. Jones & Co., L.P. ..................................... 30,000
Josephthal Lyon & Ross Incorporated.............................. 30,000
Ladenburg, Thalmann & Co. Inc. .................................. 30,000
Morgan Keegan & Company, Inc .................................... 30,000
Pennsylvania Merchant Group Ltd.................................. 30,000
Rauscher Pierce Refsnes, Inc. ................................... 30,000
The Robinson-Humphrey Company, Inc. ............................. 30,000
Sanders Morris Mundy............................................. 30,000
Scott & Stringfellow, Inc. ...................................... 30,000
Southwest Securities, Inc. ...................................... 30,000
---------
Total.......................................................... 2,077,153
=========
</TABLE>

Fairfield and the Selling Stockholder have been advised by the
Representatives that the Underwriters propose to offer the shares to the
public initially at the offering price set forth on the cover page of this
Prospectus. The Underwriters may allow concessions not exceeding $.75 per
share to selected dealers. The selected dealers may reallow a concession to
certain other dealers not to exceed $.10 per share. After the initial offering
to the public, the public offering price and concessions may be changed.

The Selling Stockholder has granted an option to the Underwriters,
exercisable at any time during the 30-day period after the date of this
Prospectus, to purchase up to an additional 311,573 shares at the public
offering price less underwriting discounts and commissions, to cover over-
allotments, if any. To the extent that the Underwriters exercise such option,
each of the Underwriters will be committed, subject to certain conditions, to
purchase the same proportion of the option shares as the number of shares to
be purchased and offered by that Underwriter in the preceding table bears to
the 2,077,153 shares of Common Stock offered hereby.

Stephens Inc. from time to time provides certain investment banking services
to Fairfield. Additionally, while the Common Stock was quoted on the Nasdaq
National Market System prior to December 1995, Stephens Inc. made a market in
Fairfield's Common Stock.

39
<PAGE>

Fairfield and the Selling Stockholder have agreed to indemnify the
Underwriters against and to make contributions to payments with respect to
certain liabilities that may be incurred in connection with this offering,
including liabilities under the Securities Act of 1933, as amended (the
"Securities Act").

Subject to certain exceptions, Fairfield, Selling Stockholder and
Fairfield's executive officers and directors have agreed with the Underwriters
not to offer to sell, contract to sell, sell or otherwise dispose of any
shares of Fairfield's Common Stock for a period of 120 days after the date of
this offering, without the prior written consent of the Underwriters.

LEGAL MATTERS

Certain legal matters in connection with the validity of the Common Stock
offered hereby will be passed upon for Fairfield by Jones, Day, Reavis &
Pogue, Dallas, Texas. Certain legal matters in connection with this offering
will be passed upon for the Underwriters by Wright, Lindsey & Jennings, Little
Rock, Arkansas.

EXPERTS

The consolidated financial statements of Fairfield Communities, Inc. and
subsidiaries at December 31, 1994 and 1995 and for each of the three years in
the period ended December 31, 1995 appearing or incorporated by reference in
this Prospectus have been audited by Ernst & Young LLP, independent auditors,
as set forth in their reports appearing or incorporated by reference herein
and are included in reliance upon such reports given upon the authority of
such firm as experts in accounting and auditing.

FORWARD-LOOKING INFORMATION

This Prospectus (including the documents incorporated herein by reference)
contains certain forward-looking statements and information relating to
Fairfield that are based on the beliefs of Fairfield's management as well as
assumptions made by and information currently available to Fairfield's
management. When used in this Prospectus, words such as "anticipate,"
"believe," "estimate," "expect," "intend" and similar expressions, as they
relate to Fairfield or Fairfield's management, identify forward-looking
statements. Such statements reflect the current views of Fairfield with
respect to future events and are subject to certain risks, uncertainties and
assumptions, relating to the operations and results of operations of
Fairfield, competition from national hospitality companies, shifts in customer
demand, economic cycles, availability of financing, as well as the other
factors described in this Prospectus. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results or outcomes may vary materially from those described herein as
anticipated, believed, estimated, expected or intended.

AVAILABLE INFORMATION

Fairfield is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the public reference facilities maintained by the Commission at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-
2511, and at 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such materials can also be obtained at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission and that is located
at http://www.sec.gov. Documents filed by Fairfield can also be inspected at
the offices of the NYSE, 20 Broad Street, New York, New York 10005, on which
exchange the Common Stock is listed.

40
<PAGE>

Fairfield has filed a Registration Statement on Form S-3 (the "Registration
Statement") under the Securities Act. This Prospectus omits certain of the
information contained in the Registration Statement, and reference is hereby
made to the Registration Statement and to the exhibits relating thereto for
further information with respect to Fairfield and the securities offered
hereby. Any statements contained herein concerning the provisions of any
document are not necessarily complete, and in each instance reference is made
to the copy of such document filed as an exhibit to the Registration Statement
or otherwise filed with the Commission. Each such statement is qualified in
its entirety by such reference.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

Fairfield hereby incorporates by reference into this Prospectus (i)
Fairfield's Annual Report on Form 10-K for the fiscal year ended December 31,
1995; (ii) Fairfield's Quarterly Reports on Form 10-Q for the fiscal quarters
ended March 31, 1996, June 30, 1996 and September 30, 1996; (iii) Fairfield's
Current Reports on Form 8-K dated April 5, 1996 and May 22, 1996; and (iv) the
description of Fairfield's Common Stock contained in Fairfield's Registration
Statements on Form 8-A (Commission File No. 1-8096) filed December 8, 1995.

All documents subsequently filed by Fairfield pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act, prior to the termination of the
offering made hereby, shall be deemed incorporated by reference in this
Prospectus and to be a part of this Prospectus from the date of the filing of
such reports.

Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.

Any person receiving a copy of this Prospectus may obtain, without charge,
upon written or oral request, a copy of any of the documents incorporated by
reference herein, except for the exhibits to such documents (other than the
exhibits expressly incorporated in such documents by reference). Through
December 1, 1996, requests should be directed to: Fairfield Communities, Inc.,
2800 Cantrell Road, Little Rock, Arkansas 72202, Attention: Robert W. Howeth,
Senior Vice President and Chief Financial Officer (telephone: (501) 664-6000).
Thereafter, requests should be directed to: Fairfield Communities, Inc., 11001
Executive Center Drive, Little Rock, Arkansas 72211, Attention: Robert W.
Howeth, Senior Vice President and Chief Financial Officer (telephone:
(501) 228-2700).

41
<PAGE>

FAIRFIELD COMMUNITIES, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors......................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and September
30, 1996 (unaudited)..................................................... F-3
Consolidated Statements of Earnings for the years ended December 31, 1993,
1994 and 1995 and the nine months ended September 30, 1996 (unaudited)... F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1993, 1994 and 1995 and the nine months ended September 30,
1996 (unaudited)......................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1993, 1994 and 1995 and the nine months ended September 30, 1996
(unaudited).............................................................. F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>

F-1
<PAGE>

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

Stockholders and Board of Directors
Fairfield Communities, Inc.

We have audited the accompanying consolidated balance sheets of Fairfield
Communities, Inc. and subsidiaries as of December 31, 1994 and 1995, and the
related consolidated statements of earnings, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Fairfield Communities, Inc. and subsidiaries at December 31, 1994 and 1995,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.

Ernst & Young LLP

Little Rock, Arkansas
January 29, 1996

F-2
<PAGE>

FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE)

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1994 1995 1996
-------- -------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents..................... $ 13,641 $ 2,095 $ 2,515
Loans receivable, net......................... 139,810 139,674 146,858
Real estate inventories....................... 32,237 40,552 42,850
Restricted cash and escrow accounts........... 10,894 8,194 7,643
Property and equipment, net................... 5,956 8,311 12,100
Net assets held for sale...................... 7,943 -- --
Other assets.................................. 14,245 16,692 22,935
-------- -------- --------
$224,726 $215,518 $234,901
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Financing arrangements...................... $111,943 $ 86,982 $ 73,528
Deferred revenue............................ 18,956 19,791 18,524
Accounts payable............................ 6,305 4,556 6,534
Accrued interest............................ 5,404 4,504 3,643
Net liabilities of assets held for sale..... -- 2,267 7,081
Other liabilities........................... 15,183 16,191 21,338
-------- -------- --------
157,791 134,291 130,648
-------- -------- --------
Stockholders' Equity:
Common stock, $.01 par value, 25,000,000
shares authorized, 12,359,037 shares issued
in 1994, 12,325,848 in 1995 and 12,456,741
in 1996.................................... 124 124 125
Paid-in capital............................... 46,123 52,386 63,366
Retained earnings............................. 20,688 28,717 40,762
Less treasury stock, at cost, 2,395,295
shares....................................... -- -- --
-------- -------- --------
66,935 81,227 104,253
-------- -------- --------
$224,726 $215,518 $234,901
======== ======== ========
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE>

FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
----------------------------------- SEPTEMBER 30,
1993 1994 1995 1996
----------- ----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES
Vacation ownership, net... $ 33,472 $ 53,085 $ 85,460 $ 84,460
Lots, net................. 7,399 7,981 7,817 7,217
Resort management......... 10,876 11,413 14,554 12,675
Interest.................. 24,089 20,366 19,111 14,577
Other..................... 14,270 13,709 15,209 9,985
Gain on sale of First Fed-
eral, net................ -- 5,200 -- --
Savings and loan opera-
tions.................... 18,762 -- -- --
----------- ----------- ----------- -----------
108,868 111,754 142,151 128,914
----------- ----------- ----------- -----------
EXPENSES
Cost of sales:
Vacation ownership...... 9,275 14,958 23,838 21,260
Lots.................... 1,705 1,855 1,970 1,684
Provision for loan loss-
es....................... 3,252 4,430 6,505 4,186
Selling................... 20,715 31,176 50,738 46,801
Resort management......... 11,057 9,991 13,106 10,631
General and administra-
tive..................... 9,390 10,456 11,844 10,718
Interest.................. 14,449 10,528 8,562 5,119
Other..................... 9,353 13,213 12,550 8,660
Savings and loan opera-
tions.................... 19,345 -- -- --
----------- ----------- ----------- -----------
98,541 96,607 129,113 109,059
----------- ----------- ----------- -----------
Earnings before provision
for income taxes........... 10,327 15,147 13,038 19,855
Provision for income taxes.. 3,157 2,878 5,009 7,810
----------- ----------- ----------- -----------
Net earnings................ $ 7,170 $ 12,269 $ 8,029 $ 12,045
=========== =========== =========== ===========
NET EARNINGS PER SHARE
Primary................... $ .65 $ 1.11 $ .72 $ 1.07
=========== =========== =========== ===========
Fully diluted............. $ .61 $ 1.05 $ .69 $ 1.01
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUT-
STANDING
Primary................... 11,037,765 11,069,267 11,079,789 11,287,146
=========== =========== =========== ===========
Fully diluted............. 11,692,667 11,673,734 11,688,066 11,967,241
=========== =========== =========== ===========
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE>

FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ------- -------- --------
<S> <C> <C> <C> <C>
YEARS ENDED DECEMBER 31
Balance, January 1, 1993...................... $124 $35,589 $ 1,249 $ 36,962
Net earnings................................ -- -- 7,170 7,170
Utilization of pre-confirmation income tax
attributes................................. -- 3,016 -- 3,016
---- ------- ------- --------
Balance, December 31, 1993.................... 124 38,605 8,419 47,148
Net earnings................................ -- -- 12,269 12,269
Utilization of pre-confirmation income tax
attributes................................. -- 7,518 -- 7,518
---- ------- ------- --------
Balance, December 31, 1994.................... 124 46,123 20,688 66,935
Net earnings................................ -- -- 8,029 8,029
Utilization of pre-confirmation income tax
attributes................................. -- 6,263 -- 6,263
---- ------- ------- --------
Balance, December 31, 1995.................... $124 $52,386 $28,717 $ 81,227
==== ======= ======= ========
NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAU-
DITED)
Balance, December 31, 1995.................... $124 $52,386 $28,717 $ 81,227
Net earnings................................ -- -- 12,045 12,045
Utilization of pre-confirmation income tax
attributes................................. -- 10,000 -- 10,000
Exercise of stock warrants.................. 1 381 -- 382
Tax benefit from exercise of stock war-
rants...................................... -- 599 -- 599
---- ------- ------- --------
Balance, September 30, 1996................... $125 $63,366 $40,762 $104,253
==== ======= ======= ========
</TABLE>

See notes to consolidated financial statements.

F-5
<PAGE>

FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------- SEPTEMBER 30,
1993 1994 1995 1996
--------- --------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings.................. $ 7,170 $ 12,269 $ 8,029 $ 12,045
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and amortiza-
tion....................... 1,937 1,259 2,131 2,166
Provision for loan losses... 3,252 4,430 6,505 4,186
Utilization of pre-
confirmation income tax
attributes................. 3,016 7,518 6,263 10,000
Earnings from unconsolidated
affiliates................. (1,996) (1,236) (1,588) (88)
Gain on sale of First Feder-
al......................... -- (5,200) -- --
Changes in operating assets
and liabilities:
Real estate inventories..... 8,885 220 (8,645) (1,909)
Other, net.................. (12,764) (6,333) (4,041) 135
--------- --------- --------- ---------
Net cash provided by oper-
ating activities......... 9,500 12,927 8,654 26,535
--------- --------- --------- ---------
INVESTING ACTIVITIES:
Purchases of property and
equipment, net............... (1,095) (572) (3,384) (5,269)
Principal collections on loans
receivable................... 131,543 73,189 73,943 63,658
Originations of loans receiv-
able......................... (131,598) (51,877) (79,461) (73,300)
Cash distributions from uncon-
solidated affiliates......... 2,572 1,236 1,588 706
Net investment activities of
net liabilities of assets
held for sale................ (11,665) (9,563) 9,375 12
Net cash used on sale of First
Federal...................... -- (17,666) -- --
Net investing activities
related to savings and loan
operations................... 22,904 -- -- --
--------- --------- --------- ---------
Net cash provided by (used
in) investing
activities............... 12,661 (5,253) 2,061 (14,193)
--------- --------- --------- ---------
FINANCING ACTIVITIES:
Proceeds from financing ar-
rangements................... 138,297 219,744 226,870 186,980
Repayments of financing ar-
rangements................... (187,331) (220,627) (251,831) (200,434)
Exercise of stock warrants.... -- -- -- 382
Tax benefit from exercise of
stock warrants............... -- -- -- 599
Net decrease (increase) in
restricted cash and escrow
accounts..................... (9,497) 2,375 2,700 551
Net financing activities
related to savings and loan
operations................... (20,076) -- -- --
--------- --------- --------- ---------
Net cash (used in)
provided by financing
activities............... (78,607) 1,492 (22,261) (11,922)
--------- --------- --------- ---------
Net (decrease) increase in
cash and cash equivalents.... (56,446) 9,166 (11,546) 420
Cash and cash equivalents, be-
ginning of period............ 60,921 4,475 13,641 2,095
--------- --------- --------- ---------
Cash and cash equivalents, end
of period.................... $ 4,475 $ 13,641 $ 2,095 $ 2,515
========= ========= ========= =========
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-6
<PAGE>

FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1995

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Fairfield Communities, Inc. ("Fairfield" and together with its subsidiaries,
the "Company") is one of the nation's largest vacation ownership companies.
The Company markets vacation products and manages resort properties in eleven
states, providing quality recreational experiences to its property owners.

The Company's primary business is the sale of vacation ownership interests
("VOIs"), popularly known as timeshare, at its various properties situated
either in popular tourist locations or in proximity to other scenic resort
areas. The Company offers financing for VOI and homesite purchases through a
wholly owned subsidiary, Fairfield Acceptance Corporation ("FAC"), generating
high-quality, medium-term contracts receivable with attractive yields. FAC
holds these contracts in its portfolio and, in some instances, securitizes and
sells them to third parties.

Principles of Consolidation

The consolidated financial statements include the accounts of Fairfield and
its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. Certain amounts in the
consolidated financial statements of prior years have been reclassified to
conform to the 1995 presentation.

Use of Estimates

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

Fresh Start Reporting

In 1990, Fairfield and twelve wholly owned subsidiaries filed voluntary
petitions for reorganization under Chapter 11 of the United States Bankruptcy
Code and, in August 1992, the bankruptcy court confirmed the Amended and
Restated Joint Plans of Reorganization (the "Plans"). As of June 30, 1992, the
Company implemented the recommended accounting for entities emerging from
reorganization set forth in Statement of Position 90-7, "Financial Reporting
by Entities in Reorganization Under the Bankruptcy Code," issued by the
American Institute of Certified Public Accountants ("Fresh Start Reporting").
Accordingly, the Company's assets and liabilities were adjusted to reflect
their estimated fair values and the accumulated deficit was eliminated.

Impact of Recently Issued Accounting Standards

During 1995, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." In accordance with SFAS No. 121,
impairment losses are recognized on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount.
Long-lived assets held for disposal are carried at the lower of the carrying
amount of the asset or fair value, less estimated selling costs. The adoption
of SFAS No. 121 had no impact on the Company's consolidated financial
statements.

Cash and Cash Equivalents

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

F-7
<PAGE>

FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Property and Equipment

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

Deposits and Deferred Selling Costs

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

Real Estate Inventories

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

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

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

Allowance for Loan Losses

Contracts. The Company's contracts receivable are regionally diversified. A
minimum down payment of 15% is generally required for purchases financed by
contracts receivable. The Company provides for losses on contracts receivable
by a charge against earnings at the time of sale at a rate based upon
historical cancellation experience and management's estimate of future losses.

When a contract is cancelled in a year subsequent to the year in which the
underlying sale was recorded, the outstanding balance, less recoverable costs,
is charged to the allowance for loan losses. When a contract is cancelled in
the same year as the related sale, all entries applicable to the sale are
reversed and nonrecoverable selling expenses are charged to operations. For
financial statement purposes, contracts receivable are considered delinquent
and fully reserved if a payment remains unpaid under the following conditions:

<TABLE>
<CAPTION>
PERCENT OF CONTRACT DELINQUENCY
PRICE PAID PERIOD
------------------- -----------
<S> <C>
Less than 25%.................... 90 days
25% but less than 50%............ 120 days
50% and over..................... 150 days
</TABLE>

Mortgages. The Company's mortgages receivable consist of a small number of
non-homogeneous loans collateralized primarily by real estate geographically
dispersed throughout the country. The allowance for

F-8
<PAGE>

FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

mortgages receivable is maintained at a level believed adequate by management
based on a periodic evaluation of each mortgage receivable. Management's
evaluation of the adequacy of this allowance is based on past loss experience,
known inherent risks in the portfolio, adverse situations that may affect the
borrower's ability to repay (including the timing of future payments), the
estimated value of any underlying collateral, composition of the mortgage
receivable portfolio, current economic conditions and other relevant factors.
This evaluation is inherently subjective as it requires material estimates
including the amounts and timing of future cash flows.

Revenue and Profit Recognition

Vacation Ownership Interests. VOIs consist of either specified fixed week
interval ownership or undivided fee simple interests in fully-furnished
vacation homes. Generally, VOIs are sold under installment sales contracts
which provide for a down payment and monthly installments, including interest,
for periods of up to seven years. Sales of VOIs are included in revenues when
a 10% minimum down payment (including interest) has been received. Revenue
relating to sales of VOIs in projects under construction is recognized using
the percentage of completion method. Under this method, the portion of
revenues applicable to costs incurred, as compared to total estimated
construction costs and selling expenses, is recognized in the period of sale.
The remaining revenue is deferred and recognized as the remaining costs are
incurred.

Homes/Property Sales. Homes sales are included in revenues when the unit is
complete, ready for occupancy and title is transferred to the buyer. Sales of
bulk acreage are recognized when title has passed to the buyer, the Company's
continuing involvement in the property is limited, if not eliminated, and
sufficient nonrefundable funds have been received to reasonably assure the
continuing commitment of the buyer.

Earnings Per Share

Primary earnings per share is computed based on the estimated weighted
average number of common shares and common equivalent shares deemed to be
outstanding. Such shares include those shares issued as authorized by the
Plans plus the additional shares estimated to be issued based on the
resolution of the remaining allowed claims (see Note 8). This aggregate number
of shares has been reduced by the shares held in treasury. The computation of
fully diluted earnings per share further includes 588,235 shares which have
been reserved, but not issued, for the benefit of the holders of the Senior
Subordinated Secured Notes.

Income Taxes

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

Fresh Start Reporting requires the Company to report federal income tax
expense on income before utilization of pre-confirmation net operating loss
carryforwards and recognition of the benefit of pre-confirmation deductible
temporary differences. Benefits realized from the utilization of pre-
confirmation net operating loss carryforwards and recognition of pre-
confirmation deductible temporary differences are recorded as reductions of
the valuation allowance and as additions to paid-in capital.

Stock-based Compensation

Fairfield grants non-qualified stock warrants to certain key employees and
directors to purchase shares of its Common Stock at prices not less than the
fair market value of such shares at the date of grant. The Company

F-9
<PAGE>

FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

accounts for these stock warrant grants in accordance with APB Opinion No. 25,
"Accounting for Stock Issued to Employees" and, accordingly, recognizes no
compensation expense for the stock warrant grants.

2. LOANS RECEIVABLE

Loans receivable consisted of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1995
-------- --------
<S> <C> <C>
Contracts............................................. $139,091 $140,810
Mortgages............................................. 12,041 13,064
-------- --------
151,132 153,874
Less allowance for loan losses........................ (11,322) (14,200)
-------- --------
$139,810 $139,674
======== ========
</TABLE>

The weighted average stated interest rates on the Company's contracts
receivable were 13.2% and 12.6% at December 31, 1995 and 1994, respectively,
with interest rates on these receivables ranging generally from 10.75% to
16.0%. Contractual maturities of these receivables within the next five years
are as follows:
1996--$33.6 million; 1997--$26.5 million; 1998--$21.4 million; 1999--$17.7
million and 2000--$15.5 million. The Company's contracts receivable were 97.9%
and 98.1% current on a 30-day basis as of December 31, 1995 and 1994,
respectively. Amounts charged against the allowance for loan losses, net of
recoveries, totaled $3.6 million and $4.1 million during 1995 and 1994,
respectively.

3. VACATION OWNERSHIP REVENUES

Vacation ownership revenues are summarized as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Vacation ownership revenues.................. $34,405 $52,904 $86,188
Less: Deferred revenue on current year
sales, net................................ (2,101) (1,920) (2,648)
Add: Revenue recognized on prior year
sales..................................... 1,168 2,101 1,920
------- ------- -------
$33,472 $53,085 $85,460
======= ======= =======
</TABLE>

4. REAL ESTATE INVENTORIES

Real estate inventories are summarized as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1994 1995
------- -------
<S> <C> <C>
Land:
Under development....................................... $ 4,575 $17,377
Undeveloped............................................. 17,633 7,288
------- -------
22,208 24,665
------- -------
Residential housing:
Vacation ownership...................................... 8,418 13,247
Homes................................................... 1,611 2,640
------- -------
10,029 15,887
------- -------
$32,237 $40,552
======= =======
</TABLE>

F-10
<PAGE>

FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

In 1995, the Company began development at two of its newest destination
sites, and therefore, the related acquisition costs were reclassed from
undeveloped land to land under development. Additionally, the Company
purchased, for $6.1 million in cash, real estate located in Myrtle Beach,
South Carolina.

5. FINANCING ARRANGEMENTS

Financing arrangements are summarized as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1994 1995
-------- -------
<S> <C> <C>
Borrowings collateralized by contracts receivable:
FFC Notes............................................. $ 73,560 $47,026
FCC Notes............................................. -- 14,200
Notes payable........................................... 14,708 12,919
Revolving credit agreements............................. 23,675 12,837
-------- -------
$111,943 $86,982
======== =======
</TABLE>

Borrowings Collateralized by Contracts Receivable

At December 31, 1995, Fairfield Funding Corporation ("FFC"), a wholly owned
subsidiary of FAC, had borrowings outstanding totaling $47.0 million under a
private placement of 7.6% Notes (the "FFC Notes"). The FFC Notes are secured
by and payable from a pool of contracts receivable purchased from FAC pursuant
to the Receivables Purchase Agreement among Fairfield as originator, FAC as
seller and FFC as purchaser. At December 31, 1995, contracts receivable
totaling $61.7 million collateralized the FFC Notes.

In 1995, Fairfield Capital Corporation, ("FCC"), a wholly owned subsidiary
of FAC, entered into a Credit Agreement (the "FCC Agreement") which provided
for borrowings of up to $21.4 million (the "FCC Notes") for the purchase of
contracts receivable from FAC pursuant to the Receivables Purchase Agreement,
among Fairfield as originator, FAC as seller and FCC as purchaser. The initial
purchase of contracts receivable and the respective funding under the FCC
Agreement occurred in April 1995, resulting in borrowings under the FCC
Agreement totaling $21.4 million, of which $20.3 million was used to reduce
borrowings under FAC's revolving credit agreement and $1.1 million was used to
establish restricted cash accounts required by the FCC Agreement and to pay
transaction fees. Borrowings under the FCC Agreement mature in December 1999
and bear interest at varying rates, based on commercial paper rates, subject
to an interest rate cap of 8.5%. As of December 31, 1995, the weighted average
interest rate on the FCC Notes was 6.675%, including facility fees totaling
.675%. At December 31, 1995, contracts receivable totaling $16.7 million
collateralized the FCC Notes.

At December 31, 1995, restricted cash accounts totaling $3.0 million were
required to be maintained in accordance with the terms of the FCC Notes and
FFC Notes. Maturities of borrowings collateralized by contracts receivable
within the next five years are as follows: 1996--$24.4 million; 1997--$16.3
million; 1998--$9.2 million; 1999--$5.7 million and 2000--$5.6 million.

Notes Payable

At December 31, 1995, notes payable consisted primarily of (i) an unsecured
note payable totaling $6.4 million and (ii) other obligations collateralized
primarily by property and equipment and mortgages receivable. At December 31,
1995, the weighted average interest rate on notes payable was 9.8%. Maturities
of notes payable within the next five years are as follows: 1996--$0.8
million; 1997--$2.6 million; 1998--$3.5 million; 1999--$3.9 million and 2000--
$1.5 million.

F-11
<PAGE>

FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Revolving Credit Agreements

At December 31, 1995, Fairfield had $4.0 million of borrowings outstanding
under its Amended and Restated Revolving Credit Agreement (the "FCI
Agreement") with The First National Bank of Boston ("FNBB"). The FCI Agreement
provides for revolving loans of up to $25.0 million, including up to $7.0
million for letters of credit. The borrowings under the FCI Agreement are
collateralized primarily by contracts receivable, which had a book value of
$30.1 million at December 31, 1995, and bear interest at FNBB's base rate plus
.875% (9.38% at December 31, 1995). The FCI Agreement also provides for an
annual facility fee of .625% of the total commitment. The revolving loans
mature on January 1, 1998, if not extended in accordance with the terms of the
FCI Agreement. At December 31, 1995, Fairfield had borrowing availability of
$18.7 million, net of outstanding letters of credit totaling $1.5 million.

At December 31, 1995, FAC had borrowings outstanding of $8.8 million under
its Third Amended and Restated Revolving Credit Agreement (the "FAC
Agreement") with FNBB. The FAC Agreement provides for revolving loans of up to
$35.0 million, including up to $1.0 million for letters of credit. The
borrowings under the FAC Agreement are collateralized primarily by contracts
receivable, which had a book value of $28.6 million at December 31, 1995, and
bear interest at FNBB's base rate plus .25% (8.75% at December 31, 1995). The
FAC Agreement also provides for an annual facility fee of .5% of the total
commitment. The revolving loans mature on January 1, 1998, if not extended in
accordance with the terms of the FAC Agreement, with Fairfield being a
guarantor pursuant to the FAC Agreement. At December 31, 1995, FAC had
borrowing availability of $13.4 million.

6. DEFERRED REVENUE--ESTIMATED COSTS TO DEVELOP LAND SOLD

At December 31, 1995, estimated cost to complete development work in
subdivisions from which lots had been sold totaled $14.7 million. The
estimated costs to complete development work within the next five years are as
follows: 1996--$1.0 million; 1997--$1.2 million; 1998--$1.1 million; 1999--
$0.7 million and 2000--$0.6 million.

7. INCOME TAXES

At December 31, 1995, the Company had net operating loss carryforwards
totaling $29.9 million which reflect the amount available to offset taxable
income in future periods. Under limitations imposed by Internal Revenue Code
Section 382 ("Section 382"), certain potential changes in ownership of the
Company, which may be outside the Company's knowledge or control, may restrict
future utilization of these carryforwards. More specifically, changes in
ownership occurring within a rolling three-year period, taking into
consideration filings with the Securities and Exchange Commission on Schedules
13D and 13G by holders of 5% or more of Fairfield's Common Stock, whether
involving the acquisition or disposition of Fairfield's Common Stock, may
impose a material limitation on the Company's use of these carryforwards.
Available carryovers, if not utilized, expire as follows: 2006--$7.0 million;
2007--$14.0 million; 2008--$5.5 million and 2009--$3.4 million.

F-12
<PAGE>

FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Components of the provision for income taxes are as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Current:
Federal....................................... $ -- $ -- $ 290
State......................................... 4 257 543
------- ------- -------
4 257 833
------- ------- -------
Deferred:
Federal....................................... 2,770 2,422 3,880
State......................................... 383 199 296
------- ------- -------
3,153 2,621 4,176
------- ------- -------
$ 3,157 $ 2,878 $ 5,009
======= ======= =======
Utilization of pre-confirmation income tax at-
tributes....................................... $ 3,016 $ 7,518 $ 6,263
======= ======= =======
</TABLE>

Components of the variance between taxes computed at the expected federal
statutory income tax rate and the provision for income taxes are as follows
(in thousands):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Statutory tax provision....................... $ 3,511 $ 5,150 $ 4,563
State income taxes, net of federal benefit.... 255 301 545
Gain on sale of First Federal................. -- (2,277) --
Other......................................... (609) (296) (99)
------- ------- -------
Provision for income taxes.................... $ 3,157 $ 2,878 $ 5,009
======= ======= =======
</TABLE>

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

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1994 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.............. $ 16,767 $ 11,499
Loan and cancellation loss reserves........... 4,358 5,456
Tax over book basis in inventory.............. 3,092 3,267
Deferred revenue.............................. 2,435 2,428
Credit carryforwards.......................... 1,882 2,172
Other......................................... 2,065 1,806
----------- -----------
30,599 26,628
Valuation allowance............................. (26,131) (20,415)
----------- -----------
4,468 6,213
----------- -----------
Deferred tax liabilities:
Basis in partnership assets................... 1,380 1,076
Other......................................... 169 131
----------- -----------
1,549 1,207
----------- -----------
Net deferred tax assets......................... $ 2,919 $ 5,006
=========== ===========
</TABLE>

F-13
<PAGE>

FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Prior to 1994, the Company's deferred tax assets were reduced by a 100%
valuation allowance based on the lack of a historical earnings record for the
Company and the uncertainty as to the potential limitations that could have
been imposed under Section 382 during the two-year period following the
effective date of the plans of reorganization. In 1994, management determined
that it was more likely than not that a portion of the deferred tax assets
would be realized. Management concluded that the Company had not undergone an
ownership change as defined under Section 382 during the two-year period
following the effective date of the plans of reorganization and would
therefore realize a certain portion of the deferred tax assets through (i)
estimated future taxable earnings and (ii) the reversal of deferred tax
liabilities during periods in which the Company has available net operating
loss carryforwards and other deductible temporary differences.

The Company has reported operating earnings since the effective date of the
plans of reorganization and management believes that it is more likely than
not that future taxable earnings will be sufficient to realize a portion, if
not all, of the tax benefits associated with the future deductible temporary
differences and net operating loss carryforwards prior to their expiration.
Reductions in the valuation allowance were based on (i) current realization of
certain prior year deferred tax liabilities, (ii) offset of deferred tax
assets against remaining deferred tax liabilities and (iii) utilization of
deferred tax assets to offset estimated taxable earnings for the following
year. Management believes that its projections of the following year's
earnings are achievable and provide adequate support for reducing the
valuation allowance. Future realization of remaining unrealized deferred tax
assets will depend principally on the Company's ability to generate taxable
earnings sufficient to offset net operating losses and deductions for
temporary differences which comprise these assets. To the extent this
realization of tax assets occurs, substantially all of the valuation
allowance, totaling $20.4 million at December 31, 1995, will be eliminated and
an equal amount credited to paid-in capital.

8. STOCKHOLDERS' EQUITY

Pursuant to the Plans, all of the common stock outstanding prior to
reorganization was cancelled effective September 1, 1992. Thereafter,
Fairfield began issuing new stock and is authorized to issue 25,000,000 shares
of Common Stock, par value $.01 per share, and 5,000,000 shares of Preferred
Stock, par value $.01 per share. One million shares of preferred stock, which
have been designated as the Series A Junior Participating Preferred Stock,
have been reserved for possible issuance in connection with Fairfield's Rights
Agreement as discussed below. The rights and preferences of the remaining
shares of authorized but unissued Preferred Stock are to be established by
Fairfield's Board of Directors at the time of issuance.

As of December 31, 1995, Fairfield has issued 12,325,848 shares of Common
Stock to holders of unsecured resolved claims, of which 2,395,295 were held in
treasury. In accordance with the Plans, Fairfield will issue additional shares
as the remaining claims are resolved. The ultimate amount of these claims and
the timing of the resolution of the claims is largely within the control of
the Bankruptcy Court. However, based upon available information, Fairfield
presently estimates that a total of 13,028,161 shares of Common Stock will be
issued. Additionally, 588,235 shares have been reserved, but not issued, for
the benefit of the holders of the FCI Notes (see Note 10).

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

F-14
<PAGE>

FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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

9. FAIRFIELD ACCEPTANCE CORPORATION

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

CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
-------- --------
<S> <C> <C>
ASSETS
Cash................................................... $ 895 $ 312
Loans receivable, net.................................. 109,194 101,359
Restricted cash........................................ 8,120 2,957
Due from parent........................................ 12,115 3,187
Other assets........................................... 1,907 1,511
-------- --------
$132,231 $109,326
======== ========
LIABILITIES
Financing arrangements................................. $ 97,235 $ 70,073
Accrued interest and other liabilities................. 681 688
Equity................................................. 34,315 38,565
-------- --------
$132,231 $109,326
======== ========
</TABLE>

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Revenues......................................... $14,582 $13,644 $15,009
Expenses......................................... 8,198 8,382 8,103
------- ------- -------
Earnings before provision for income taxes....... 6,384 5,262 6,906
Provision for income taxes....................... 2,444 2,015 2,656
------- ------- -------
Net earnings..................................... $ 3,940 $ 3,247 $ 4,250
======= ======= =======
</TABLE>

In accordance with the terms of the Third Amended and Restated Operating
Agreement (the "Operating Agreement"), FAC is permitted to purchase eligible
receivables from Fairfield for a price equal to $.94 per $1.00 of such
receivables. Fairfield is required by the Operating Agreement to repurchase
defaulted receivables from FAC at a price equal to $.94 per $1.00 or
substitute an eligible receivable on the basis of $.85 per $1.00 of such
receivables. During 1995 and 1994, FAC purchased receivables from Fairfield
with outstanding principal balances of $38.1 million and $69.3 million,
respectively.

10. NET LIABILITIES OF ASSETS HELD FOR SALE

At December 31, 1995, assets held for sale consisted primarily of (i) those
assets collateralizing the Senior Subordinated Secured Notes ("FCI Notes") and
(ii) certain assets purchased in conjunction with the sale of First

F-15
<PAGE>

FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Federal Savings and Loan Association of Charlotte (the "Association Assets").
Net assets held for sale have been recorded at the lower of the carrying
amount of the asset or fair value, less estimated selling costs. Disposals of
these assets have been at sales prices approximating book value.

The FCI Notes are collateralized by (i) certain of the Company's real estate
inventories located at its Pointe Alexis development in Tarpon Springs,
Florida, (ii) the Company's 30% partnership interest in Sugar Island limited
partnership in St. Croix, U.S. Virgin Islands and (iii) the Company's 35%
partnership interest in Harbour Ridge limited partnership in Stuart, Florida.
The FCI Notes bear interest at 10% compounded semi-annually and mature on the
earlier of (i) the sale of all the collateral or (ii) the later of (a) 60 days
after the FNBB loans have been paid in full or (b) March 1, 1997. The FCI
Notes are nonrecourse to the Company and the sole sources of repayment consist
of the collateral, any proceeds from the sale of the collateral and, as
described below, the shares of Common Stock of Fairfield reserved as
additional collateral for the FCI Notes. Due to the illiquid nature of certain
of the collateral for the FCI Notes, Fairfield carries these assets at a
substantial discount from 1991 appraised values, which have not been updated
and may not be indicative of current fair value. In the event the proceeds
from the sale of the remaining collateral securing the FCI Notes, or the fair
value of any such collateral not sold, are insufficient to fully repay the
principal and accrued interest on the FCI Notes, Fairfield will issue shares
of its Common Stock, up to a maximum number equal to what a holder of a $5
million general unsecured claim was entitled to receive on the effective date
of the plans of reorganization (588,235 shares).

Net liabilities of assets held for sale consisted of the following (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1995
-------- --------
<S> <C> <C>
Collateral for FCI Notes............................. $ 8,676 $ 8,423
Association Assets................................... 11,602 2,901
Other................................................ 2,471 1,195
-------- --------
22,749 12,519
FCI Notes............................................ (14,806) (14,786)
-------- --------
$ 7,943 $ (2,267)
======== ========
</TABLE>

11. EMPLOYEE BENEFIT PLANS

Profit Sharing Plan

The Company's Profit Sharing Plan covers substantially all employees with
one year or more of credited service, and participants are fully vested after
seven years of credited service. Effective July 1, 1994, the Profit Sharing
Plan was amended to allow employee elective salary deferrals as permitted
under Internal Revenue Code Section 401(k). Employer discretionary
contributions to the Profit Sharing Plan are determined annually by the Board
of Directors and the amount charged to expense totaled $0.6 million, $0.7
million and $0.5 million for 1995, 1994 and 1993, respectively.

Excess Benefit Plan

In 1994, the Company adopted the Excess Benefit Plan, which is a non-
qualified, unfunded plan established to provide designated employees with
benefits to compensate for certain limitations imposed by federal law on the
amount of compensation which may be considered in determining employer
contributions to participants' accounts under the Profit Sharing Plan.
Participants' accounts under the Excess Benefit Plan are credited with amounts
that, except for the limits of the Internal Revenue Code, would have been
contributed to such participants' accounts under the Profit Sharing Plan.
Participants' accounts under the Excess Benefit Plan vest in

F-16
<PAGE>

FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

accordance with the vesting schedule set forth in the Profit Sharing Plan.
Interest is credited to the participants' accounts annually at the base rate
of interest charged by FNBB. The expense associated with the Excess Benefit
Plan totaled $0.1 million for both 1995 and 1994.

Retirement Plan

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

Warrant Plan

The Company's 1992 Warrant Plan, as amended, (the "1992 Plan") provides for
the grant of non-qualified stock warrants to certain key employees and
directors to purchase up to 1,000,000 shares of Fairfield's Common Stock.
Warrants under the 1992 Plan are to be granted at prices not less than the
fair market value of such shares at the date of grant and may be exercisable
for periods of up to 10 years from the date of grant. Warrants available for
future grant totaled 132,000 at December 31, 1995. The following table
summarizes the activity under the 1992 Plan:

<TABLE>
<CAPTION>
SHARES UNDER OPTION OPTION PRICE PER SHARE
------------------- -----------------------
1994 1995 1994 1995
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Outstanding at beginning of
year............................ 800,000 818,000 $ 3.00 $3.00-$5.50
Granted.......................... 18,000 58,000 $ 5.50 $5.50-$7.13
Cancelled........................ -- (8,000) -- $3.00-$5.50
--------- ---------
Outstanding at end of year....... 818,000 868,000 $3.00-$5.50 $3.00-$7.13
========= =========
Exercisable at end of year....... 352,500 543,000
========= =========
</TABLE>

12. SUPPLEMENTAL INFORMATION

Other revenues in 1995, 1994 and 1993 include cash distributions totaling
$1.6 million, $1.2 million and $2.0 million, respectively, related to the
Company's 35% partnership interest in Harbour Ridge, Ltd., a limited
partnership engaged in the development of a tract of land in St. Lucie,
Florida. Cash distributions from this partnership interest are anticipated to
continue at a reduced amount through 1996; however, the amounts and timing of
future distributions are not under the control of the Company, but are
entirely within the control of the general partner.

In December 1994, the Company began sales efforts at its destination sites
located in Orlando, Florida and Nashville, Tennessee. The results of
operations for 1994 reflect $1.0 million in start-up expenses associated with
these sites (included in "Other expenses" in the 1994 Consolidated Statement
of Earnings).

F-17
<PAGE>

FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

In September 1994, the Company sold 100% of the capital stock of First
Federal Savings and Loan Association of Charlotte ("First Federal") for $41.0
million and recognized a net gain on the sale of $5.2 million. The gain from
the sale of First Federal was not subject to federal income tax due to a
permanent tax basis difference in First Federal's stock and underlying
goodwill. Included in "Restricted cash and escrow accounts" at December 31,
1995 is $2.9 million representing certain assets retained and/or pledged to
the buyer to securitize Fairfield's obligation to indemnify the buyer against
general indemnities and three existing lawsuits/claims which have been
asserted against First Federal (see Note 13).

Interest paid totaled $9.3 million, $20.5 million and $25.5 million, for
1995, 1994 and 1993, respectively. Of the amounts for 1994 and 1993, $9.0
million and $11.1 million, respectively, were related to First Federal.

Included in other assets at December 31, 1995 and 1994 are (i) $5.1 million
at each year end related to the assets of the Company's life insurance
subsidiary, (ii) deferred tax assets totaling $5.0 million and $2.9 million,
respectively (see Note 7) and (iii) unamortized capitalized financing costs of
$1.5 million and $2.0 million, respectively. Included in other liabilities at
December 31, 1995 and 1994 are (i) $2.9 million and $2.7 million,
respectively, related to the liabilities of the Company's life insurance
subsidiary and (ii) accruals totaling $4.6 million and $3.7 million,
respectively, related to the Company's employee benefit plans.

13. CONTINGENCIES

In June 1992, the Pagosa Lakes Property Owners Association ("PLPOA") filed
an adversary proceeding in the Bankruptcy Court for the Eastern District of
Arkansas, Western Division (the "Bankruptcy Court") asserting equitable
ownership or lien interests in certain recreational amenities, including golf
courses. In March 1994, the Bankruptcy Court issued its decision upholding
Fairfield's ownership of the Pagosa recreational amenities, subject to a
restrictive covenant allowing Pagosa property owners and their guests to use
the recreational amenities. The United States District Court, Eastern District
of Arkansas, Western Division ("District Court") affirmed the Bankruptcy
Court's order in its entirety, by order dated September 25, 1995. The PLPOA
has filed a notice of appeal to the United States Court of Appeals for the
Eighth Circuit. Fairfield's ability to dispose of the recreational amenities
at Pagosa is restricted until the claim is finally resolved.

In August 1992, the PLPOA filed an appeal to the District Court of the
Bankruptcy Court's final order confirming Fairfield's plan of reorganization.
The basis for the appeal was the PLPOA's position that Fairfield should have
been required to resolicit the plan of reorganization due to its amendment in
accordance with the Bankruptcy Court's conditional confirmation order to
eliminate any recovery for Fairfield's previous stockholders. The Bankruptcy
Court rejected this argument, finding that the property owner group lacked
standing to raise this issue and the District Court, on November 16, 1995,
affirmed the Bankruptcy Court's decision. The PLPOA has not appealed the
District Court's decision.

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

F-18
<PAGE>

FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

preliminary nature of the litigation and uncertainty concerning the time
period covered by the suits' allegations, Fairfield is unable to determine
with any certainty the dollar amount sought by plaintiffs, but believes it to
be material.

In November 1993, Fairfield filed an adversary proceeding in the Bankruptcy
Court, alleging that the Recreation Fee Litigation violates the discharge
granted to Fairfield in its Chapter 11 bankruptcy reorganization and the
injunction issued by the Bankruptcy Court against prosecution of any claims
discharged in the bankruptcy proceedings. By orders and opinions dated
September 29, 1994, the Bankruptcy Court decided motions filed by the
plaintiffs in the Recreation Fee Litigation, in response to Fairfield's
adversary proceeding. The Bankruptcy Court retained jurisdiction over one of
the lawsuits (the Storm lawsuit) and determined that any purchaser of a lot
from Fairfield and its predecessors prior to August 14, 1992 would be limited
to a pre-confirmation cause of action. The Bankruptcy Court determined that it
did not have jurisdiction over the second lawsuit (the Daleske lawsuit),
involving eight individuals and one company, due to prior proceedings in the
case in Colorado federal district court, which ruled that the plaintiffs in
this lawsuit had post-confirmation causes of action, although all nine
plaintiffs are believed to have purchased their lots prior to August 14, 1992.
Fairfield has appealed the Bankruptcy Court's decision in the Daleske lawsuit,
and the plaintiffs in the Storm lawsuit have appealed the Bankruptcy Court's
decision in that case, to the District Court, which has scheduled oral
arguments on these appeals for April 22, 1996. The Colorado State Court stayed
further proceedings in the Recreation Fee Litigation pending the outcome of
the appeals to the District Court. Two additional related lawsuits have also
been filed in the Archuleta County District Court, raising similar issues and
demands as the Storm and Daleske cases. The Fiedler case, filed in October
1994, was filed individually, while the second of these new cases, the Lobdell
case, was filed in November 1994, as a purported class action. In February
1995, Fairfield filed an adversary proceeding in the Bankruptcy Court against
the Fiedler and the Lobdell plaintiffs, seeking relief similar to that
requested in the Storm and Daleske adversary proceeding. The Colorado District
Court has stayed proceedings in the Lobdell case. The Colorado District Court
entered summary judgment against Fairfield in the Fiedler case, holding that
the individual lot in question is not subject to the recreation fee, based
upon facts unique to the Fiedler case. Fairfield has appealed the summary
judgment decision in the Fiedler case. The Bankruptcy Court has determined, by
decision dated September 18, 1995, that it does not have jurisdiction in the
Fiedler case, but also determined that it does have jurisdiction in the
Lobdell case, based upon similar reasoning to the Storm case. Both the Fiedler
and the Lobdell cases have been appealed to the District Court.

Fairfield intends to defend vigorously the Recreation Fee Litigation, and
the two related cases, including any attempt to certify a class in any of
these cases. Fairfield has previously implemented recreation fee charges at
certain other of its resort sites which are not subject to the pending action.

In December 1993, Charlotte T. Curry, who, with her husband, purchased a lot
from Fairfield under an installment sale contract subsequently sold to First
Federal, filed suit against First Federal, currently pending in Superior Court
in Mecklenburg County, North Carolina, alleging breach of contract, breach of
fiduciary duty and unfair trade practices. In April 1994, the complaint was
amended, (a) adding Fairfield as a party, (b) adding an additional count
against both Fairfield and First Federal alleging violation of the North
Carolina's Racketeer Influenced and Corrupt Organizations ("RICO") Statute and
(c) adding a count against Fairfield alleging fraud. The litigation, which
seeks class action certification, contests the method by which Fairfield
calculated refunds for lot purchasers whose installment sale contracts were
cancelled due to failure to complete payment of the deferred sales price for
the lot. Most installment lot sale contracts require Fairfield to refund to a
defaulting purchaser the amount paid in principal, after deducting the greater
of (a) 15% of the purchase price of the lot or (b) Fairfield's actual damages.
The plaintiff disputes Fairfield's method of calculating damages, which has
historically included certain sales, marketing and other expenses. In the case
of Ms. Curry's lot, the amount of refund claimed as having been improperly
retained is approximately $3,600. The Curry lawsuit seeks damages, punitive
damages, treble damages under North Carolina law for unfair trade practices
and RICO, prejudgment

F-19
<PAGE>

FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

interest and attorney's fees and costs. By order dated July 6, 1994, the court
dismissed Ms. Curry's claims for (a) breach of contract, due to the statute of
limitations, (b) breach of fiduciary duty, due to the lack of a fiduciary duty
and the statute of limitations, (c) fraud, due to the statute of limitations,
and (d) RICO, due to failure to state a claim. The court, by order dated
August 16, 1994, dismissed Ms. Curry's only remaining claim against Fairfield,
for unfair trade practices, subject to possible appeal rights. By order filed
September 15, 1995, the court denied the plaintiff's motion for class
certification. The plaintiff has appealed the denial of the motion for class
certification, but no decision has yet been rendered on the appeal.

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

14. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

Cash and cash equivalents: The carrying amounts reported in the
consolidated balance sheets approximate their fair values at December 31,
1995 and 1994.

Restricted cash and escrow accounts: The estimated fair values of
restricted cash and escrow accounts approximate their carrying amounts at
December 31, 1995 and 1994.

Loans receivable: The carrying amounts of loans receivable are a
reasonable estimate of their fair values at December 31, 1995 and 1994
based on valuation models using risk adjusted interest rates and historical
prepayment experiences.

Financing arrangements: The carrying amounts of the Company's borrowings
with variable interest rates approximated their fair values at December 31,
1995 and 1994. The carrying amounts of the Company's borrowings with fixed
interest rates totaled $56.8 million and $84.3 million at December 31, 1995
and 1994, respectively. The fair values of these borrowings totaled $56.4
million and $80.2 million at December 31, 1995 and 1994, respectively, and
were estimated using discounted cash flow analyses based on the Company's
current borrowing rates for similar types of borrowing arrangements.

F-20
<PAGE>

FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)

15. UNAUDITED CONSOLIDATED QUARTERLY FINANCIAL DATA

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
-------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total revenues................................. $18,607 $29,518 $37,512 $26,117
Total expenses................................. 17,067 25,698 28,714 25,128
------- ------- ------- -------
Earnings before provision for income taxes..... 1,540 3,820 8,798 989
Provision for income taxes..................... 462 1,146 1,079 191
------- ------- ------- -------
Net earnings................................... $ 1,078 $ 2,674 $ 7,719 $ 798
======= ======= ======= =======
Net earnings per share:
Primary...................................... $ .10 $ .24 $ .70 $ .07
======= ======= ======= =======
Fully diluted................................ $ .09 $ .23 $ .66 $ .07
======= ======= ======= =======
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total revenues................................. $24,559 $37,789 $42,949 $36,854
Total expenses................................. 24,314 33,544 37,700 33,555
------- ------- ------- -------
Earnings before provision for income taxes..... 245 4,245 5,249 3,299
Provision for income taxes..................... 93 1,613 1,995 1,308
------- ------- ------- -------
Net earnings................................... $ 152 $ 2,632 $ 3,254 $ 1,991
======= ======= ======= =======
Net earnings per share:
Primary...................................... $ .01 $ .24 $ .29 $ .18
======= ======= ======= =======
Fully diluted................................ $ .01 $ .23 $ .28 $ .17
======= ======= ======= =======
</TABLE>

Revenues in the third quarter of 1994 include a non-taxable gain of $5.2
million related to the sale of First Federal. Certain amounts in the
consolidated financial statements of prior quarters for 1995 and 1994 have been
reclassified to conform to the 1995 fourth quarter presentation.

F-21
<PAGE>

This page includes five pictures which are described clockwise as follows: a
picture of VOI buildings at Fairfield Bay; a picture of VOI buildings at
Fairfield Pagosa; a picture of a VOI building at Myrtle Beach at SeaWatch
Plantation; a VOI building at Fairfield Branson at the Falls; a picture of two
couples in a VOI unit at Fairfield Bay; and in the upper left corner the
stylized Fairfield logo.
<PAGE>

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

NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY FAIRFIELD. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION WHERE SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO
THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 8
Use of Proceeds.......................................................... 11
Price Range of Common Stock.............................................. 12
Dividend Policy.......................................................... 12
Capitalization........................................................... 13
Selected Financial and Other Data........................................ 14
Management's Summary Discussion and Analysis of Financial Condition and
Results of Operations................................................... 16
Business................................................................. 23
Management............................................................... 34
Principal and Selling Stockholders....................................... 36
Certain Relationships and Related Transactions........................... 37
Description of Capital Stock............................................. 37
Underwriting............................................................. 39
Legal Matters............................................................ 40
Experts.................................................................. 40
Forward-Looking Information.............................................. 40
Available Information.................................................... 40
Incorporation of Certain Documents by Reference.......................... 41
Index to Consolidated Financial Statements............................... F-1
</TABLE>

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

2,077,153 SHARES

FAIRFIELD
COMMUNITIES, INC.

COMMON STOCK

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

PROSPECTUS

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

STEPHENS INC.

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

NOVEMBER 21, 1996

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