BALLY TOTAL FITNESS HOLDING CORP, S-3/A, 1997-06-02

BALLY TOTAL FITNESS HOLDING CORP
S-3/A, 1997-06-02
MEMBERSHIP SPORTS & RECREATION CLUBS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 30, 1997

REGISTRATION NO. 333-24175

================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------

AMENDMENT NO. 1

FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------

BALLY TOTAL FITNESS HOLDING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
Delaware 7991 36-3228107
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>

8700 West Bryn Mawr Avenue
Chicago, Illinois, 60631
(773) 380-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------
LEE S. HILLMAN
Bally Total Fitness Holding Corporation
8700 West Bryn Mawr Avenue
Chicago, Illinois 60631
(773) 380-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------
Copies to:

<TABLE>
<S> <C>
IRV BERLINER HOWARD L. SHECTER
Benesch, Friedlander, Coplan & Aronoff LLP Morgan, Lewis & Bockius LLP
2300 BP America Building 101 Park Avenue
200 Public Square New York, New York 10178
Cleveland, Ohio 44114 (212) 309-6000
(216) 363-4500
</TABLE>

------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:

As soon as practicable after this registration statement becomes effective.
------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------

CALCULATION OF REGISTRATION FEE(1)

<TABLE>
<CAPTION>
=============================================================================================================
PROPOSED
MAXIMUM AMOUNT OF
TITLE OF SHARES AGGREGATE REGISTRATION
TO BE REGISTERED OFFERING PRICE FEE(2)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock......................................................... $58,218,750 $17,642
=============================================================================================================
</TABLE>

(1) The registration fee has been calculated pursuant to Rule 457(o) under the
Securities Act of 1933, which permits the registration fee to be calculated
solely on the basis of the maximum aggregate offering price of the
securities without including the number of shares.

(2) Includes $10,606 previously paid in connection with this transaction.

------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS DATED MAY 30, 1997

PROSPECTUS

6,000,000 SHARES

Bally Logo

BALLY TOTAL FITNESS HOLDING CORPORATION

COMMON STOCK
------------------

All of the 6,000,000 shares of common stock, $.01 par value per share (the
"Common Stock"), offered hereby (the "Offering") are being issued and sold by
Bally Total Fitness Holding Corporation, a Delaware corporation (the "Company"
or "Bally"). The Common Stock is traded on the Nasdaq National Market under the
symbol "BFIT". On May 28, 1997, the last sale price of the Common Stock as
reported on the Nasdaq National Market was $8 7/16 per share. See "Price Range
of Common Stock and Dividend Policy".

SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------------
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>
===============================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................ $ $ $
- -----------------------------------------------------------------------------------------------
Total (3)............................ $ $ $
===============================================================================================
</TABLE>

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including certain liabilities under the Securities Act of 1933,
as amended. See "Underwriting".

(2) Before deducting expenses payable by the Company estimated at $ .

(3) The Company has granted the several Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an additional 900,000
shares of Common Stock, to cover over-allotments, if any. If all such shares
are purchased, the total Price to Public, Underwriting Discount and Proceeds
to Company will be $ , $ and $ , respectively.
See "Underwriting".

------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to the
approval of certain legal matters by counsel for the Underwriters and to certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
the delivery of the shares of Common Stock will be made in New York, New York,
on or about , 1997.
------------------
MERRILL LYNCH & CO.

LADENBURG THALMANN & CO. INC.

JEFFERIES & COMPANY, INC.

------------------
The date of this Prospectus is , 1997.
<PAGE> 3

[GRAPHIC DESCRIPTION: A PICTURE OF THE
FRONT OF ONE OF THE COMPANY'S FACILITIES AND
THREE PICTURES OF PEOPLE USING VARIOUS
COMPANY FACILITIES.]

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF COMMON STOCK TO COVER
SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING".

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
NASDAQ IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING".

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<PAGE> 4

PROSPECTUS SUMMARY

The following is a summary of certain information contained elsewhere in this
Prospectus and is qualified by the more detailed information set forth elsewhere
in this Prospectus which should be read in its entirety. Unless otherwise
indicated, capitalized terms used in this Prospectus Summary have the respective
meanings ascribed to them elsewhere in this Prospectus. The information
contained in this Prospectus Summary contains forward-looking statements which
involve known and unknown risks, uncertainties and other factors that may cause
the actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. See "Special Note Regarding
Forward-Looking Statements" on page 7.

THE COMPANY

The Company is the largest (and only nationwide) commercial operator of
fitness centers in the United States in terms of revenues, the number of
members, and the number and square footage of facilities. As of April 30, 1997,
the Company operated approximately 320 fitness centers concentrated in major
metropolitan areas in 27 states and Canada and had approximately four million
members. During 1996, Bally's members made more than 100 million visits to its
fitness centers.

The Company offers its members value by providing access to
state-of-the-art fitness facilities with affordable membership programs. Bally's
fitness centers feature an outstanding selection of cardiovascular, conditioning
and strength equipment and offer extensive aerobic training programs. The
Company's new club prototype achieves efficiency by focusing on those fitness
services that receive a high degree of member use. Most of the Company's current
fitness centers include pools, racquet courts or other athletic facilities that
receive a lower degree of member use. The Company has clustered its fitness
centers in major metropolitan areas in order to achieve marketing and operating
efficiencies. These markets include, among others, New York, Los Angeles,
Chicago, Houston, Dallas, Detroit, Baltimore, Washington, D.C., Philadelphia,
Miami, Cleveland, Atlanta, Milwaukee, Seattle, Minneapolis, Orlando, Denver,
Phoenix, St. Louis, Boston and Kansas City. In 1996, the Company completed the
process of renaming its fitness centers so they all use the servicemark "Bally
Total Fitness", thereby enhancing brand identity, concentrating advertising and
eliminating the prior practice of using more than 25 different regional
servicemarks and trade names.

The Company's primary target market for new members is the 18 to 34-year
old, middle income segment of the population. Bally markets itself to this
consumer segment through the use of a variety of membership options and payment
plans. The membership options offered by the Company range from single-club
memberships to premium memberships which provide additional amenities and the
use of all of Bally's fitness centers nationwide. Similarly, the Company offers
a broad range of payment alternatives. Typically, members pay an initiation fee
which can either be financed (generally for 36 months and subject to downpayment
requirements) or paid-in-full at the time of joining. Members are also required
to pay monthly membership dues in order to use the Company's fitness facilities.
Management believes the various memberships and payment plans, in addition to
Bally's strong brand identity and the convenience of its multiple locations,
provide the Company distinct competitive advantages.

OPERATING STRATEGIES

In October 1996, Lee S. Hillman was named President and Chief Executive
Officer of the Company. This completed the transition of senior management of
the Company from predominantly marketing oriented managers, including the
original founders of the Company, to managers with more financial and
operational orientation. Until December 1996, a number of the Company's top
executives, including Mr. Hillman, also performed significant functions for
Bally Entertainment Corporation ("Entertainment"), the owner of the Company
until January 1996. Current management intends to pursue a number of operating
strategies, including the following, which the Company believes will improve the
results of its core business:

3
<PAGE> 5

have generated better long-term returns for the Company including streams of
recurring dues revenues, rather than selling discounted paid-in-full memberships
for which dues are frequently waived for up to three years.

- Upgrade and Expand Fitness Centers -- The Company intends to expand and
upgrade its facilities in order to increase its membership base and more
effectively capitalize on its streamlined marketing and administrative
functions. Management plans to make capital expenditures of approximately
$10 million to $12 million over the next twelve months to maintain and
make minor upgrades to the Company's existing facilities. In addition,
the Company expects to invest approximately $5 million to $10 million of
the proceeds from this Offering over the next two years to extensively
refurbish and make major upgrades to approximately 25% of its clubs. The
Company also intends to spend approximately $15 million to $25 million of
the proceeds from this Offering over the next three years to open 15 to
25 new facilities based on its new prototype. These facilities are
designed to cost less to construct and maintain than the Company's older
facilities. The facilities are expected to range in size from 10,000 to
45,000 square feet and have the capacity to accommodate significantly
more members than older clubs of the same size because the new facilities
will contain only the most widely used amenities.

- Increase Dues Revenues -- The Company believes that its dues are
substantially less than those charged by its competitors and that it can
significantly increase dues for its members who are beyond their initial
financing period without any material loss in membership.

- Improve Collections on Financed Contracts -- The Company plans to
continue its focus on increasing the downpayment on financed membership
plans and securing payment by electronic funds transfer ("EFT"), which
the Company's experience has shown results in higher quality receivables.
Further, the Company intends to institute more focused collection efforts
based on information provided by "credit scoring", which management
believes will also improve the yield from the receivables portfolio.

- Continue Cost Reduction Policies -- The Company's operating costs and
expenses for 1996 were more than $75 million lower than in 1994.
Management believes that other opportunities exist to cut additional
costs in the areas of administration, advertising and self-insured losses
incurred.

GROWTH OPPORTUNITIES

The Company currently generates substantially all of its revenues from the
sale of membership plans and the receipt of dues. Management believes that it
can increase and diversify its revenues by leveraging its brand identity,
extensive infrastructure (approximately 320 facilities), significant member base
(approximately four million members) and frequency of visitation (in excess of
100 million visits in 1996) by offering a number of ancillary products and
services. In order to pursue these growth opportunities, the Company plans to:

- Sell Nutritional Products -- The Company has successfully concluded test
marketing certain nutritional products, predominantly vitamins and weight
control supplements, and is launching the sale of these products to
members through telemarketing efforts and in its fitness centers.

- Provide Outpatient Rehabilitation Services -- The Company plans to
contract with providers of health care programs and services whereby
certain of the Company's existing facilities will also be used for
comprehensive outpatient rehabilitation services. The Company believes it
has opportunities with a number of third party providers and managers of
health care programs and services to provide similar outpatient
rehabilitation services in additional fitness centers, and expects to
offer these services within three years to members and non-members alike
in up to 100 of its facilities primarily using equipment already on-hand.
Among others, the Company has recently contracted with Continucare
Corporation to provide such services in certain, initially four, of the
Company's fitness centers. The Company plans to spend approximately $1
million of the proceeds from this Offering to upgrade an initial group of
its facilities to provide rehabilitation services.

- Offer Other Goods and Services -- The Company plans to sell work-out and
related apparel and market certain financial services and direct
marketing programs provided by third parties to its members such as a
co-branded credit card, credit life insurance, dining clubs and automated
teller machines ("ATMs") in its clubs through in-club sales efforts and
direct marketing programs.

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<PAGE> 6

THE OFFERING

Common Stock offered.......... 6,000,000 shares (1)

Common Stock to be outstanding
after the Offering............ shares (1)(2)

Use of proceeds............... For capital expenditures to develop new
facilities and more extensively refurbish and
upgrade existing facilities, to support the
introduction of new initiatives and for general
corporate and working capital purposes. See
"Use of Proceeds".

Nasdaq National Market
symbol........................ BFIT
- ---------------

(1) Assumes that the Underwriters' over-allotment option to purchase up to
900,000 shares of Common Stock is not exercised.

(2) Does not give effect to any future exercise of outstanding warrants to
purchase 2,942,805 shares of Common Stock, outstanding stock options to
purchase shares of Common Stock and options to purchase an
additional shares of Common Stock which the Company is able to
grant under the Company's existing stock option plans.

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

The Company was a wholly-owned subsidiary of Entertainment until
Entertainment spun-off the Company (the "Spin-off") to its stockholders on
January 9, 1996. The Company's executive offices are located at 8700 West Bryn
Mawr Avenue, Chicago, Illinois, 60631, telephone number (773) 380-3000. As used
in this Prospectus, unless the context otherwise requires, the "Company" or
"Bally" refers to Bally Total Fitness Holding Corporation and its subsidiaries
and their predecessors.

5
<PAGE> 7

SUMMARY FINANCIAL DATA

The following table presents summary consolidated financial data of the
Company. The financial data were derived from, and should be read in conjunction
with, financial information appearing elsewhere in this Prospectus. See
"Selected Consolidated Financial Data".

<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
--------------- ----------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------ ------ ------ ------ ------ ------ ------
(DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.............................. $177.3 $171.1 $625.6 $661.7 $661.5 $694.8 $744.7
Operating income (loss)................... 14.0 9.6 3.7 7.6 (37.2) .8 24.3
Income (loss) before extraordinary item
and cumulative effect on prior years of
change in accounting for income taxes... 2.5 (2.5) (41.2)(a) (25.2) (50.8) (28.0)(b) (7.5)
Income (loss) per common share (pro forma
for 1995 and 1994) (c).................. .19 (.20) (3.38) (3.08) (6.44)
BALANCE SHEET DATA (AT END OF PERIOD):
Installment contracts receivable (net) and
retained interest in sold installment
contracts receivable.................... $287.0 $314.1 $300.2 $303.4 $284.1 $322.7 $327.8
Total assets.............................. 794.8 837.3 813.5 846.3 860.2 923.3 919.4
Long-term debt, less current maturities... 357.7 363.8 376.4 368.0 289.7 305.7 269.8
Stockholders' equity...................... 219.0 238.0 216.5 240.3 234.3 261.3 264.5
OTHER FINANCIAL DATA:
EBITDA (d)................................ $ 27.1 $ 23.3 $ 59.7 $ 65.0 $ 21.6 $ 61.2 $ 82.1
Cash provided by (used in):
Operating activities.................... (10.9) (15.1) (5.3) (9.9) 32.8 49.9 64.5
Investing activities.................... (6.9) (6.4) (9.8) (42.1) (21.4) (36.1) (25.1)
Financing activities.................... 11.2 10.0 10.4 60.4 (9.6) (13.6) (41.8)

<FN>
- ---------------

(a) Excludes a net extraordinary gain on extinguishment of debt consisting of
(i) a gain (net of taxes) of $9.9 million ($.81 per share) resulting from
indebtedness owed Entertainment which was forgiven as part of the December
1996 merger of Entertainment with and into Hilton Hotels Corporation
("Hilton") and (ii) a charge (net of taxes) of $4.2 million ($.35 per share)
resulting from the refinancing of the Company's prior securitization
facility by a new securitization facility.

(b) Excludes (i) an extraordinary loss on extinguishment of debt of $6.0 million
(net of taxes) resulting from a refinancing of certain indebtedness and (ii)
a credit of $20.7 million for the cumulative effect on prior years of a
change in accounting for income taxes resulting from the Company changing
its method of accounting for income taxes effective January 1, 1993 as
required by Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes." As permitted by SFAS No. 109, the Company
elected to use the cumulative effect approach rather than to restate the
financial statements of any prior years to apply the provisions of SFAS No.
109.

(c) The historical net loss for the years ended December 31, 1995 and 1994
reflected a federal income tax benefit arising from the Company's prior tax
sharing agreement with Entertainment of $11.3 million and $25.7 million,
respectively. Pro forma loss per common share (which is unaudited) was
calculated giving effect to (i) adjustments made to reflect the income tax
provision/benefit as if the Company had filed its own separate consolidated
income tax return for each year and (ii) the distribution of 11,845,161
shares of Common Stock to Entertainment stockholders as if such distribution
had taken place as of the beginning of each year.

(d) EBITDA is defined as operating income (loss) before depreciation and
amortization and generally represents cash generated by the Company's
operations before interest and income taxes. The Company has presented
EBITDA supplementally because certain investors find this information useful
due to the significance of the Company's depreciation and amortization and
because of its highly leveraged financial position. These data should not be
considered as an alternative to any measure of performance or liquidity as
promulgated under generally accepted accounting principles (such as net
income/loss or cash provided by/used in operating, investing and financing
activities), nor should they be considered as an indicator of the Company's
overall financial performance. Also, the EBITDA definition used herein may
not be comparable to similarly titled measures reported by other companies.

</TABLE>
6
<PAGE> 8

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

CERTAIN STATEMENTS IN THE PROSPECTUS SUMMARY AND UNDER THE HEADINGS "RISK
FACTORS", "BUSINESS", "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS", AND ELSEWHERE IN THIS PROSPECTUS
CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. THESE FORWARD-LOOKING STATEMENTS
INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES, AND OTHER FACTORS WHICH MAY
CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO BE
MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THESE FACTORS INCLUDE,
AMONG OTHERS, THE FOLLOWING: GENERAL ECONOMIC AND BUSINESS CONDITIONS;
COMPETITION; SUCCESS OF OPERATING INITIATIVES, ADVERTISING AND PROMOTIONAL
EFFORTS; EXISTENCE OF ADVERSE PUBLICITY OR LITIGATION; ACCEPTANCE OF NEW PRODUCT
OFFERINGS; CHANGES IN BUSINESS STRATEGY OR PLANS; QUALITY OF MANAGEMENT;
AVAILABILITY, TERMS, AND DEVELOPMENT OF CAPITAL; BUSINESS ABILITIES AND JUDGMENT
OF PERSONNEL; CHANGES IN, OR THE FAILURE TO COMPLY WITH, GOVERNMENT REGULATIONS;
REGIONAL WEATHER CONDITIONS; THOSE ITEMS SET FORTH UNDER THE HEADING "RISK
FACTORS"; AND OTHER FACTORS REFERENCED IN THIS PROSPECTUS.

RISK FACTORS

Prior to making an investment decision, prospective investors should
consider carefully all of the information set forth in this Prospectus and,
particularly, should evaluate the following risk factors.

DECLINE IN REVENUE; NET LOSSES

The Company's new membership revenues, the principal component of its total
revenues, have decreased from $444.0 million in 1994 to $383.4 million in 1996,
and there can be no assurance that the Company will be able to halt or reverse
this decline. Although the Company's operating costs and expenses were more than
$75 million lower in 1996 than in 1994, there can be no assurance that the
Company will be able to continue reducing its operating costs and expenses. The
Company reported losses before extraordinary item of $41.2 million, $25.2
million and $50.8 million for 1996, 1995 and 1994, respectively. On a pro forma
basis, adjusting the income tax provision/benefit as if the Company had filed
its own separate consolidated tax returns, the loss for 1995 and 1994 would have
been $36.5 million and $76.3 million, respectively.

RISKS ASSOCIATED WITH HIGHLY-LEVERAGED FINANCIAL POSITION

In December 1996, the Company issued $160.0 million of asset-backed
securities (the "Securitization") by selling undivided interests in the H&T
Master Trust (the "Trust"). The Trust consists primarily of a portfolio of
installment contracts receivable from membership plans and the proceeds thereof.
The Company plans to refinance the Securitization in the second or third quarter
of 1999; however, there can be no assurance that the Company will be able to
sell such a replacement series or that the terms of such replacement series will
be as favorable as the Securitization.

The Company's long-term debt includes the Securitization, $200 million
principal amount of 13% Senior Subordinated Notes due 2003 (the "13% Notes") and
a $20 million revolving credit facility which expires in June 1998, of which
$12.0 million was outstanding at March 31, 1997. At March 31, 1997, the Company
had total indebtedness of approximately $366 million. The Company's recent
losses, total indebtedness and provisions of existing debt instruments limit the
Company's ability to raise capital or borrow money. The provisions in the
Company's existing debt instruments limit the Company's ability to borrow
additional funds and to grant security interests and require the Company to
maintain certain financial ratios, including those relating to cash flow and
interest expense. As a result of the limitations, the Company may be more
vulnerable to economic downturns, may not be able to exploit certain business
opportunities when they arise and may have less flexibility to respond to
changing economic conditions, each of which could have a material adverse effect
on the Company's financial condition and results of operations.

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<PAGE> 9

RISKS ASSOCIATED WITH NEW INITIATIVES

The Company intends to embark on a number of new initiatives to capitalize
on its brand identity, extensive infrastructure, significant member base
(approximately four million members) and frequency of visitation. These
initiatives include selling and marketing nutritional products and work-out and
related apparel to its members and marketing financial services provided by
third parties to its members such as a co-branded credit card, credit life
insurance, dining clubs and ATMs in its clubs as well as making comprehensive
outpatient rehabilitation services available to members and non-members alike.
The Company has not previously generated significant revenues from any of these
new initiatives and there can be no assurance that such initiatives will be
successful. In addition, the Company has limited experience in marketing new
products to its members. The sale and marketing of nutritional products and
work-out and related apparel and the provision of rehabilitation services
involve significant risks of competition. See "-- Competition". The provision of
rehabilitation services also involves risks of government regulation. See
"-- Government Regulation".

RISKS ASSOCIATED WITH PRICING STRATEGY

Competitive conditions in certain markets in which the Company operates may
limit the Company's ability to reduce discount pricing on paid-in-full
memberships and to increase dues significantly without a material loss in
membership.

COMPETITION

The Company is the largest operator, or among the largest operators, of
fitness centers in every major market in which it has fitness centers. Within
each market, the Company competes with other fitness centers, physical fitness
and recreational facilities established by local governments and hospitals and
by businesses for their employees, the YMCA and similar organizations and, to a
certain extent, with racquet and tennis and other athletic clubs, country clubs,
weight reducing salons and the home-use fitness equipment industry. The Company
also competes with other entertainment and retail businesses for the
discretionary income of its target market. The Company believes competition has
increased in certain markets. There can be no assurance that the Company will be
able to compete effectively in the future in the markets in which it operates.

When the Company embarks on its new initiatives, particularly the sale of
nutritional products and apparel, the Company will be competing against large
established companies with more experience selling such products on a retail
basis and, in some instances, with substantially greater financial resources
than the Company. There can be no assurance that the Company will be able to
compete effectively against such established companies.

SEASONAL REVENUES

Historically, the Company has experienced greater revenues in the first
quarter and lower revenues in the fourth quarter. Certain of the new initiatives
the Company plans to undertake may have the effect of further increasing the
seasonality of the Company's business.

GOVERNMENT REGULATION

The operations and business practices of the Company are subject to
regulation at federal, state and, in some cases, local levels. General rules and
regulations of the Federal Trade Commission (the "FTC"), and of state and local
consumer protection agencies, and state statutes apply to the Company's
advertising, sales and other trade practices, including the sale, financing and
collection of memberships. Although management is not aware of any proposed
changes in any statutes, rules or regulations, any changes could have a material
adverse effect on the Company's financial condition and results of operations.
In addition, the provision of rehabilitation services and payments for such
services are subject to government regulation. See "Business -- Government
Regulation".

8
<PAGE> 10

POTENTIAL IMPACT OF CERTAIN ANTITAKEOVER PROVISIONS

Certain provisions of the Company's Restated Certificate of Incorporation
(the "Company Certificate") and the Company's Amended and Restated By-Laws may
inhibit changes in control of the Company not approved by the Board of Directors
of the Company (the "Board"). These provisions include a stockholders rights
plan, a classified Board, advance notice provisions for nominations for election
of candidates to the Board and a "fair-price provision". The stockholder rights
plan, under which one right entitling the holder to purchase one one-hundredth
of a share of the Company's Series A Junior Participating Preferred Stock at a
price of $40 per share (subject to adjustment) is attached to each outstanding
share of Common Stock, renders an acquisition of control of the Company in a
transaction not approved by the Board more difficult. The Company's 1996
Long-Term Incentive Plan provides for acceleration of stock options and
restricted stock awards upon a change in control of the Company which has the
effect of making an acquisition of control of the Company more expensive. These
agreements may also inhibit a change in control of the Company and may have a
negative effect on the market price of the Common Stock. The 13% Notes also
include change in control provisions which provide, among other things, that
upon a change in control of the Company, the holders of the 13% Notes may
require the Company to repurchase the 13% Notes at 101% of the principal amount,
together with accrued and unpaid interest to the repurchase date. A change in
control of the Company constitutes a default under the Company's revolving
credit agreement. In addition, certain Company officers have severance
compensation agreements with the Company that provide for substantial cash
payments and acceleration of other benefits in the event of specified corporate
changes related to the Company, including a change in control of the Company.

DIVIDEND POLICY; RESTRICTIONS ON PAYMENT OF DIVIDENDS

The Company does not anticipate paying dividends for the foreseeable
future. Currently, the Company is restricted from paying dividends by the terms
of the 13% Notes and its revolving credit agreement. Specifically, the Indenture
governing the 13% Notes contains a covenant that the Company currently cannot,
directly or indirectly, declare or pay any dividend on, or make any distribution
to holders of, any shares of Common Stock (other than dividends or distributions
payable in shares of Common Stock or in options, warrants or other rights to
purchase Common Stock, but excluding certain specified dividends or
distributions). Similarly, the terms of the Company's revolving credit agreement
provide that the Company is restricted from paying dividends without the consent
of the lenders during the term of the agreement and until all obligations
thereunder have been satisfied.

FUTURE SALE AND PRICE OF COMMON STOCK

After the Offering, shares of Common Stock will be outstanding
(assuming the Underwriters' over-allotment option is not exercised). At that
time, the Company will also have (i) outstanding options to purchase
shares of Common Stock with a weighted-average exercise price of $4.25 per
share, and (ii) the ability to grant options to purchase an additional
shares of Common Stock under the Company's stock option plans. In addition, the
Company will have outstanding warrants to purchase 2,942,805 shares of Common
Stock at an exercise price of $5.26 per share. The warrants are held by the
Chairman of the Board and the President of the Company and are exercisable until
December 31, 2005. Assuming no additional options or warrants to purchase shares
of Common Stock are issued and all currently outstanding options and warrants
are exercised in full, additional shares of Common Stock would be
outstanding. The effect, if any, that these additional shares of Common Stock
would have on the market price of the Common Stock prevailing from time to time
is unpredictable, and no assurance can be given that the effect will not be
adverse.

9
<PAGE> 11

USE OF PROCEEDS

At an offering price of $ per share (based on the closing price of a
share of Common Stock on the Nasdaq National Market on , 1997), the net
proceeds to be received by the Company from the sale of shares of Common Stock
(after deducting the underwriting discount and estimated expenses payable by the
Company) are estimated to be approximately $ million ($ million if the
underwriters' over-allotment option is exercised in full). The Company intends
to use approximately $15 million to $25 million of the proceeds from this
Offering over the next three years for capital expenditures to open 15 to 25 new
facilities based on its new prototype, approximately $5 million to $10 million
for capital expenditures over the next two years to extensively refurbish and
make major upgrades to approximately 25% of its clubs, as much as $3 million to
support the introduction of new initiatives and the balance for general
corporate and working capital purposes. Pending such uses, the Company may
temporarily invest available funds from this Offering in short-term securities
and/or reduce indebtedness under its revolving credit agreement. The rate of
interest on the revolving credit agreement is at the Company's option, based
upon either the bank agent's prime rate plus 2% or a Eurodollar rate plus 3%. At
April 30, 1997, the interest rate on the revolving credit agreement selected by
the Company was 10.5%. The revolving credit agreement expires in June 1998.

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Common Stock is traded on the Nasdaq National Market under the symbol
"BFIT". The following table sets forth for the periods indicated the high and
low quarterly sales prices for a share of Common Stock as reported on the Nasdaq
National Market since trading began on January 4, 1996, the date the Company's
initial Registration Statement on Form S-1 was declared effective. The Company
was a wholly-owned subsidiary of Entertainment until January 9, 1996, the date
on which 11,845,161 shares of Common Stock were distributed by Entertainment in
the Spin-off.

<TABLE>
<CAPTION>
HIGH LOW
---------- ----------
<S> <C> <C>
1996:
First Quarter (from January 4, 1996).................. $7 $3 3/4
Second Quarter........................................ 5 3/4 3 15/16
Third Quarter......................................... 5 1/8 4
Fourth Quarter........................................ 9 1/16 4 1/2
1997:
First Quarter......................................... $8 13/16 $6
Second Quarter (through May 28, 1997)................. 8 9/16 5 5/8
</TABLE>

The last reported sale price of a share of Common Stock on the Nasdaq
National Market on May 28, 1997 is set forth on the cover page of this
Prospectus. As of April 30, 1997, there were 11,010 holders of record of the
Common Stock.

10
<PAGE> 12

CAPITALIZATION

The following table sets forth the consolidated capitalization of the
Company at March 31, 1997 and as adjusted to give effect to the sale by the
Company of 6,000,000 shares of Common Stock offered hereby (assuming the
Underwriters' over-allotment option is not exercised) at an offering price of
$ per share (after deducting the underwriting discount and estimated
expenses payable by the Company), as if such transaction had occurred as of
March 31, 1997.

<TABLE>
<CAPTION>
MARCH 31, 1997
-------------------------
AS
ACTUAL ADJUSTED
---------- ----------
(IN MILLIONS)
<S> <C> <C>
Cash and equivalents............................................ $ 9.9 $
========== ==========
Current maturities of long-term debt (1)........................ $ 8.4 $ 8.4
========== ==========
Long-term debt, less current maturities (1)..................... $ 357.7 $ 357.7
Stockholders' equity:
Preferred stock, $.10 par value; 10,000,000 shares authorized;
none issued --
Series A Junior Participating; 300,000 shares authorized;
none issued...........................................
Common Stock, $.01 par value; 60,200,000 shares authorized;
12,496,975 and 18,496,975 shares issued.................... .1 .2
Contributed capital........................................... 306.8
Accumulated deficit........................................... (85.9) (85.9)
Unearned compensation (restricted stock)...................... (2.0) (2.0)
---------- ----------
Total stockholders' equity.................................... 219.0
---------- ----------
Total capitalization..................................... $ 576.7 $
========== ==========
</TABLE>

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

(1) See "Consolidated Financial Statements" and "Management's Discussion and
Analysis of Results of Operations and Financial Condition" for additional
information with respect to the Company's consolidated indebtedness.

11
<PAGE> 13

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data of the Company presented below for
and as of the end of each of the five years ended December 31, 1996 were derived
from the audited consolidated financial statements of the Company. The data
presented below for and as of the end of each of the three months ended March
31, 1997 and 1996 are unaudited; however, in the opinion of management, such
data include all adjustments (which were of a normal recurring nature) necessary
for a fair presentation of the information set forth therein. The Company's
operations are subject to seasonal factors, and therefore, the results of
operations for the three months ended March 31, 1997 and 1996 are not
necessarily indicative of the results of operations for the full year. The data
presented should be read in conjunction with financial information appearing
elsewhere in this Prospectus. See "Consolidated Financial Statements" and
"Management's Discussion and Analysis of Results of Operations and Financial
Condition".

<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
--------------- ----------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------ ------ ------ ------ ------ ------ ------
(DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.............................. $177.3 $171.1 $625.6 $661.7 $661.5 $694.8 $744.7
Depreciation and amortization............. 13.1 13.7 55.9 57.4 58.9 60.4 57.8
Operating income (loss)................... 14.0 9.6 3.7 7.6 (37.2) .8 24.3
Income (loss) before extraordinary item
and cumulative effect on prior years of
change in accounting for income taxes... 2.5 (2.5) (41.2)(a) (25.2) (50.8) (28.0)(b) (7.5)
Income (loss) per common share (pro forma
for 1995 and 1994) (c).................. .19 (.20) (3.38) (3.08) (6.44)
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and equivalents...................... $ 9.9 $ 9.7 $ 16.5 $ 21.3 $ 12.8 $ 11.0 $ 10.7
Installment contracts receivable (net) and
retained interest in sold installment
contracts receivable.................... 287.0 314.1 300.2 303.4 284.1 322.7 327.8
Total assets.............................. 794.8 837.3 813.5 846.3 860.2 923.3 919.4
Long-term debt, less current maturities... 357.7 363.8 376.4 368.0 289.7 305.7 269.8
Stockholders' equity...................... 219.0 238.0 216.5 240.3 234.3 261.3 264.5
OTHER FINANCIAL DATA:
EBITDA (d)................................ $ 27.1 $ 23.3 $ 59.7 $ 65.0 $ 21.6 $ 61.2 $ 82.1
Cash provided by (used in):
Operating activities.................... (10.9) (15.1) (5.3) (9.9) 32.8 49.9 64.5
Investing activities.................... (6.9) (6.4) (9.8) (42.1) (21.4) (36.1) (25.1)
Financing activities.................... 11.2 10.0 10.4 60.4 (9.6) (13.6) (41.8)

<FN>
- ---------------

(a) Excludes a net extraordinary gain on extinguishment of debt consisting of
(i) a gain (net of taxes) of $9.9 million ($.81 per share) resulting from
indebtedness owed Entertainment which was forgiven as part of the December
1996 merger of Entertainment with and into Hilton and (ii) a charge (net of
taxes) of $4.2 million ($.35 per share) resulting from the refinancing of
the Company's prior securitization facility by a new securitization
facility.

(b) Excludes (i) an extraordinary loss on extinguishment of debt of $6.0 million
(net of taxes) resulting from a refinancing of certain indebtedness and (ii)
a credit of $20.7 million for the cumulative effect on prior years of a
change in accounting for income taxes resulting from the Company changing
its method of accounting for income taxes effective January 1, 1993 as
required by SFAS No. 109, "Accounting for Income Taxes." As permitted by
SFAS No. 109, the Company elected to use the cumulative effect approach
rather than to restate the financial statements of any prior years to apply
the provisions of SFAS No. 109.

</TABLE>
12
<PAGE> 14

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

GENERAL

The primary strategic initiative of management involves improving the
results of its core business and, as capital is available, replicating the
profitable new fitness center model through expansion. In 1993, the Company
began building more efficient fitness centers by eliminating pools and other wet
areas and racquet sports (all of which are costly to build and maintain and
which have significantly lower utilization rates), and replacing much of that
space with expanded workout areas which receive a higher degree of member use.
At approximately the same time, the Company emphasized the sale of financed
contracts with payments made by EFT by adjusting sales commission and member
incentives. The Company's experience indicated better collection results for
financed memberships sold under EFT plans compared to those sold with standard
coupon book payment plans. EFT contracts represented approximately 55% of the
total contracts in the receivables portfolio at March 31, 1997. Additionally,
membership types and pricing options were standardized, making the selling
process less complicated for both the customer and the sales personnel. In
August 1994, the Company implemented a program to increase monthly dues for
contracts sold after that date and in late 1995 began to curtail the practice of
discounting dues for multiple year renewal offers. The Company believes all of
these actions, certain of which reduced new membership revenues, will ultimately
improve cash flows and operating income.

In addition, management made certain changes designed to integrate
operations and reduce operating costs, including personnel costs, advertising
expenses and other operating expenses. As part of its continuing cost reduction
program, the Company began a long-term consolidation project in 1991 and
computer conversion in 1994 for its regional service centers ("RSCs"). The
consolidation of five RSCs into the two remaining RSCs was completed in the
third quarter of 1995, and the elimination of cost redundancies continued
throughout 1996. The primary phase of the computer conversion was completed in
the fourth quarter of 1995. With the addition of new hardware and software, the
Company has streamlined its processing procedures and developed efficiencies
that enable the RSCs to service membership accounts better while reducing costs.

Management also believes significant opportunities exist to increase
revenues beyond those generated by the sale of memberships without significant
capital expenditures. Because of its nationally recognized brand identity,
extensive infrastructure, significant member base (approximately four million
members) and frequency of visitation, management has begun to pursue the
following growth opportunities: (i) the sale of nutritional products to its
members through telemarketing and within its fitness centers; (ii) the provision
of comprehensive outpatient rehabilitation services; and (iii) the sale of other
goods and services, including the marketing of apparel and certain financial
services to its members.

In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities", which provides new accounting and reporting standards for
sales, securitizations and servicing of receivables and other financial assets,
secured borrowing and collateral transactions, and extinguishments of
liabilities occurring after December 31, 1996. The Company adopted the
requirements of SFAS No. 125 effective January 1, 1997 and, as a result of
applying the new requirements to the Securitization, finance charges earned and
interest expense each decreased by approximately $.5 million for the three
months ended March 31, 1997. The Company believes that by mid-1998, the full
effect of SFAS No. 125 will be realized, in that the Company's consolidated
statement of operations will no longer reflect any interest expense related to
the Securitization, which will be offset by a corresponding decrease in finance
charges earned. For additional information with respect to SFAS No. 125 and its
effect on the Company's accounting for the Securitization, see "Consolidated
Financial Statements".

13
<PAGE> 15

RESULTS OF OPERATIONS

Comparison of the three months ended March 31, 1997 and 1996

Net revenues for the first quarter of 1997 were $177.3 million compared to
$171.1 million in 1996, an increase of $6.2 million (4%). Net revenues for the
same fitness centers selling memberships throughout both quarters increased $5.1
million (3%). The average number of fitness centers selling memberships
decreased from 324 in the first quarter of 1996 to 319 in the first quarter of
1997, reflecting the closure of 12 older, typically smaller and less profitable
facilities offset, in part, by the opening of 6 new, larger facilities between
January 1996 and March 1997. New membership revenues increased $2.4 million (2%)
primarily due to a change in the mix of contracts sold (more premium memberships
and fewer lower-end memberships were sold in 1997), which resulted in an 18%
increase in the average selling price of contracts sold and a 14% decline in the
number of contracts sold. Dues revenues increased $3.8 million (8%) over 1996,
reflecting the Company's continuing strategy of increasing renewal dues. Finance
charges earned decreased $.3 million (3%) in the 1997 quarter and fees and other
revenues increased $.3 million (9%) from 1996.

Operating income for the first quarter of 1997 was $14.0 million compared
to $9.6 million in 1996. The increase of $4.4 million (46%) is due to the
aforementioned increase in revenues offset, in part, by a $1.8 million (1%)
increase in operating costs and expenses, which includes a $4.6 million increase
in the provision for doubtful receivables. Excluding the provisions for doubtful
receivables, operating costs and expenses decreased $2.8 million (2%) from 1996.

Fitness center operating expenses for the first quarter of 1997 increased
$.2 million (less than 1%) from 1996. As a percentage of net revenues, fitness
center operating expenses decreased from 56% in the 1996 period to 54% in 1997.

Member processing and collection center expenses decreased $2.6 million
(21%) primarily due to the realization in 1997 of the full effect of cost
reductions achieved in connection with the completion of the primary phase of a
computer conversion in late 1995. In addition, telephone expenses decreased as a
result of renegotiated rates and fewer member service calls. Member processing
and collection center expenses as a percentage of net revenues decreased from 7%
in the 1996 period to 5% in 1997.

Advertising costs for the first quarter of 1997 increased $.1 million (1%)
over 1996 and as a percentage of net revenues were 7% for each period.

General and administrative expenses increased $.1 million (2%) and, as a
percentage of net revenues, were 3% for each period.

The provision for doubtful receivables for the first quarter of 1997 was
$25.5 million compared to $20.9 million for 1996, an increase of $4.6 million
(22%) reflecting management's desire to maintain the conservative estimation
levels applied in late 1996.

Depreciation and amortization expense decreased $.6 million (4%) from 1996.
As a percentage of net revenues, depreciation and amortization expense decreased
from 8% in the 1996 period to 7% in 1997.

Interest expense, net of capitalized interest, was $11.4 million for the
first quarter of 1997 compared to $11.8 million in 1996, a decrease of $.4
million (3%) principally reflecting the accounting for the Securitization
required by SFAS No. 125.

The income tax provision for the first quarter of 1997 and 1996 has been
determined using the estimated annual effective tax rate for each year and
reflects state income taxes only, as no federal provision or benefit has been
provided due to the availability of tax loss carryforwards and/or the
uncertainty of tax loss realization.

Comparison of the years ended December 31, 1996 and December 31, 1995

Net revenues for 1996 were $625.6 million compared to $661.7 million in
1995. Net revenues for the same fitness centers selling memberships throughout
both years decreased $28.5 million (5%), with the remaining decrease resulting
from a reduction in the number of fitness centers operated in 1996. The average

14
<PAGE> 16

number of fitness centers selling memberships decreased from 332 in 1995 to 322
in 1996, reflecting the closure of 25 older, typically smaller and less
profitable facilities and the sale of a fitness center to Entertainment offset,
in part, by the opening of 13 new, larger facilities over the two-year period.
New membership revenues decreased $40.5 million (10%) primarily due to a 12%
decline in the number of contracts sold offset, in part, by a 6% increase in the
average selling price as a result of the sale of more premium memberships. Dues
revenues increased $7.0 million (4%) over 1995 despite the 3% reduction in the
average number of facilities operated, reflecting the Company's continuing
strategy of increasing renewal dues. Finance charges earned decreased $.5
million (1%) in 1996 compared to 1995. Fees and other revenues decreased $2.1
million (12%) primarily due to the reduction of personal trainer revenue in 1996
as a result of temporarily outsourcing the service and non-recurring income in
1995 pertaining to insurance recoveries.

Operating income for 1996 was $3.7 million compared to $7.6 million in
1995. The decrease of $3.9 million was due to the aforementioned decrease in
revenues offset, in part, by a $32.3 million (5%) reduction in operating costs
and expenses despite an $8.3 million increase in the provision for doubtful
receivables and a $5.1 million charge related to restricted stock awards issued
in conjunction with the Spin-off for which restrictions lapsed due to the
increase in the market price of the Common Stock. Excluding the provisions for
doubtful receivables and restricted stock awards, operating costs and expenses
decreased $45.6 million (8%) in 1996 compared to 1995. This decrease was
primarily due to (i) continuing reductions in payroll and other variable costs
(including the aforementioned RSC consolidation project), (ii) lower commissions
as a result of the aforementioned decline in new membership sales and (iii) the
3% reduction in the average number of fitness centers operated in 1996 compared
to 1995.

Fitness center operating expenses for 1996 decreased $30.3 million (8%)
from 1995 primarily due to a reduction in payroll and related costs and other
variable costs as a result of the continuing cost reduction program and club
closures. In addition, insurance expenses declined due to favorable experience
in controlling general liability risks, and commissions decreased as a result of
the decline in new membership sales. As a percentage of net revenues, fitness
center operating expenses decreased from 60% in 1995 to 59% in 1996.

Member processing and collection center expenses decreased $8.2 million
(15%) primarily due to the aforementioned RSC consolidation and computer
projects. Member processing and collection center expenses as a percentage of
net revenues decreased from 8% in 1995 to 7% in 1996.

Advertising costs for 1996 decreased $2.6 million (5%) from 1995 primarily
due to decreased production costs, agency fees and media costs. Advertising
costs as a percentage of net revenues were 8% for each year.

General and administrative expenses increased $2.0 million (9%) over 1995
primarily due to certain costs associated with the accelerated vesting of the
aforementioned restricted stock awards and accruals of severance costs. As a
percentage of net revenues, general and administrative expenses increased from
3% in 1995 to 4% in 1996.

The provision for doubtful receivables for 1996 was $80.4 million compared
to $72.1 million in 1995, an increase of $8.3 million (12%). Management believes
the additional provision for doubtful receivables in 1996 adequately reserves
for collection experience that may ultimately be realized from sales programs in
general, and specifically from sales promotions allowing very low downpayments
offered from time to time between July 1995 and October 1996 that have shown
indications of underperforming historical collection experience.

Depreciation and amortization expense decreased $1.4 million (2%) from 1995
and, as a percentage of net revenues, was 9% for each year.

Interest expense, net of capitalized interest, was $47.6 million in 1996
compared to $43.8 million in 1995, an increase of $3.8 million (9%) principally
reflecting a higher average level of debt offset, in part, by lower average
interest rates.

As a result of the Spin-off, the Company is no longer included in the
consolidated federal income tax return of Entertainment and is required to file
its own separate consolidated federal income tax return. Accordingly, the income
tax benefit for 1996 reflects a benefit equal to the federal provision allocated
to the

15
<PAGE> 17

extraordinary item (no additional benefit has been provided due to the
uncertainty of its realization), net of a state income tax provision. Pursuant
to a tax sharing agreement with Entertainment, the effective rate of the income
tax benefit for 1995 was lower than the U.S. statutory tax rate (35%) due
principally to non-deductible amortization of costs in excess of acquired
assets.

Comparison of the years ended December 31, 1995 and December 31, 1994

Net revenues for 1995 were $661.7 million compared to $661.5 million in
1994. Dues revenues increased by $22.1 million (14%) reflecting the Company's
strategy of increasing renewal dues. New membership revenues decreased $20.2
million (5%) in 1995 primarily due to a 6% decline in the number of contracts
sold offset, in part, by a 4% increase in the average selling price, generally
reflecting the Company's strategy of realigning its sales mix to include more
financed contracts and somewhat fewer cash contracts, although some promotions
were offered with an emphasis on cash contracts. New membership revenues were
also negatively impacted by the general retail climate and increased
competition. Net revenues for the same fitness centers selling memberships
throughout both years decreased $6.5 million (1%) as a result of the
aforementioned decline in the number of contracts sold offset, in part, by an
increase in the average selling price. The average number of fitness centers
selling memberships decreased from 336 in 1994 to 332 in 1995, reflecting the
closure of 26 older, typically smaller facilities and the sale of a fitness
center to Entertainment offset, in part, by the opening of 13 new, larger
facilities over the two-year period.

Operating income for 1995 was $7.6 million compared to an operating loss of
$37.2 million in 1994. The improvement of $44.8 million was primarily due to a
$44.6 million (6%) reduction in operating costs and expenses. Excluding the
provisions for doubtful receivables, operating costs and expenses decreased
$12.8 million (2%) in 1995 compared to 1994. This decrease was primarily due to
reductions in salaries and other variable costs as a result of the continuing
cost reduction program and, to a lesser extent, reduced commissions as a result
of the decline in new membership sales.

Fitness center operating expenses for 1995 decreased $11.5 million (3%)
from 1994 primarily due to a reduction in salaries and other variable costs as a
result of the continuing cost reduction program and, to a lesser extent, reduced
commissions as a result of the decline in new membership sales. As a percentage
of net revenues, fitness center operating expenses decreased from 62% in 1994 to
60% in 1995.

Member processing and collection center expenses decreased $1.9 million
(4%) primarily due to the aforementioned RSC consolidation project. Member
processing and collection center expenses as a percentage of net revenues were
8% for each year.

Advertising costs for 1995 increased $2.5 million (5%) over 1994 primarily
due to increased media costs as a result of introducing the new company name
("Bally Total Fitness"). Advertising costs as a percentage of net revenues
increased from 7% in 1994 to 8% in 1995.

General and administrative expenses decreased $.3 million (1%) from 1994
and, as a percentage of net revenues, were 3% for each year.

The provision for doubtful receivables for 1995 was $72.1 million compared
to $103.9 million in 1994, a decrease of $31.8 million (31%). The reduction was
primarily due to additional reserves recorded in 1994 in conjunction with
management's reevaluation of collection risks associated with financed sales and
due to the improving collection experience of installment contracts receivable,
primarily the reduction in first payment defaults and an increase in EFT
contracts within the receivables portfolio.

Depreciation and amortization expenses decreased $1.5 million (3%) from
1994 and, as a percentage of net revenues, was 9% for each year.

Interest expense, net of capitalized interest, was $43.8 million in 1995
compared to $38.6 million in 1994, an increase of $5.2 million (13%) principally
reflecting a higher average level of debt offset, in part, by lower average
interest rates.

16
<PAGE> 18

Pursuant to a tax sharing agreement with Entertainment, the effective rates
of the income tax benefit for 1995 and 1994 were lower than the U.S. statutory
tax rate (35%) due principally to non-deductible amortization of costs in excess
of acquired assets.

LIQUIDITY AND CAPITAL RESOURCES

The Company has no scheduled principal payments under the 13% Notes until
January 2003. Through July 1999, the principal amount of the certificates under
the Securitization remains fixed at $160 million. In addition, the Company's
revolving credit agreement, which provides for borrowings of up to $20 million,
expires in June 1998. Accordingly, debt service requirements of the Company for
the next twelve months are principally for interest and are expected to be
approximately $51 million.

The Company's recent losses and the terms of its revolving credit agreement
have limited the Company's ability to borrow significant amounts of additional
funds. Consequently, the Company has been dependent on availability under its
revolving credit agreement ($4.4 million at March 31, 1997) and its operations
to provide for cash needs. The Company has managed liquidity requirements in
recent years by utilizing membership plan discounting techniques designed to
increase its cash sales and downpayments and to accelerate collections and dues
payments to increase available cash reserves and, to a lesser extent, sales of
non-strategic assets. Management believes use of these discounting techniques
has had a negative impact on both current and long term results and, if needed
in the future, such discounting and acceleration techniques may be increasingly
costly and less effective.

17
<PAGE> 19

BUSINESS

OPERATING STRATEGIES

In October 1996, Lee S. Hillman was named President and Chief Executive
Officer of the Company. This completed the transition of senior management of
the Company from predominantly marketing oriented managers, including the
original founders of the Company, to managers with more financial and
operational orientation. Until December 1996, a number of the Company's top
executives, including Mr. Hillman, also performed significant functions for
Entertainment, the owner of the Company until January 1996. Current management
intends to pursue a number of operating strategies, including the following,
which the Company believes will improve the results of its core business:

- Reduce Discount Pricing on Paid-In-Full Membership Plans -- Since late
1990, the Company has managed its pricing structure to generate immediate
cash for liquidity by significantly discounting its membership plans and
by emphasizing paid-in-full instead of financed membership plans.
Additional working capital will allow the Company to sell more financed
membership plans, which historically have generated better long-term
returns for the Company including streams of recurring dues revenues,
rather than selling discounted paid-in-full memberships for which dues
are frequently waived for up to three years.

18
<PAGE> 20

make major upgrades to approximately 25% of its clubs. The Company also intends
to spend approximately $15 million to $25 million of the proceeds from this
Offering over the next three years to open 15 to 25 new facilities based on its
new prototype. These facilities are designed to cost less to construct and
maintain than the Company's older facilities. The facilities are expected
to range in size from 10,000 to 45,000 square feet and have the capacity
to accommodate significantly more members than older clubs of the same
size because the new facilities will contain only the most widely used
amenities.

- Improve Collections on Financed Contracts -- The Company plans to
continue its focus on increasing the downpayment on financed membership
plans and securing payment by EFT, which the Company's experience has
shown results in higher quality receivables. Further, the Company intends
to institute more focused collection efforts based on information
provided by "credit scoring", which management believes will also improve
the yield from the receivables portfolio.

GROWTH OPPORTUNITIES

- Provide Outpatient Rehabilitation Services -- The Company plans to
contract with providers of health care programs and services whereby
certain of the Company's existing facilities will also be used for
comprehensive outpatient rehabilitation services. The Company believes it
has opportunities with a number of third party providers and managers of
health care programs and services to provide similar outpatient
rehabilitation services in additional fitness centers, and expects to
offer these services within three years to members and nonmembers alike
in up to 100 of its facilities primarily using equipment already on-hand.
Among others, the Company has recently contracted with Continucare
Corporation to provide such services in certain, initially four, of the
Company's fitness centers. The Company plans to spend approximately $1
million of the proceeds from this Offering to upgrade an initial group of
its facilities to provide rehabilitation services.

- Offer Other Goods and Services -- The Company plans to sell work-out and
related apparel and market certain financial services and direct
marketing programs provided by third parties to its members such as a
co-branded credit card, credit life insurance, dining clubs and ATMs in
its clubs through in-club sales efforts and direct marketing programs.

The Company has entered into agreements with various entities to test
market the provision by third parties of financial services to its members
including the sale of credit life insurance, pursuant to which a participant's
unpaid credit card debts are paid-off if the participant dies. The programs are
typically designed such that the Company shares in either the revenue generated
by or net profit resulting from members purchasing the offered services. Test
marketing and, ultimately, the provision of services of this type by third
parties to the Company's members do not require significant capital expenditures
by the Company. Consequently, the Company expects to explore the sale of other
similar or complementary services and expects to make those products that are
most successful available to all of its members.

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<PAGE> 21

MEMBERSHIP PLANS

The Company currently offers prospective members a number of membership
plans that differ primarily by the inclusion of additional in-club services
(such as racquet sports and child care) and access to other fitness centers
operated by the Company, either locally or nationally. From time to time, the
Company also offers special membership plans which limit access to fitness
centers to certain days and non-peak hours. The initial membership fees for
access to the Company's fitness center facilities range from approximately $349
to $1,179 depending on the membership plan selected, the diversity of facilities
and services available at the club of enrollment, the local competitive
environment, as well as the effects of seasonal discounting price strategies.

In addition to the one-time initial membership fee, members pay monthly
membership dues in order to maintain their membership privileges. Monthly dues
for memberships generally range from $4.00 to $5.50 during the typical financing
period for a membership plan. Monthly dues vary based on the type of plan
purchased by the member and the amount of initial membership fee paid in cash.
Some seasonal discounting programs offered by the Company in the past have
required no dues payments for up to 36 months if the member pays the initiation
fee in full at the time of joining. After an initial period ends (typically 36
months), renewal dues generally range from $2.00 to $24.00 per month, with
increases as contractually permitted. The Company has experienced an annual
growth rate of dues revenues of 9% from 1994 to 1996. The Company expects the
annual increases in dues revenues will continue in the future due to the
contractual terms of current membership plans and the Company's belief that it
can significantly increase dues for its members who are beyond their initial
financing period without any material loss in membership. The Company also
offers renewal dues that vary depending on the member's historical usage of the
fitness center facilities. The Company's recent experience has shown that
members faced with a membership renewal decision for the first time renewed at a
rate of approximately 58% and members faced with a membership renewal decision
for subsequent periods renewed at a rate of approximately 84%.

Members selecting finance membership plans can choose from several payment
mechanisms and downpayment options. The Company expects to continue its focus on
increasing the downpayment it receives on financed membership contracts and on
securing payment by EFT. The Company believes that both these strategies result
in better quality receivables. Further, the Company intends to modify its
collection efforts, based on the information provided by "credit scoring," which
management believes will also improve the yield from the receivables portfolio.
See "-- Account Servicing".

FINANCING OF INITIAL MEMBERSHIP FEE

Financed portions of initial membership fees may be prepaid without penalty
at any time during the financing term. Generally, financing terms of 36 months
are offered. Shorter terms are offered on a promotional basis or as required by
applicable state law. Contracts are financed at a fixed annual percentage rate
(generally between 16% and 18%, except as otherwise limited by applicable state
retail installment laws). In addition, the Company offers two payment methods
for financed portions of initial membership fees: coupon books and EFT, either
from a member's bank account or credit card. Management expects that
approximately 80% to 85% of all new membership contracts during 1997 will be
financed.

EFT plans are the most popular mechanism for payment of the financed
portion of initial membership fees. Under an EFT plan, on the same date each
month a predetermined amount is either (i) automatically transferred from a
member's bank checking or savings account to the Company or (ii) automatically
charged to a member's designated credit card. Currently, more than 60% of all
financed memberships sold are paid by EFT. The other mechanism for payment
financing is the use of a coupon book. This mechanism requires the member to
mail a check monthly, accompanied by a payment coupon, to the RSC responsible
for administering the membership account. Members have the option of changing
their payment method.

On average, the Company received a downpayment of approximately $75 on
contracts that were financed during 1996. This downpayment adequately defrays
both the initial account set-up cost as well as any collection costs should the
account become immediately delinquent. As a result, the Company is able to
attract new members who might otherwise be rejected while covering the
incremental cost of new membership processing and collection through the
downpayment. The Company does not perform individual credit checks

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<PAGE> 22

on prospective members. This is due, in part, to the high cost associated with
performing credit checks on the large volume of prospective members, but also
due to the Company's ability, from past performance, to measure the average
value of contracts between coupon book and EFT payers and satisfactorily manage
credit risk. Historical analysis performed by the Company indicates that the
collection experience of EFT accounts is approximately 50% better than that of
coupon book accounts. As of March 31, 1997, approximately 55% of membership
contract receivables consisted of EFT-financed memberships compared to 29% at
December 31, 1992, when emphasis on payments by EFT was introduced by
management.

FITNESS CENTERS

Most of the Company's fitness centers are located near regional, urban and
suburban shopping areas and in downtown areas of major cities and are generally
operated under long-term leases. Fitness centers vary in size, available
facilities and types of services provided. Fitness centers contain a wide
variety of state-of-the-art progressive resistance, cardiovascular and
conditioning exercise equipment as well as free weights. A member's use of a
fitness center may include planned exercise programs and instruction stressing
cardiovascular conditioning, strength development and improved appearance. The
Company also has a comprehensive training program for its service personnel on
the use of exercise equipment.

Generally, the Company's fitness centers constructed prior to 1980 are
smaller in size and have fewer amenities than the fitness centers constructed in
the 1980's which average 35,000 square feet and generally include a colorful
workout area, sauna and steam facilities, a lap pool, free-weight rooms, aerobic
exercise rooms, an indoor jogging track and, in some cases, racquetball courts.
The Company's prototype fitness center focuses on those fitness services that
the Company's members most frequently use rather than on a broader range of
fitness services that generally receive a lower degree of member use such as
pools, racquet courts or other athletic facilities. These "dry" clubs, which
tend to be approximately 20,000 to 30,000 square feet, have recently averaged
approximately $800,000 to construct, exclusive of real estate and exercise
equipment costs and net of any landlord contribution. The Company invests
approximately $500,000 for exercise equipment for a typical new fitness center.

The Company intends to expand and upgrade its facilities in order to
increase its membership base and more effectively capitalize on its streamlined
marketing and administrative functions. Management plans to make capital
expenditures of approximately $10 million to $12 million over the next twelve
months to maintain and make minor upgrades to the Company's existing facilities.
In addition, the Company expects to invest approximately $5 million to $10
million of the proceeds from this Offering over the next two years to more
extensively refurbish and make major upgrades to approximately 25% of its clubs.
For the last several years, the Company has spent $6 million to $15 million
annually, as funds were available, to open new or replacement facilities. The
Company also intends to spend approximately $15 million to $25 million of the
proceeds from this Offering over the next three years to open 15 to 25 new
facilities based on its new prototype. These facilities are designed to cost
less to construct and maintain than the Company's older facilities. The
facilities are expected to range in size from 10,000 to 45,000 square feet and
have the capacity to accommodate significantly more members than older clubs of
the same size because they will contain only the most widely used amenities. At
December 31, 1996, the Company had 35 of the new prototype facilities in
operation, of which 30 had been in operation for at least one year. The average
1996 net revenues in excess of operating costs for these 30 facilities was
approximately $900,000 compared to the average 1996 results for all of the
Company's other fitness facilities of approximately $650,000.

The Company recently entered into an agreement pursuant to which three
fitness centers in Syracuse, New York, including one facility previously owned
by the Company, will be operated by a third party under the service mark "Bally
Total Fitness". The Company plans to seek additional franchise relationships for
facilities located in smaller markets.

SALES AND MARKETING

The Company devotes substantial resources to the marketing and promotion of
its fitness centers and their services because the Company believes strong
marketing support is critical to attracting new members both at existing and new
fitness centers. In 1996, the Company completed the process of renaming its
fitness centers so they all use the servicemark "Bally Total Fitness", thereby
enhancing brand identity, concentrating

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<PAGE> 23

advertising and eliminating the prior practice of using more than 25 different
regional servicemarks and trade names.

The Company's strategy is to cluster numerous fitness centers in major
media markets in order to increase the efficiency of its marketing and
advertising programs. The Company operates 262 clubs in 26 of the top 30 U.S.
media markets.

The Company expects to spend approximately $45 million for advertising and
promotion during 1997 compared to approximately $47 million in 1996, $50 million
in 1995 and $48 million in 1994. The Company primarily advertises on television,
and, to a lesser extent, newspapers, telephone directories, radio and other
promotional activities.

The Company's sales and marketing programs emphasize the benefits of
health, physical fitness and exercise by appealing to the public's desire to
look and feel better. The Company's advertisements are augmented by individual
sales presentations made by its sales personnel in the fitness centers.
Management believes the various memberships and payment plans, in addition to
Bally's strong brand identity and the convenience of its multiple locations,
provide the Company distinct competitive advantages.

The Company's marketing efforts also include corporate membership sales and
insurance-eligible programs which are designed to reduce workers' compensation
costs and improve productivity. In addition to its advertising, personal sales
presentations and targeted marketing efforts, the Company is increasingly
utilizing in-club marketing programs. Open houses and contests for members and
their guests foster member loyalty and introduce fitness centers to prospective
members. Referral incentive programs involve current members in the process of
new member enrollments.

Direct mail reminders encourage renewal of existing memberships. The
Company has a group of approximately 100 individuals located at the Towson,
Maryland RSC dedicated primarily to inbound telemarketing renewal programs to
existing members, although telemarketing is not currently used to attract
prospective new members.

ACCOUNT SERVICING

The Company administers and collects amounts owing under its membership
contracts according to uniform procedures implemented by its two RSCs. The RSCs
enable the Company to conduct centralized data processing of all membership
accounts. The RSCs employ approximately 740 people in the account processing and
collection areas, including approximately 155 employees dedicated to customer
service, approximately 310 employees dedicated to account processing and
administration and approximately 275 employees dedicated to account collections.
The two RSCs collectively receive, deposit and post more than $550 million of
membership transactions annually, including the processing of downpayments and
cash sales, and collections of financed receivables and dues. In addition, the
RSCs process, on average, 3,000 new membership accounts per day. The RSCs are
also responsible for responding to member inquiries and maintaining membership
data.

All collections for past-due accounts are handled internally by the RSCs.
The Company systematically collects accounts that are past due by utilizing a
series of computer-generated correspondence and telephone contacts.
Computer-generated correspondence is sent to a delinquent member at 7 and 20
days after an account becomes past due. Collectors with varying levels of
experience are responsible for handling delinquent accounts, depending on the
period of delinquency. At 30 and 60 days past due, the accounts are assigned to
power dialer assisted collectors initially as a reminder and later as a demand
for payment. Accounts that have not been collected for a 90-day period are
transferred to a group of the most experienced collectors (unless the first
scheduled payment has not been received on such accounts, in which case they are
generally written-off and any downpayment received is not refunded). All
remaining delinquent accounts are written-off after 180 days without payment.
Written-off accounts are reported to credit reporting bureaus and sold to a
third-party collection group. The Company intends to modify its collection
efforts based on the information provided by "credit scoring", which management
believes will improve the yield from the receivables portfolio. For example, the
Company would not make costly collection calls to a member with a strong credit
history until

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<PAGE> 24

late in the collection cycle. Likewise, the Company would aggressively pursue
collection tactics on a member with poor credit scoring early in the delinquency
period and reduce collection efforts if results were not quickly realized. By
tailoring its collection approach to reflect a delinquent member's likeliness to
pay, the Company believes it can collect more of its receivables at a lower
cost. The Company uses a national bureau which charges the Company a nominal fee
per credit score. Beginning in March 1997, the Company has credit scored a
majority of its financed members.

COMPETITION

The Company is the largest (and only nationwide) commercial operator of
fitness centers in the United States in terms of revenues, the number of members
and the number and square footage of facilities. The Company is the largest
operator, or among the largest operators, of fitness centers in every major
market in which it has fitness centers. The Company believes its fitness centers
generally offer a high level of amenities to its primary target market for new
members, the 18 to 34-year old, middle income segment of the population. Within
each market, the Company competes with other fitness centers, physical fitness
and recreational facilities established by local governments and hospitals and
by businesses for their employees, the YMCA and similar organizations and, to a
certain extent, with racquet and tennis and other athletic clubs, country clubs,
weight reducing salons and the home-use fitness equipment industry. However, the
Company believes that its operating experience, its ability to allocate
advertising and administration costs over all of its fitness centers, its
nationwide operations and its account processing and collection infrastructure
provide the Company distinct competitive advantages. There can be no assurance
that the Company will be able to compete effectively in the future in the
markets in which it operates.

The Company believes that competition has increased in certain markets. The
Company believes that this increase reflects the public's enthusiasm for fitness
and the decrease in the cost of entering the market due to financing available
from landlords and equipment manufacturers. The Company believes that its
membership plans are affordable and have the flexibility to be responsive to
economic conditions. However, the Company also competes with other entertainment
and retail businesses for the discretionary income of its target market.

When the Company embarks on its new initiatives, particularly the sale of
nutritional products and apparel, the Company will be competing against large,
established companies with more experience selling such products on a retail
basis and, in some instances, with substantially greater financial resources
than the Company. There can be no assurance that the Company will be able to
compete effectively against such established companies.

PROPERTIES

The Company operates approximately 320 fitness centers in 27 states and
Canada. The Company owns 33 fitness centers and leases either the land or the
building or both for the remainder of its fitness centers. Aggregate rent
expense (including office and administrative space) was $86.7 million, $85.9
million and $83.3 million for 1996, 1995 and 1994, respectively. Most leases
require the Company to pay real estate taxes, insurance, maintenance and, in the
case of shopping center and office building locations, common area maintenance
fees. A limited number of leases also provide for percentage rental based on
receipts. Various leases also provide for rent adjustments based on changes in
the Consumer Price Index, most with limits provided to protect the Company. Two
fitness centers each accounted for between 1% to 2% of the Company's net
revenues during 1996. The Company believes its properties are adequate for its
current membership.

Leases for fitness centers entered into in the last five years generally
provide for an original term of no less than 15 years and, in some cases, for 20
years. Most leases for fitness centers contain at least one five-year option to
renew and often two or more such options.

The Company's executive offices are located in Chicago, Illinois where it
is co-tenant at a monthly base rental cost to the Company of $43,700. The lease
expires in January 2003. The Company also leases space in Huntington Beach,
California and Towson, Maryland for RSC operations.

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TRADEMARKS AND TRADE NAMES

In 1996, the Company completed the process of renaming its fitness centers
so they all use the servicemark "Bally Total Fitness", thereby enhancing brand
identity, concentrating advertising and eliminating the prior practice of using
more than 25 different regional servicemarks or trade names. The name "Bally
Total Fitness" is a servicemark of Hilton as successor to Entertainment. In
January 1996, the Company and Entertainment entered into a 10-year trademark
license agreement to allow the Company to use certain marks, including the
"Bally Total Fitness" servicemark, in connection with its fitness center
business. The Company paid no royalty or license fee for the first year of the
license and now pays a fee of $1.0 million per year. Following the initial
ten-year term, the Company has the option to renew the license for an additional
five-year period at a rate equal to the greater of the fair market value or $1.0
million per year.

SEASONAL REVENUES

EMPLOYEES

The Company has approximately 12,800 employees, including approximately
6,700 part-time employees. Approximately 11,800 employees are involved in club
operations, including sales personnel, instructors, supervisory or custodial
personnel, approximately 740 are involved in the operation of the RSCs and
approximately 260 are administrative support personnel, including accounting,
legal, human resources, real estate and other national services.

The Company is not a party to any collective bargaining agreement with its
employees. Although the Company experiences high turnover of non-management
personnel, the Company historically has not experienced difficulty in obtaining
adequate replacement personnel, except with respect to sales personnel, which
the Company believes have become somewhat more difficult to replace due, in
part, to increased competition for skilled retail sales personnel.

GOVERNMENT REGULATION

The operations and business practices of the Company are subject to
regulation at federal, state and, in some cases, local levels. General rules and
regulations of the FTC, and of state and local consumer protection agencies,
apply to the Company's advertising, sales and other trade practices.

Statutes and regulations affecting the fitness industry have been enacted
or proposed in all of the states in which the Company conducts business.
Typically, these statutes and regulations prescribe certain forms and regulate
the terms and provisions of membership contracts, giving the member the right to
cancel the contract, in most cases, within three business days after signing,
requiring an escrow for funds received from pre-opening sales or the posting of
a bond or proof of financial responsibility and, in some cases, establishing
maximum prices and terms for membership contracts and limitations on the term of
contracts. In addition, the Company is subject to numerous other types of
federal and state regulations governing the sale, financing and collection of
memberships including, among others, the Truth-in-Lending Act and Regulation Z
adopted thereunder, as well as state laws governing the collection of debts.
These laws and regulations are subject to varying interpretations by a large
number of state and federal enforcement agencies and the courts. The Company
maintains internal review procedures in order to comply with these requirements
and it believes that its activities are in substantial compliance with all
applicable statutes, rules and decisions.

Under so-called state "cooling-off" statutes, members of fitness centers
have the right to cancel their memberships for a period of three to ten days
after the date the contract was entered into (depending on the applicable state
law) and are entitled to refunds of any payment made. In addition, the Company's
membership contracts provide that a member may cancel his or her membership at
any time for qualified medical reasons or if the member relocates a certain
distance away from the health club, and a membership

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<PAGE> 26

may be canceled in the event of a member's death. The specific procedures for
cancellation in these circumstances vary according to differing state laws. In
each instance, the canceling member is entitled to a refund of prepaid amounts
only. Furthermore, where permitted by law, a cancellation fee is due to the
Company upon cancellation and the Company may offset such amount against any
refunds owed.

The Company is a party to several state and federal consent orders. From
time to time, the Company makes minor adjustments in its operating procedures to
comply with such consent orders. The consent orders essentially require
continued compliance with applicable laws and require that the Company refrain
from activities that are not in compliance with applicable laws.

The provision of rehabilitation services is affected by federal, state and
local laws and regulations concerning the development and operation of physical
rehabilitation health programs, licensing, certification and reimbursement and
other matters, which may vary by jurisdiction and which are subject to periodic
revision. The opening of a rehabilitation facility may require approval from
state and/or local governments and re-licensure from time to time, both of which
may be subject to a number of conditions. In addition, a substantial number of
recipients of rehabilitation services have fees paid by governmental programs as
well as private third-party payors. Governmental reimbursement programs
(including Medicare and Medicaid) generally require facilities and services to
meet certain standards promulgated by the federal and/or state government.
Additionally, reimbursement levels by governmental and private third-party
payors are subject to change which could limit or reduce reimbursement levels
and could have a material adverse effect on the demand for rehabilitation
services. Further, in a number of states and in certain circumstances pursuant
to federal law, the referral of patients to rehabilitation services is subject
to limitations imposed by law, the violation of which may, in certain
circumstances, constitute a felony. Recently, federal and state governments have
focused significant attention on health care reform and cost control. These
proposals include cut-backs to Medicare and Medicaid programs. It is uncertain
at this time what legislation and health care reform may ultimately be enacted
or whether other changes in the administration or interpretation of government
health care programs will occur. There can be no assurance that future health
care legislation or other changes in the administration or interpretation of
government health care programs will not have a material adverse effect on the
provision of rehabilitation services by the Company.

LEGAL PROCEEDINGS

A class action entitled Jackson v. Health & Tennis Corporation of America
was filed in the state district court in Bexar County, Texas on May 8, 1995. The
complaint alleges that the defendant, a subsidiary of the Company, charged
excessive amounts on its financed memberships in violation of the Texas Credit
Code and the Texas Deceptive Trade Practices -- Consumer Protection Act. The
relief sought is damages equal to the alleged overpayments and statutory
remedies. The Company is currently unable to estimate the amount sought in this
action because the potential size of the class and the amount of damages for
each member of the putative class are currently unknown. The Company is
vigorously defending this action and appealing the certification of the class.
The outcome of this litigation is not currently determinable and, consequently,
the Company cannot predict whether it will have a material adverse effect on the
Company's financial condition or results of operations in any future period.

The Company is involved in various other claims and lawsuits incidental to
its business, including claims arising from accidents at its fitness centers. In
the opinion of management, the Company is adequately insured against such claims
and lawsuits, and any ultimate liability arising out of such claims and lawsuits
will not have a material adverse effect on the financial condition or results of
operations of the Company.

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MANAGEMENT

The following table sets forth certain information concerning the Company's
directors and executive officers.

<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH COMPANY
---------------------------- --- ---------------------------------------------
<S> <C> <C>
Arthur M. Goldberg 55 Chairman of the Board
Lee S. Hillman 41 President, Chief Executive
Officer and Director
John W. Dwyer 44 Sr. Vice President, Chief Financial
Officer and Treasurer
Cary A. Gaan 51 Sr. Vice President, Secretary and General
Counsel
Harold Morgan 40 Sr. Vice President, Human Resources
David M. Tolmie 41 Sr. Vice President,
New Business Development
John H. Wildman 37 Sr. Vice President, Sales and Marketing
Julie Adams 51 Vice President and Controller
Aubrey C. Lewis 62 Director
J. Kenneth Looloian 74 Director
James F. Mc Anally, M.D. 47 Director
Liza M. Walsh 38 Director
</TABLE>

Arthur M. Goldberg has been a director of the Company since 1990, has
served as Chairman of the Board of Directors of the Company since September
1995, and was the Company's Chief Executive Officer from September 1995 until
October 1996. Mr. Goldberg also serves as Executive Vice President, President --
Gaming Division and a director of Hilton, and he was Chairman of the Board of
Directors and Chief Executive Officer of Entertainment between October 1990 and
December 1996, and President of Entertainment between January 1993 and December
1996. Mr. Goldberg has been Chairman of the Board of Directors of Bally's Grand,
Inc. since August 1992 and has been its Chief Executive Officer since September
1992. In addition, Mr. Goldberg has been Chairman of the Board of Directors,
President and Chief Executive Officer of Di Giorgio Corporation and a director
of White Rose Foods, Inc. (food distributors) since February 1990. Mr. Goldberg
is also a director of First Union Corporation (a financial services company) and
Continucare Corporation (a manager of outpatient rehabilitation programs) and
Managing Partner of Arveron Investments L.P. (an investment partnership).

Lee S. Hillman has been director of the Company since September 1992 and
was elected President and Chief Executive Officer of the Company in October
1996. Additionally, Mr. Hillman was Treasurer of the Company from April 1991 to
October 1996, Executive Vice President of the Company from September 1995 to
October 1996, Senior Vice President of the Company from April 1991 to September
1995 and Chief Financial Officer of the Company from April 1991 to May 1994. Mr.
Hillman was Vice President, Chief Financial Officer and Treasurer of
Entertainment between November 1991 and December 1996 and Executive Vice
President of Entertainment between August 1992 and December 1996. Mr. Hillman
also served as Vice President-Administration of Bally's Grand, Inc. from August
1993 through February 1997. From October 1989 to April 1991, Mr. Hillman was a
partner with the accounting firm of Ernst & Young LLP.

John W. Dwyer was elected Vice President and Chief Financial Officer of the
Company in May 1994, a Senior Vice President of the Company in September 1995
and Treasurer of the Company in October 1996. Mr. Dwyer was Corporate Controller
of Entertainment between June 1992 and December 1996 and a Vice President of
Entertainment between December 1992 and December 1996. From October 1986 to June
1992, Mr. Dwyer was a partner with the accounting firm of Ernst & Young LLP.

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<PAGE> 28

Cary A. Gaan was elected Senior Vice President and General Counsel of the
Company in January 1991 and Secretary of the Company in April 1996. Mr. Gaan
served as a Vice President of the Company from 1987 to 1991.

Harold Morgan has been employed by the Company since August 1991 and he was
elected a Vice President of the Company in January 1992 and Senior Vice
President, Human Resources of the Company in September 1995. Mr. Morgan was Vice
President, Human Resources of Entertainment between December 1992 and December
1996. From 1985 until August 1991, Mr. Morgan was Director of Employee and Labor
Relations of the Hyatt Corporation.

David M. Tolmie was elected Vice President of Planning and Development of
the Company in January 1995, Senior Vice President, Operations of the Company in
September 1995 and Senior Vice President, New Business Development of the
Company in October 1996. Mr. Tolmie rejoined the Company after having served as
President of Foundation Properties, Inc. (a real estate development, property
management and sales company) from 1990 to 1994. Between 1985 and 1990, Mr.
Tolmie worked for a subsidiary of the Company.

John H. Wildman was elected Senior Vice President, Sales and Marketing of
the Company in November 1996 and Vice President, Sales and Marketing of the
Company in September 1995. For approximately four years prior thereto, Mr.
Wildman was a Senior Area Director of the Company.

Julie Adams was elected Vice President and Controller of the Company in
January 1994 and was Controller of the Company from December 1992 to January
1994. Ms. Adams was Director of Financial Reporting of the Company from August
1985 to December 1992.

Aubrey C. Lewis was elected a director of the Company in December 1995. Mr.
Lewis has been a Vice President of Woolworth Corporation (a global retailer)
since 1967. Mr. Lewis also serves on the Boards of Directors of the United
States Naval Academy Foundation, the University of Notre Dame, the Port
Authority of New York and New Jersey, the New Jersey State Chamber of Commerce
and the Y.M.C.A. of Chinatown in New York City.

J. Kenneth Looloian was elected a director of the Company in December 1995.
Mr. Looloian is an Executive Vice President of Di Giorgio Corporation, a former
partner in Arveron Investments L.P. and a former Executive Vice President of
International Controls Corporation. Mr. Looloian is also a director of Bally's
Grand, Inc.

James F. Mc Anally, M.D. was elected a director of the Company in December
1995. Dr. Mc Anally is a private practitioner who specializes in hypertension
and kidney disease. He has been in private practice since 1980. Dr. Mc Anally
has been the Medical Director of Nephrology Services at Elizabeth General
Medical Center in Elizabeth, New Jersey since 1984. Dr. Mc Anally has also been
Chief of Nephrology at St. Elizabeth's Hospital in Elizabeth, New Jersey since
1981.

Liza M. Walsh was elected a director of the Company in December 1995. Ms.
Walsh has been an attorney at the law firm of Connell, Foley & Geiser since 1986
and has been a member of the firm since 1992. Ms. Walsh has also served as an
Arbitrator for the United States District Court for the District of New Jersey
since 1990.

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<PAGE> 29

UNDERWRITING

Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement"), the Company has agreed to sell to each of the
Underwriters named below, and each of the Underwriters, for whom Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Ladenburg Thalmann & Co.
Inc. and Jefferies & Company, Inc. are acting as representatives (the
"Representatives"), has severally agreed to purchase from the Company, the
respective numbers of shares of Common Stock set forth opposite its name below
at the public offering price less the underwriting discount set forth on the
cover page of this Prospectus. In the Purchase Agreement, the several
Underwriters have agreed, subject to the terms and conditions set forth therein,
to purchase all of the shares of Common Stock offered hereby if any of such
shares are purchased. In the event of default by an Underwriter, the Purchase
Agreement provides that, in certain circumstances, the purchase commitments of
the nondefaulting Underwriter may be increased or the Purchase Agreement may be
terminated.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
------------------------------------------------------------------ -------------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..........................................
Ladenburg Thalmann & Co. Inc......................................
Jefferies & Company, Inc..........................................
---------
Total................................................. 6,000,000
=========
</TABLE>

The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of Common Stock to the public at the offering
price set forth on the cover page of this Prospectus, and to certain dealers at
such price less a concession not in excess of $ per share. The Underwriters
may allow, and such dealers may reallow, a concession not in excess of $ per
share to certain other dealers. After the Offering contemplated hereby, the
offering price and other selling terms may be changed by the Representatives.

The Company has granted to the Underwriters an option, exercisable for 30
days after the date of this Prospectus, to purchase up to an aggregate of
900,000 additional shares of Common Stock at the public offering price set forth
on the cover page hereof, less the underwriting discount. The Underwriters may
exercise such option only to cover over-allotments, if any, made in connection
with the sale of Common Stock offered hereby. To the extent that the
Underwriters exercise this option, each Underwriter will have a firm commitment,
subject to certain conditions, to purchase approximately the same percentage
thereof which the number of shares of Common Stock to be purchased by it shown
in the above table is of the 6,000,000 shares of Common Stock initially offered
hereby. If purchased, the Underwriters will offer such additional shares on the
same terms as those on which the 6,000,000 shares are being offered.

Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission (the "Commission") may limit the ability of
the Underwriters and certain selling group members (if any) to bid for and
purchase the Common Stock. As an exception to these rules, the Representatives
are permitted to engage in certain transactions that stabilize the price of the
Common Stock.

28
<PAGE> 30

Such transactions consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Common Stock.

If the Underwriters create a short position in the Common Stock in
connection with the Offering (i.e., if they sell a greater number of shares of
Common Stock than is set forth on the cover page of this Prospectus), the
Representatives may reduce that short position by purchasing shares of Common
Stock in the open market. The Representatives may also elect to reduce any short
position by exercising all or part of the over-allotment option described above.

In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases.

Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.

In connection with this Offering, the Underwriters or their respective
affiliates and selling group members (if any) who are qualified market makers on
Nasdaq may engage in "passive market making" in the Common Stock on the Nasdaq
National Market in accordance with Rule 103 of Regulation M under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Rule 103 permits, upon
the satisfaction of certain conditions, underwriters and selling group members
participating in a distribution that are also Nasdaq market makers in the
security being distributed (or a related security) to engage in limited market
making transactions during the period when Regulation M under the Exchange Act
would otherwise prohibit such activity. Rule 103 prohibits underwriters and
selling group members engaged in passive market making generally from entering a
bid or effecting a purchase at a price that exceeds the highest bid for those
securities displayed on the Nasdaq Nation Market by a market maker that is not
participating in the distribution. Under Rule 103, each underwriter or selling
group member engaged in passive market making is subject to a daily net purchase
limitation equal to 30% of such entity's average daily trading volume during the
two full consecutive calendar months immediately preceding the date of the
filing of the registration statement under the Securities Act pertaining to the
security to be distributed (or such related security).

The Company has agreed to indemnify the Underwriters against certain
liabilities, including certain liabilities under the Securities Act.

The Company has agreed that it will not offer, sell, contract to sell, or
otherwise dispose of any shares of Common Stock without the prior written
consent of Merrill Lynch for a period of days from the date of this
Prospectus, except that the Company may, without such consent, issue shares upon
the exercise of options granted, or grant options to purchase shares of Common
Stock, pursuant to the Company's stock option plans, or upon exercise or
conversion of other outstanding options or warrants.

LEGAL MATTERS

The validity, authorization and issuance of the shares of Common Stock
offered hereby will be passed upon for the Company by Benesch, Friedlander,
Coplan & Aronoff LLP of Cleveland, Ohio. Certain legal matters will be passed on
for the Underwriters by Morgan, Lewis & Bockius LLP of New York, New York.

EXPERTS

The consolidated financial statements and schedule of the Company at
December 31, 1996 and 1995 and for each of the three years in the period ended
December 31, 1996, appearing in this Prospectus and the Registration Statement
(as hereinafter defined) have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein and
in the Registration Statement, and are included in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.

29
<PAGE> 31

AVAILABLE INFORMATION

The Company is subject to the information requirements of the Exchange Act,
and in accordance therewith, files reports, proxy statements, and other
information with the Commission. Reports, registration statements, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the public reference facility maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and the Commission's Regional Offices, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor,
New York, New York 10048. Copies of such material can also be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549. The Commission maintains a web site at http://www.sec.gov that
contains reports, registration statements, proxy statements and other
information regarding registrants, such as the Company, that file electronically
with the Commission.

The Company has filed a Registration Statement on Form S-3 (the
"Registration Statement") with the Commission under the Securities Act of 1933,
as amended, in respect of the Common Stock offered hereby. For purposes hereof,
the term "Registration Statement" means the initial Registration Statement and
any and all amendments thereto. This Prospectus omits certain information
contained in the Registration Statement as permitted by the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement, including the exhibits thereto. Statements herein
concerning the contents of any contract or other document are not necessarily
complete, and in each instance reference is made to such contract or other
document filed with the Commission as an exhibit to the Registration Statement,
or otherwise, each such statement being qualified by, and subject to, such
reference in all respects.

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

The following documents filed by the Company with the Commission pursuant
to the Exchange Act, are incorporated herein by reference:

(1) the Company's Annual Report on Form 10-K for the year ended December
31, 1996 (file no. 0-27478) (the "Annual Report");

(2) the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997 (file no. 0-27478); and

(3) the description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A/A filed with the
Commission on January 3, 1996 (file no. 0-27478).

All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the Offering shall be deemed incorporated by reference in
this Prospectus and a part hereof from the respective date of filing each such
document. Any statement contained 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 other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.

The Company undertakes to provide, without charge, to each person,
including any beneficial owner, to whom a copy of this Prospectus has been
delivered, upon the written or oral request of any such person, a copy of any
and all of the documents referred to above that have been incorporated in this
Prospectus by reference, other than exhibits to such documents. Requests for
such copies should be directed to the Secretary, Bally Total Fitness Holding
Corporation, 8700 West Bryn Mawr Avenue, Chicago, Illinois 60631, telephone
(773) 380-3000.

NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED.

30
<PAGE> 32

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------------
<S> <C>
Report of independent auditors............................................... F-2
Consolidated balance sheet at December 31, 1996 and 1995..................... F-3
Consolidated statement of operations for the years ended December 31, 1996,
1995 and 1994.............................................................. F-4
Consolidated statement of stockholders' equity for the years ended December
31, 1996, 1995 and 1994.................................................... F-5
Consolidated statement of cash flows for the years ended December 31, 1996,
1995 and 1994.............................................................. F-6
Notes to consolidated financial statements for the years ended December 31,
1996, 1995 and 1994........................................................ F-8
Supplementary data:
Quarterly consolidated financial information (unaudited)................... F-21
Condensed consolidated balance sheet at March 31, 1997 (unaudited)........... F-22
Consolidated statement of operations for the three months ended March 31,
1997 and 1996 (unaudited).................................................. F-23
Consolidated statement of stockholders' equity for the three months ended
March 31, 1997 (unaudited)................................................. F-24
Consolidated statement of cash flows for the three months ended March 31,
1997 and 1996 (unaudited).................................................. F-25
Notes to condensed consolidated financial statements for the three months
ended March 31, 1997 and 1996 (unaudited).................................. F-27
</TABLE>

F-1
<PAGE> 33

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Bally Total Fitness Holding Corporation

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

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Bally Total Fitness Holding Corporation at December 31, 1996 and 1995, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.

ERNST & YOUNG LLP

Chicago, Illinois
February 25, 1997

F-2
<PAGE> 34

BALLY TOTAL FITNESS HOLDING CORPORATION

CONSOLIDATED BALANCE SHEET
(In thousands, except share data)

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents............................................... $ 16,534 $ 21,263
Installment contracts receivable, net.............................. 153,235 155,504
Other current assets............................................... 24,075 20,216
-------- --------
Total current assets............................................ 193,844 196,983
Long-term installment contracts receivable, net...................... 146,972 147,856
Property and equipment, at cost:
Land............................................................... 22,550 22,550
Buildings.......................................................... 108,361 106,945
Leasehold improvements............................................. 400,340 393,418
Equipment and furnishings.......................................... 99,073 119,253
-------- --------
630,324 642,166
Accumulated depreciation and amortization.......................... 304,865 293,698
-------- --------
Net property and equipment...................................... 325,459 348,468
Intangible assets, less accumulated amortization of $49,619 and
$45,117............................................................ 105,725 110,227
Deferred income taxes................................................ 15,974 2,989
Other assets......................................................... 25,506 39,771
-------- --------
$813,480 $846,294
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 41,565 $ 43,740
Income taxes payable............................................... 350 2,241
Deferred income taxes.............................................. 26,006 11,112
Deferred revenues.................................................. 55,927 61,881
Accrued liabilities................................................ 55,063 64,978
Current maturities of long-term debt............................... 8,401 1,481
-------- --------
Total current liabilities....................................... 187,312 185,433
Long-term debt, less current maturities.............................. 376,397 368,032
Deferred revenues.................................................... 26,440 29,686
Tax obligation to Bally Entertainment Corporation.................... 15,200
Other liabilities.................................................... 6,824 7,596
Stockholders' equity:
Preferred stock, $.10 par value; 10,000,000 shares authorized; none
issued -- Series A Junior Participating; 300,000 shares
authorized; none issued.........................................
Common stock, $.01 par value; 60,200,000 shares authorized;
12,495,161 and 11,845,161 shares issued and outstanding......... 125 118
Contributed capital................................................ 306,811 293,062
Accumulated deficit................................................ (88,378) (52,833)
Unearned compensation (restricted stock)........................... (2,051)
-------- --------
Total stockholders' equity...................................... 216,507 240,347
-------- --------
$813,480 $846,294
======== ========
</TABLE>

See accompanying notes.

F-3
<PAGE> 35

BALLY TOTAL FITNESS HOLDING CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except share data)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net revenues:
Membership revenues --
New................................................... $ 383,362 $ 423,849 $ 444,043
Dues.................................................. 190,793 183,803 161,656
Finance charges earned................................... 36,405 36,889 34,877
Fees and other........................................... 15,080 17,199 20,929
---------- ---------- ----------
625,640 661,740 661,505
Operating costs and expenses:
Fitness center operations................................ 369,991 400,241 411,776
Member processing and collection centers................. 44,601 52,764 54,688
Advertising.............................................. 47,428 50,037 47,578
General and administrative............................... 23,586 21,603 21,925
Provision for doubtful receivables....................... 80,350 72,145 103,930
Depreciation and amortization............................ 55,940 57,359 58,856
---------- ---------- ----------
621,896 654,149 698,753
---------- ---------- ----------
Operating income (loss).................................... 3,744 7,591 (37,248)
Interest expense........................................... 47,644 43,750 38,556
---------- ---------- ----------
Loss before income taxes and extraordinary item............ (43,900) (36,159) (75,804)
Income tax benefit......................................... (2,700) (10,999) (25,013)
---------- ---------- ----------
Loss before extraordinary item............................. (41,200) (25,160) (50,791)
Extraordinary gain on extinguishment of debt............... 5,655
---------- ---------- ----------
Net loss................................................... $ (35,545) $ (25,160) $ (50,791)
========== ========== ==========
Pro forma net loss reflecting income taxes
on a separate return basis............................... $ (36,497) $ (76,305)
========== ==========
Per common share (pro forma for 1995 and 1994):
Loss before extraordinary item........................... $ (3.38) $ (3.08) $ (6.44)
Extraordinary gain on extinguishment of debt............. .46
---------- ---------- ----------
Net loss................................................. $ (2.92) $ (3.08) $ (6.44)
========== ========== ==========
Average common shares outstanding (pro forma for
1995 and 1994)........................................... 12,174,601 11,845,161 11,845,161
========== ========== ==========
</TABLE>

See accompanying notes.

F-4
<PAGE> 36

BALLY TOTAL FITNESS HOLDING CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except share data)

<TABLE>
<CAPTION>
COMMON STOCK RETAINED UNEARNED
------------------- EARNINGS COMPENSATION TOTAL
NUMBER PAR CONTRIBUTED (ACCUMULATED (RESTRICTED STOCKHOLDERS'
OF SHARES VALUE CAPITAL DEFICIT) STOCK) EQUITY
---------- ----- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993..... 19,000,000 $190 $ 238,007 $ 23,118 $ $ 261,315
Net loss......................... (50,791) (50,791)
Settlement of pre-acquisition
contingency.................... (7,669) (7,669)
Forgiveness of income tax
obligation by Bally
Entertainment Corporation...... 31,400 31,400
---------- ---- --------- --------- -------- ---------
Balance at December 31, 1994..... 19,000,000 190 261,738 (27,673) 234,255
Net loss......................... (25,160) (25,160)
Effects of spin-off from Bally
Entertainment Corporation:
Forgiveness of income tax
obligation by Bally
Entertainment
Corporation................ 44,507 44,507
Increase in income tax
valuation allowance due to
adjustments to the income
tax basis of certain
assets..................... (13,255) (13,255)
Reduction in number of shares
issued and outstanding..... (7,154,839) (72) 72 --
---------- ---- --------- --------- -------- ---------
Balance at December 31, 1995..... 11,845,161 118 293,062 (52,833) 240,347
Net loss......................... (35,545) (35,545)
Common stock issued under long-
term incentive plan............ 650,000 7 4,389 (4,396) --
Capital contributions by Bally
Entertainment Corporation...... 9,360 9,360
Amortization of unearned
compensation................... 2,345 2,345
---------- ---- --------- --------- -------- ---------
Balance at December 31, 1996..... 12,495,161 $125 $ 306,811 $ (88,378) $ (2,051) $ 216,507
========== ==== ========= ========= ======== =========
</TABLE>

See accompanying notes.

F-5
<PAGE> 37

BALLY TOTAL FITNESS HOLDING CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
OPERATING:
Loss before extraordinary item.......................... $ (41,200) $ (25,160) $ (50,791)
Adjustments to reconcile to cash provided (used)--
Depreciation and amortization, including amortization
included in interest expense....................... 59,124 60,701 60,760
Provision for doubtful receivables................... 80,350 72,145 103,930
Deferred income taxes................................ 2,075 (26,480) (10,257)
Change in operating assets and liabilities........... (105,536) (91,882) (72,582)
Other, net........................................... (114) 822 1,774
--------- --------- ---------
Cash provided by (used in) operating
activities.................................... (5,301) (9,854) 32,834

INVESTING:
Purchases and construction of property and equipment.... (20,612) (22,469) (21,357)
Reserve fund deposit refunded (paid) pursuant to
securitization facility.............................. 10,000 (20,000)
Other, net.............................................. 833 353 (19)
--------- --------- ---------
Cash used in investing activities............... (9,779) (42,116) (21,376)

FINANCING:
Debt transactions --
Proceeds from securitization facility................ 160,000 150,000
Proceeds from other long-term borrowings............. 2,318
Repayment of securitization facility................. (153,613)
Net repayments under revolving credit agreement...... (77,000) (3,910)
Repayments of other long-term debt................... (2,299) (5,917) (5,149)
Debt issuance costs.................................. (2,815) (6,654) (575)
--------- --------- ---------
Cash provided by (used in) debt transactions.... 3,591 60,429 (9,634)
Equity transaction --
Capital contribution by Bally Entertainment
Corporation........................................ 6,760
--------- --------- ---------
Cash provided by (used in) financing
activities.................................... 10,351 60,429 (9,634)
--------- --------- ---------
Increase (decrease) in cash and equivalents............... (4,729) 8,459 1,824
Cash and equivalents, beginning of year................... 21,263 12,804 10,980
--------- --------- ---------
Cash and equivalents, end of year......................... $ 16,534 $ 21,263 $ 12,804
========= ========= =========
</TABLE>

See accompanying notes.

F-6
<PAGE> 38

BALLY TOTAL FITNESS HOLDING CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS -- (CONTINUED)
(In thousands)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOWS INFORMATION:

Changes in operating assets and liabilities, net of
effects from acquisitions or sales, were as follows --
Increase in installment contracts receivable......... $ (75,491) $(91,422) $(65,890)
(Increase) decrease in other current and other
assets............................................. (4,063) 1,589 (3,081)
Decrease in accounts payable......................... (475) (498) (85)
Increase (decrease) in income taxes payable.......... (4,941) 22,166 (5,800)
Increase (decrease) in accrued and other
liabilities........................................ (11,191) (5,703) 1,836
Increase (decrease) in deferred revenues............. (9,375) (18,014) 438
---------- ---------- ----------
$(105,536) $(91,882) $(72,582)
========== ========== ==========

Cash payments for interest and income taxes were as
follows--
Interest paid........................................ $ 44,604 $ 42,221 $ 36,499
Interest capitalized................................. (236) (278) (253)
Income taxes paid (refunded), net.................... 166 (6,685) (8,956)

Investing and financing activities exclude the following
non-cash activities--
Forgiveness of income tax obligations by Bally
Entertainment Corporation/Hilton Hotels
Corporation........................................ $ 15,200 $ 44,507 $ 31,400
Acquisition of property and equipment through capital
leases............................................. 5,266 2,445
Common stock issued under long-term incentive plan... 4,396
Capital contribution by Bally Entertainment
Corporation........................................ 2,600
Increase in income tax valuation allowance due to
adjustments to the income tax basis of certain
assets upon spin-off from Bally Entertainment
Corporation........................................ 13,255
Reduction of intangible assets resulting from
settlement of pre-acquisition contingency.......... 10,331
</TABLE>

See accompanying notes.

F-7
<PAGE> 39

BALLY TOTAL FITNESS HOLDING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, except share data)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The accompanying consolidated financial statements include the accounts of
Bally Total Fitness Holding Corporation (the "Company") and the subsidiaries
which it controls. The Company, through its subsidiaries, is a nationwide
commercial operator of fitness centers with approximately 320 facilities
concentrated in 27 states and Canada. The Company operates in one industry
segment, and all significant revenues arise from the commercial operation of
fitness centers, primarily in major metropolitan markets in the United States.
Unless otherwise specified in the text, references to the Company include the
Company and its subsidiaries.

The Company was a wholly owned subsidiary of Bally Entertainment
Corporation ("Entertainment") until the consummation of Entertainment's spin-off
of the Company. On November 6, 1995, the Board of Directors of Entertainment
declared a distribution in the form of a dividend (the "Spin-off") to holders of
record of its common stock as of the close of business on November 15, 1995 (the
"Record Date") on the basis of one share of common stock, par value $.01 per
share (the "Common Stock") of the Company, along with an associated stock
purchase right (a "Right") issued pursuant to a stockholder rights plan (the
"Stockholders Rights Plan"), for every four shares of Entertainment common stock
held on the Record Date. On January 9, 1996 (the "Distribution Date"),
11,845,161 shares of Common Stock were distributed. For financial accounting
purposes, the Company has reflected the effect of the Spin-off as of December
31, 1995.

The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles which require the
Company's management to make estimates and assumptions that affect the amounts
reported therein. Actual results could vary from such estimates. In addition,
certain reclassifications have been made to prior years' financial statements to
conform with the 1996 presentation.

Cash equivalents

The Company considers all highly liquid investments with maturities of
three months or less when purchased to be cash equivalents. The carrying amount
of cash equivalents approximates fair value due to the short maturity of those
instruments.

Property and equipment

Depreciation of buildings, equipment and furnishings is provided on the
straight-line method over the estimated economic lives of the related assets and
amortization of leasehold improvements is provided on the straight-line method
over the lesser of the estimated economic lives of the improvements or the lease
periods. Depreciation and amortization of property and equipment was $48,444,
$51,999 and $53,476 for 1996, 1995 and 1994, respectively.

Deferred finance costs

Deferred finance costs are amortized over the terms of the related debt
using the bonds outstanding method. Included in "Other assets" at December 31,
1996 and 1995 were deferred finance costs of $8,252 and $10,971, respectively,
net of accumulated amortization of $4,430 and $4,034, respectively.

Intangible assets

Intangible assets consist principally of cost in excess of net assets of
acquired businesses (goodwill), which is being amortized on the straight-line
method over periods ranging up to forty years from dates of acquisition, and
amounts assigned to acquired operating lease rights, which are being amortized
on the straight-line method over the remaining lease periods.

F-8
<PAGE> 40

BALLY TOTAL FITNESS HOLDING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(All dollar amounts in thousands, except share data)

The Company evaluates annually whether the remaining estimated useful life
of goodwill may warrant revision or the remaining balance of goodwill may not be
recoverable, generally considering expectations of future profitability and cash
flows (undiscounted and without interest charges) on a consolidated basis. If
the sum of the Company's expected future cash flows was less than the carrying
value of the Company's long-lived assets and identifiable intangibles, an
impairment loss would be recognized equal to the amount by which the carrying
value of the Company's long-lived assets and identifiable intangibles exceeded
their fair value. Based on present operations and strategic plans, the Company
believes that no impairment of goodwill exists at December 31, 1996. However, if
future operations do not perform as expected, or if the Company's strategic
plans for its business were to change, a reduction in the carrying value of
these assets may be required.

Membership revenue recognition

The Company's fitness centers primarily offer a dues membership, which
permits members, upon paying initial membership fees or being current with
financing payments on initial membership fees, to maintain their membership on a
month-to-month basis as long as monthly dues payments are made. Revenue recorded
at the time memberships are sold is limited to the portion applicable to the
initial membership fee. Dues revenue is recorded as monthly services are
provided.

Occasionally, memberships are sold at a discount consisting of a waiver of
dues for periods ranging up to 36 months. Deferred revenues are established
equal to the average value of dues waived and are realized over the applicable
term of the memberships. Dues, when prepaid, are recorded in a similar manner.
This policy approximates the "selling and service" method, which provides for a
profit being recognized for both the selling and service functions.

A substantial portion of new membership revenues are collected in
installments over periods ranging up to 36 months. Installment contracts bear
interest at, or are adjusted for financial accounting purposes at the time the
contracts are sold to, rates for comparable consumer financing contracts.
Unearned finance charges are amortized over the term of the contracts on the
sum-of-the-months-digits method which approximates the interest method.

Income taxes

For tax periods after January 9, 1996, the Company is required to file its
own separate consolidated federal income tax return. For tax periods prior to
and including January 9, 1996, taxable income or loss of the Company was
included in the consolidated federal income tax return of Entertainment.
Pursuant to a tax sharing agreement with Entertainment, income taxes were
allocated to the Company based on amounts the Company would pay or receive if it
filed a separate consolidated federal income tax return, except that the Company
received from Entertainment an amount equal to the tax benefit of the Company's
net operating losses and tax credits, if any, that could be utilized in
Entertainment's consolidated federal income tax return, whether or not such
losses or credits could be utilized by the Company on a separate return basis.
As a result of the Spin-off, the Company and Entertainment entered into the Tax
Allocation and Indemnity Agreement that defines the parties' rights and
obligations with respect to deficiencies and refunds of federal income taxes for
tax periods through January 9, 1996. In connection therewith, Entertainment
assumed substantially all responsibility for any federal income tax adjustments
related to the Company for tax periods through January 9, 1996. The Tax
Allocation and Indemnity Agreement was amended in 1996 to include a portion of
the Company's losses in Entertainment's consolidated federal income tax return.
As a result, capital contributions totalling $9,360 were received by the Company
($6,760 in cash and $2,600 as an offset to certain indebtedness) representing a
portion of the benefit that Entertainment receives from the utilization of the
Company's loss carrybacks.

F-9
<PAGE> 41

BALLY TOTAL FITNESS HOLDING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(All dollar amounts in thousands, except share data)

Loss per common share

Loss per common share was computed by dividing net loss by the weighted
average number of shares of common stock outstanding during the year, which
totalled 12,174,601 shares for 1996. Certain restricted stock was issued subject
to forfeiture unless certain conditions are met. These contingent shares are
considered common stock equivalents and are excluded from the loss per share
computation until the conditions are met because their effect would be
anti-dilutive.

Impact of recently issued accounting standards

In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities", which
provides new accounting and reporting standards for sales, securitizations, and
servicing of receivables and other financial assets, secured borrowing and
collateral transactions, and extinguishments of liabilities occurring after
December 31, 1996. SFAS No. 125 addresses whether a transfer of financial assets
constitutes a sale and, if so, the determination of any resulting gain or loss.
SFAS No. 125 is based on a "financial-components approach" that focuses on
control. Under this approach, following a transfer of financial assets
(including portions of financial assets), an entity recognizes the assets it
controls and liabilities it has incurred, and derecognizes financial assets for
which control has been surrendered and financial liabilities that have been
extinguished. The Company will adopt SFAS No. 125 in the first quarter of 1997;
earlier application is not permitted. Although SFAS No. 125 can only be applied
prospectively, SFAS No. 125 will have an impact on the accounting for the
Company's securitization facility. Under SFAS No. 125, as installment contracts
receivable outstanding at December 31, 1996 are collected and additional
installment contracts receivable are sold, installment contracts receivable and
long-term debt presented in the Company's consolidated financial statements (as
well as related finance charges earned and interest expense) will decrease. The
Company believes that by mid-1998, the full effect of SFAS No. 125 will be
realized, in that the Company's consolidated balance sheet will no longer
present any installment contracts receivable or long-term debt related to the
securitization facility.

EXTRAORDINARY ITEM

The extraordinary gain on extinguishment of debt for 1996 consists of (i) a
gain of $9,880 ($.81 per share), net of income taxes of $5,320, resulting from a
$15,200 tax obligation to Entertainment which was forgiven as part of the
December 1996 merger (the "Merger") of Entertainment with and into Hilton Hotels
Corporation ("Hilton") and (ii) a charge of $4,225 ($.35 per share), net of
income taxes of $2,270, resulting from the refinancing of the Company's
securitization facility.

F-10
<PAGE> 42

BALLY TOTAL FITNESS HOLDING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(All dollar amounts in thousands, except share data)

INSTALLMENT CONTRACTS RECEIVABLE

<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Current:
Installment contracts receivable............................. $226,173 $244,522
Less --
Unearned finance charges.................................. 24,467 27,128
Allowance for doubtful receivables and cancellations...... 48,471 61,890
-------- --------
$153,235 $155,504
======== ========
Long-term:
Installment contracts receivable............................. $195,978 $211,549
Less --
Unearned finance charges.................................. 11,382 13,055
Allowance for doubtful receivables and cancellations...... 37,624 50,638
-------- --------
$146,972 $147,856
======== ========
</TABLE>

The carrying amount of installment contracts receivable at December 31,
1996 and 1995 approximates fair value based on discounted cash flow analyses,
using interest rates in effect at the end of each year comparable to similar
consumer financing contracts.

ACCRUED LIABILITIES

<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Payroll and benefit-related liabilities........................ $ 16,384 $ 18,263
Interest....................................................... 11,938 12,041
Taxes other than income taxes.................................. 3,853 7,389
Other.......................................................... 22,888 27,285
-------- --------
$ 55,063 $ 64,978
======== ========
</TABLE>

LONG-TERM DEBT

<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Nonsubordinated:
Securitization facility...................................... $160,000 $150,000
Revolving credit agreement................................... -- --
Capital lease obligations.................................... 6,686 2,176
Other secured and unsecured obligations...................... 18,112 17,337
Subordinated:
13% Senior Subordinated Notes due 2003....................... 200,000 200,000
-------- --------
Total long-term debt........................................... 384,798 369,513
Current maturities of long-term debt........................... (8,401) (1,481)
-------- --------
Long-term debt, less current maturities........................ $376,397 $368,032
======== ========
</TABLE>

In December 1996, the Company refinanced its $150,000 securitization
facility by completing a private placement of asset-backed securities (the
"Securitization") pursuant to which $145,500 of 8.43% Accounts Receivable Trust
Certificates and $14,500 of Floating Rate Accounts Receivable Trust Certificates
(the "Floating Certificates") were issued as undivided interests in the H&T
Master Trust (the "Trust"). The

F-11
<PAGE> 43

BALLY TOTAL FITNESS HOLDING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(All dollar amounts in thousands, except share data)

Floating Certificates bear interest (8.175% at December 31, 1996) at 2.57% above
the London Interbank Offer Rate ("LIBOR"), with the interest rate on the
Floating Certificates capped at 9.43% pursuant to an interest rate cap
agreement. The Trust was created for the issuance of asset-backed securities and
was formed pursuant to a pooling and servicing agreement. The Trust includes a
portfolio of substantially all of the Company's installment contracts receivable
from membership sales and the proceeds thereof. The amount by which installment
contracts receivable in the Trust exceed the $160,000 principal amount of
certificates issued by the Trust is generally retained by the Company. The
Company services the installment contracts receivable held by the Trust and
earns a servicing fee which approximates the servicing costs incurred by the
Company. Through July 1999, the principal amount of the certificates remains
fixed and collections of installment contracts receivable flow through to the
Company in exchange for the securitization of additional installment contracts
receivable, except that collections are first used to fund interest
requirements. The amortization period commences in August 1999, after which
collections of installment contracts receivable will be used first to fund
interest requirements and then to repay principal on the certificates. The
amortization period ends upon the earlier to occur of the certificates being
repaid in full or August 2002.

The Company's revolving credit agreement was amended in February 1997 to
provide for a $20,000 line of credit, which is reduced by the amount of any
outstanding letters of credit in excess of $10,000 (which excess may not exceed
$10,000). The maximum amount available under this revolving credit agreement,
including letters of credit, is $30,000. The rate of interest on borrowings is
at the Company's option, based upon either the agent bank's prime rate plus 2%
or a Eurodollar rate plus 3%. A fee of 2.25% on outstanding letters of credit is
payable quarterly. A commitment fee of 1/2 of 1% is payable quarterly on the
unused portion of the credit facility. At December 31, 1996, the entire line of
credit was unused and outstanding letters of credit totalled $12,687. The
revolving credit agreement is secured by substantially all real and personal
property (excluding installment contracts receivable) of the Company.

The Company leases certain fitness equipment under capital leases expiring
in periods ranging from three to five years. Included in "Property and
equipment" at December 31, 1996 and 1995 were assets recorded under capital
leases of $11,981 and $6,018, respectively, net of accumulated amortization of
$3,318 and $1,611, respectively.

The 13% Senior Subordinated Notes due 2003 (the "13% Notes") are not
subject to any sinking fund requirement, but may be redeemed beginning in
January 1998, in whole or in part, with premiums ranging from 6.5% in 1998 to
zero in 2000 and thereafter. The payment of the 13% Notes is subordinated to the
prior payment in full of all senior indebtedness of the Company, as defined
(approximately $198,000 at December 31, 1996).

The Company is restricted from paying cash dividends by the terms of its
13% Notes and its revolving credit agreement. The covenants also limit the
amounts available for capital expenditures, restrict additional borrowings, and
require maintenance of certain financial ratios.

F-12
<PAGE> 44

BALLY TOTAL FITNESS HOLDING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(All dollar amounts in thousands, except share data)

Maturities of long-term debt and future minimum payments under capital
leases together with the present value of future minimum rentals as of December
31, 1996 are as follows:

<TABLE>
<CAPTION>
LONG-TERM CAPITAL
DEBT LEASES TOTAL
--------- ------- --------
<S> <C> <C> <C>
1997................................................ $ 6,725 $ 2,398 $ 9,123
1998................................................ 6,711 2,420 9,131
1999................................................ 66,187 1,956 68,143
2000................................................ 95,414 1,341 96,755
2001................................................ 743 267 1,010
Thereafter.......................................... 202,332 202,332
-------- ------ --------
378,112 8,382 386,494
Less amount representing interest................... 1,696 1,696
-------- ------ --------
$ 378,112 $ 6,686 $384,798
======== ====== ========
</TABLE>

The fair value of the Company's long-term debt at December 31, 1996 and
1995 approximates its carrying amount, except for the 13% Notes which had a fair
market value (based on quoted market prices) of $190,875 and $161,500 at
December 31, 1996 and 1995, respectively. The fair values are not necessarily
indicative of the amounts the Company could acquire the debt for in a purchase
or redemption.

INCOME TAXES

The income tax provision (benefit) applicable to loss before income taxes
and extraordinary item consists of the following:

<TABLE>
<CAPTION>
1996 1995 1994
------- -------- --------
<S> <C> <C> <C>
Current:
Federal.......................................... $(3,050) $ 15,600 $(14,703)
State and other.................................. (1,725) (119) (53)
------- -------- --------
(4,775) 15,481 (14,756)
Deferred:
Federal.......................................... (26,937) (11,015)
State and other.................................. 2,075 457 758
------- -------- --------
2,075 (26,480) (10,257)
------- -------- --------
$(2,700) $(10,999) $(25,013)
======= ======== ========
</TABLE>

Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial accounting
and income tax purposes. Significant components of the

F-13
<PAGE> 45

BALLY TOTAL FITNESS HOLDING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(All dollar amounts in thousands, except share data)

Company's deferred tax assets and liabilities as of December 31, 1996 and 1995,
along with their classification, are as follows:

<TABLE>
<CAPTION>
1996 1995
---------------------- ----------------------
ASSETS LIABILITIES ASSETS LIABILITIES
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Installment contract revenues................ $ $89,847 $ $49,813
Expenses which are not currently deductible
for tax purposes:
Bad debts............................... 35,541 44,565
Other................................... 14,982 12,145
Depreciation and capitalized costs........... 2,562 5,307
Tax loss carryforwards....................... 118,313 49,817
Other, net................................... 3,356 1,968
-------- ------- -------- -------
168,836 $95,765 106,527 $57,088
======= =======
Valuation allowance.......................... (83,103) (57,562)
-------- --------
$ 85,733 $ 48,965
======== ========
Current...................................... $ 15,198 $41,204 $ 14,743 $25,855
Long-term.................................... 70,535 54,561 34,222 31,233
-------- ------- -------- -------
$ 85,733 $95,765 $ 48,965 $57,088
======== ======= ======== =======
</TABLE>

Upon consummation of the Spin-off, a portion of Entertainment's federal tax
loss and Alternative Minimum Tax ("AMT") credit carryforwards were allocated to
the Company pursuant to U.S. Treasury Regulations. The amount of carryforwards
allocated to the Company may ultimately be different as a result of Internal
Revenue Service (the "IRS") adjustments. At December 31, 1996, estimated federal
AMT credit and tax loss carryforwards of $2,987 and $243,508, respectively, have
been recorded by the Company. The AMT credits can be carried forward
indefinitely, while the tax loss carryforwards expire through 2011. In addition,
the Company has substantial state tax loss carryforwards which begin to expire
in 1997 and fully expire through 2011. For financial accounting purposes, a
valuation allowance has been recorded to reduce the deferred tax assets to a
level which, more likely than not, will be realized.

A reconciliation of the income tax benefit with amounts determined by
applying the U.S. statutory tax rate to loss before income taxes and
extraordinary item is as follows:

<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Benefit at U.S. statutory tax rate (35%).............. $(15,365) $(12,656) $(26,531)
Add (deduct):
Operating losses without a current year tax
benefit.......................................... 12,082
State income taxes, net of related federal income
tax effect and valuation allowance............... (97) 339 204
Amortization of cost in excess of acquired assets... 1,411 1,391 1,393
Prior years' taxes.................................. (5) (336) (327)
Other, net.......................................... (726) 263 248
-------- -------- --------
Income tax benefit.................................... $ (2,700) $(10,999) $(25,013)
======== ======== ========
</TABLE>

In May 1994, the Company, Entertainment and the IRS reached a settlement
with respect to certain income tax matters. As the Company adequately provided
deferred and current taxes in connection therewith, the settlement did not have
an adverse effect on the Company's consolidated financial position or results of

F-14
<PAGE> 46

BALLY TOTAL FITNESS HOLDING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(All dollar amounts in thousands, except share data)

operations. For financial accounting purposes, this settlement resulted in a
reversal of previously recorded pre-acquisition contingencies totaling $10,331,
which was reflected as a reduction of intangible assets. Since Entertainment had
agreed to indemnify the Company for a substantial portion of such contingencies,
the settlement resulted in a $7,669 reduction of contributed capital.

STOCKHOLDERS' EQUITY

The Series A Junior Participating Preferred Stock, $.10 par value (the
"Series A Junior Stock"), if issued, will have a minimum preferential quarterly
dividend payment equal to the greater of (i) $1.00 per share and (ii) an amount
equal to 100 times the aggregate dividends declared per share of Common Stock
during the related quarter. In the event of liquidation, the holders of the
shares of Series A Junior Stock will be entitled to a preferential liquidation
payment equal to the greater of (a) $100 per share and (b) an amount equal to
100 times the liquidation payment made per share of Common Stock. Each share of
Series A Junior Stock will have 100 votes, voting together with the shares of
Common Stock. Finally, in the event of any merger, consolidation or other
transaction in which shares of Common Stock are exchanged, each share of Series
A Junior Stock will be entitled to receive 100 times the amount received per
share of Common Stock. These rights are protected by customary antidilution
provisions.

The Board of Directors of the Company adopted the Stockholder Rights Plan
and issued and distributed a Right for each share of Common Stock distributed to
Entertainment stockholders pursuant to the Spin-off. Each Right entitles the
registered holder to purchase from the Company one one-hundredth of a share of
Series A Junior Stock at a price of $40.00 per one one-hundredth of a share of
Series A Junior Stock, subject to adjustment (the "Purchase Price").

The Rights are not exercisable or transferable apart from the Common Stock
until the occurrence of one of the following: (i) ten days (or such later date
as may be determined by action of the Board of Directors of the Company prior to
such time as any person or group of affiliated persons becomes an Acquiring
Person) after the date of public announcement that a person (other than an
Exempt Person, as defined below) or group of affiliated or associated persons
has acquired, or obtained the right to acquire, beneficial ownership of 10% or
more of the Common Stock (an "Acquiring Person"), or (ii) ten days after the
date of the commencement of a tender offer or exchange offer by a person (other
than an Exempt Person) or group of affiliated or associated persons, the
consummation of which would result in beneficial ownership by such person or
group of 20% or more of the outstanding shares of Common Stock. "Exempt Persons"
include the Company, any subsidiary of the Company, employee benefit plans of
the Company, directors of the Company on January 5, 1996 who are also officers
of the Company, Entertainment and any person holding the warrant to purchase
shares of Common Stock initially issued to Entertainment.

In the event that, at any time after a person or group of affiliated or
associated persons has become an Acquiring Person, (i) the Company consolidates
with or merges with or into any person and is not the surviving corporation,
(ii) any person merges with or into the Company and the Company is the surviving
corporation, but the shares of Common Stock are changed or exchanged, or (iii)
50% or more of the Company's assets or earning power are sold, each holder of a
Right will thereafter have the right to receive, upon the exercise thereof at
the then current exercise price of the Right, that number of shares of Common
Stock (or under certain circumstances, an economically equivalent security or
securities) of such other person which at the time of such transaction would
have a market value of two times the exercise price of the Right. The Rights,
which do not have voting privileges, are subject to adjustment to prevent
dilution and expire on January 5, 2006. The Company may redeem or exchange all,
but not less than all, of the Rights at a price of $.01 per Right, payable in
cash or Common Stock, at any time prior to such time as a person or group of
affiliated or associated persons becomes an Acquiring Person.

F-15
<PAGE> 47

BALLY TOTAL FITNESS HOLDING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(All dollar amounts in thousands, except share data)

In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, proper provision shall be made so that each holder
of a Right, other than Rights that are or were owned beneficially by the
Acquiring Person (which, from and after the later of the Rights distribution
date and the date of the earliest of any such events, will be void), will
thereafter have the right to receive, upon exercise thereof at the then current
exercise price of the Right, that number of shares of Common Stock (or, under
certain circumstances, an economically equivalent security or securities of the
Company) having a market value of two times the exercise price of the Right.

At December 31, 1996, 4,492,805 shares of Common Stock were reserved for
future issuance (2,942,805 shares in connection with outstanding warrants and
1,550,000 shares in connection with certain stock plans).

SAVINGS PLANS

The Company sponsors several defined contribution plans that provide
retirement benefits for certain full-time employees. Eligible employees may
elect to participate by contributing a percentage of their pre-tax earnings to
the plans. Employee contributions to the plans, up to certain limits, are
matched in various percentages by the Company. The expense related to the plans
totaled $974, $557 and $807 in 1996, 1995 and 1994, respectively.

STOCK PLANS

In January 1996, the Board of Directors of the Company adopted the 1996
Non-Employee Directors' Stock Option Plan (the "Directors' Plan"). The
Directors' Plan provides for the grant of non-qualified stock options to
non-employee directors of the Company. Initially, 100,000 shares of Common Stock
were reserved for issuance under the Directors' Plan and at December 31, 1996,
80,000 shares of Common Stock were available for future grant under the
Directors' Plan. Stock options may not be granted under the Directors' Plan
after January 3, 2006.

Pursuant to the Directors' Plan, non-employee directors of the Company are
granted an option to purchase 5,000 shares of Common Stock upon the commencement
of service on the Board of Directors, with another option to purchase 5,000
shares of Common Stock granted on the second anniversary thereof. Options under
the Directors' Plan are generally granted with an exercise price equal to the
fair market value of the Common Stock at the date of grant. Option grants under
the Directors' Plan become exercisable in three equal annual installments
commencing one year from the date of grant and have a 10-year term.

Also in January 1996, the Board of Directors of the Company adopted the
1996 Long-Term Incentive Plan (the "Incentive Plan"). The Incentive Plan
provides for the grant of non-qualified stock options, incentive stock options
and compensatory restricted stock awards (collectively "Awards") to officers and
key employees of the Company. Initially, 2,100,000 shares of Common Stock were
reserved for issuance under the Incentive Plan and at December 31, 1996, 125,340
shares of Common Stock were available for future grant under the Incentive Plan.
Awards may not be granted under the Incentive Plan after January 3, 2006.

Pursuant to the Incentive Plan, non-qualified stock options are generally
granted with an exercise price equal to the fair market value of the Common
Stock at the date of grant. Incentive stock options must be granted at not less
than the fair market value of the Common Stock at the date of grant. Option
grants become exercisable at the discretion of the Compensation Committee of the
Board of Directors (the "Compensation Committee"). Option grants in 1996 under
the Incentive Plan have a 10-year term and are exercisable in four equal annual
installments commencing one year from the date of grant except, if at any time
on or before the third anniversary of the date of grant the fair market value of
the Common Stock reaches a targeted stock price, vesting of such options is
accelerated so that they become exercisable in three equal annual installments
commencing one year from the date of grant.

F-16
<PAGE> 48

BALLY TOTAL FITNESS HOLDING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(All dollar amounts in thousands, except share data)

A summary of 1996 stock option activity under the Directors' Plan and
Incentive Plan is as follows:

<TABLE>
<CAPTION>
NUMBER WEIGHTED-
OF SHARES AVERAGE RANGE OF
REPRESENTED EXERCISE EXERCISE
BY OPTIONS PRICE PRICES
----------- --------- --------------
<S> <C> <C> <C>
Granted................................... 1,594,580 $ 4.23 $4.125 - 5.125
Forfeited................................. (249,920) 4.125 4.125
---------
Outstanding at December 31, 1996, none of
which were exercisable.................. 1,344,660 4.25 4.125 - 5.125
=========
</TABLE>

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

SFAS No. 123 requires pro forma net loss and loss per share information be
provided as if the Company had accounted for stock options under the fair value
method prescribed by SFAS No. 123, which for 1996 is $36,335 and $2.98,
respectively. In addition, the weighted-average fair value of stock options
granted in 1996 was $1.93 per share. The fair value for stock options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions for 1996: risk-free interest rate of
6.22%; no dividend yield; volatility factor of the expected market price of the
Common Stock of 0.413; and a weighted-average expected life of the options of
five years. Pro forma results under SFAS No. 123 in 1996 are not likely to be
representative of future pro forma results because, for example, options vest
over several years and additional awards may be made in future years.

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

Pursuant to the Incentive Plan, restricted stock awards are rights granted
to an employee to receive shares of stock without payment but subject to
forfeiture and other restrictions as set forth in the Incentive Plan. Generally,
the restricted stock awarded, and the right to vote such stock or to receive
dividends thereon, may not be sold, exchanged or otherwise disposed of during
the restricted period. Except as otherwise determined by the Compensation
Committee, the restrictions and risks of forfeiture will lapse in three equal
annual installments commencing one year after the date of grant.

In 1996, the Compensation Committee awarded 650,000 shares of restricted
Common Stock to certain executive officers of the Company. Restrictions on these
shares generally lapse based upon the market price of the Common Stock reaching
certain targeted stock prices unless less than half of such shares awarded vest
within two years after the date of grant, at which time a number of shares will
vest so that the total number of vested shares equals 50% of the original
grants. In addition, a recipient of these restricted stock awards will receive a
cash payment from the Company upon the lapse of restrictions in an amount
sufficient to insure that the recipient will receive the Common Stock net of all
taxes imposed upon the recipient because of the receipt of such Common Stock and
cash payment. Restrictions applicable to 433,355 of these shares generally
lapsed

F-17
<PAGE> 49

BALLY TOTAL FITNESS HOLDING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(All dollar amounts in thousands, except share data)

upon reaching certain targeted stock prices in 1996 and, accordingly, the fair
value of these shares ($2,345) was amortized to expense in connection therewith.
The weighted-average fair value of restricted Common Stock awarded in 1996 was
$4.87 per share as determined under SFAS No. 123.

Prior to the Spin-off, certain officers and key employees of the Company
participated in the 1989 Incentive Plan of Entertainment (the "1989 Plan"),
pursuant to which Entertainment granted these individuals options (generally
becoming exercisable in three equal annual installments commencing one year
after the date of grant) to purchase Entertainment common stock at a price equal
to the fair market value of the stock at the date of grant. Pursuant to the 1989
Plan, following the Spin-off, these officers and key employees no longer
affiliated with Entertainment could no longer participate in this plan. As a
result, their unexercisable options were cancelled on January 9, 1996, and their
vested options terminated 90 days thereafter to the extent not exercised prior
thereto.

COMMITMENTS AND CONTINGENCIES

Operating leases

The Company leases various fitness center facilities, office facilities,
and equipment under operating leases expiring in periods ranging from one to
twenty-five years excluding optional renewal periods. Certain of the leases
contain contingent rental provisions generally related to cost of living
criteria or revenues of the respective fitness centers. Rent expense under
operating leases was $86,717, $85,857 and $83,288 for 1996, 1995 and 1994,
respectively.

Minimum future rent payments under long-term noncancellable operating
leases in effect as of December 31, 1996, exclusive of taxes, insurance, other
expenses payable directly by the Company and contingent rent, are $82,441,
$82,638, $81,295, $75,248 and $70,036 for 1997 through 2001, respectively, and
$447,357 thereafter.

Included in the amounts above are leases with real estate partnerships in
which certain of the Company's current or former executive officers have
ownership interests. Rent expense under these leases was $2,002, $1,991 and
$1,953 for 1996, 1995 and 1994, respectively. In addition, these leases require
minimum rent payments of $1,954 for 1997.

Litigation

F-18
<PAGE> 50

BALLY TOTAL FITNESS HOLDING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(All dollar amounts in thousands, except share data)

TRANSACTIONS WITH ENTERTAINMENT

In connection with the Spin-off, the Company issued Entertainment a warrant
(the "Warrant") entitling Entertainment to acquire 2,942,805 shares of Common
Stock at an exercise price of $5.26 per share (equal to 110% of the average
daily closing price of the Common Stock for the twenty consecutive trading days
beginning on the first trading day after the Distribution Date). At the time of
the Merger, Entertainment sold the Warrant to two directors and executive
officers of the Company. The Warrants are exercisable until December 31, 2005.

In January 1996, the Company and Entertainment entered into a Trademark
License Agreement pursuant to which Entertainment (Hilton after the Merger)
licenses the use of the name "Bally" and certain trademarks, trade names and
servicemarks to the Company in connection with its fitness center business. The
license is for a period of ten years, subject to termination in certain
circumstances. The Company paid no royalty or license fee for the first year and
pays a fee of $1,000 per year thereafter. Following the initial ten-year term,
the Company has an option to renew the license for an additional five-year
period at a rate equal to the greater of the then market rate or $1,000 per
year.

In connection with the Spin-off, Entertainment purchased a fitness center
from the Company for $6,200. The Company and Entertainment entered into a
management agreement pursuant to which the Company provides certain
administrative services to Entertainment in connection with the operation of
this fitness center, including membership contract processing, membership card
issuance, collections, processing cash receipts and renewal solicitation.
Entertainment pays the Company a management fee equal to 4% of membership
revenues and 2% of total revenues of this fitness center for these services,
which was $279 for 1996. In addition, Entertainment purchased from the Company
all of the shares of capital stock and warrants to purchase shares of capital
stock of Holmes Place PLC owned by the Company, as well as a note receivable
from Holmes Place PLC held by the Company, for $1,800.

In January 1996, the Company and Entertainment entered into a Transitional
Services Agreement pursuant to which Entertainment provided the Company certain
services for a period of one year following the Spin-off. The services provided
to the Company by Entertainment included services relating to insurance, tax
matters, accounting and other financial services and the administration of
employee benefit programs. The Company provided payroll services to
Entertainment during this period. The net amount charged to the Company by
Entertainment in 1996 pursuant to the Transitional Services Agreement was
$2,344, based on the costs incurred for such services. Prior to the Spin-off,
the Company and Entertainment reimbursed each other for the proportionate share
of costs (salaries, benefits, rent, etc.) related to employees performing
functions on behalf of both companies, based on estimates of time spent on
behalf of each company. The net amount charged to (by) Entertainment in 1995 and
1994 was $(3,045) and $1,510, respectively. The costs charged to (by)
Entertainment varied in amount from year to year primarily due to changes in the
time devoted to each company by personnel based on events at both companies.
Management believes that the method used to allocate these costs was reasonable.
In addition, certain of the Company's insurance coverage was obtained by
Entertainment pursuant to corporate-wide programs and Entertainment charged the
Company its proportionate share of the respective insurance premiums, which
totalled $4,625, $5,668 and $7,176 for 1996, 1995 and 1994, respectively.

Pursuant to the Transitional Services Agreement, the Company indemnified
Entertainment against (i) debts and liabilities of the Company and (ii)
liabilities relating to litigation currently pending or claims, controversies or
other causes of action relating to the Company's business arising through the
Distribution Date. The Transitional Services Agreement also provided for the
payment by the Company of $15,200 due Entertainment under the prior tax sharing
agreement (plus interest at 10% per annum from the Distribution Date). At the
time of the Merger, the $15,200 of indebtedness was forgiven by Hilton, which
the Company

F-19
<PAGE> 51

BALLY TOTAL FITNESS HOLDING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(All dollar amounts in thousands, except share data)

reflected as an extraordinary gain. The Company also paid interest, calculated
primarily at a prime rate, on advances from Entertainment. Interest paid to
Entertainment was $1,551, $430 and $720 for 1996, 1995 and 1994, respectively.

PRO FORMA INFORMATION (UNAUDITED)

The historical net loss for the years ended December 31, 1995 and 1994
reflected a federal income tax benefit arising from the Company's prior tax
sharing agreement with Entertainment of $11,337 and $25,718, respectively. Pro
forma net loss and related per share amounts have been presented on the
consolidated statement of operations giving effect to (i) adjustments made to
reflect the income tax provision/benefit as if the Company had filed its own
separate consolidated income tax return for each year and (ii) the distribution
of 11,845,161 shares of Common Stock to Entertainment stockholders as if such
distribution had taken place as of the beginning of each year.

F-20
<PAGE> 52

BALLY TOTAL FITNESS HOLDING CORPORATION

SUPPLEMENTARY DATA

QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
(All dollar amounts in millions, except share data)

<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------------- --------------- --------------- ---------------
1996 1995 1996 1995 1996 1995 1996 1995
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............................. $171.1 $176.5 $158.6 $162.7 $158.8 $169.8 $137.2 $152.7
Operating income (loss).................. 9.6 10.2 5.2 2.1 5.3 1.9 (16.3) (6.6)
Income (loss) before extraordinary item
(pro forma for 1995)................... (2.5) 0.2 (7.0) (8.7) (6.8) (9.5) (25.0) (18.5)
Extraordinary gain on extinguishment of
debt................................... 5.7
Net income (loss) (pro forma for 1995)... (2.5) 0.2 (7.0) (8.7) (6.8) (9.5) (19.3) (18.5)
Per common share (pro forma for 1995):
Income (loss) before extraordinary
item................................. $ (.20) $ .01 $ (.57) $ (.73) $ (.56) $ (.81) $(2.05) $(1.56)
Extraordinary gain on extinguishment of
debt................................. .46
Net income (loss)...................... (.20) .01 (.57) (.73) (.56) (.81) (1.59) (1.56)
</TABLE>

- ---------------
1. The Company's operations are subject to seasonal factors.

2. The Company was a wholly owned subsidiary of Entertainment until January 9,
1996, the date 11,845,161 shares of Common Stock were distributed by
Entertainment in the Spin-off. For financial accounting purposes, the Company
has reflected the effect of the Spin-off as of December 31, 1995.

3. Pro forma net loss and related per share amounts for each of the 1995
quarters were calculated giving effect to (i) adjustments made to reflect the
income tax provision/benefit as if the Company had filed its own separate
consolidated income tax return for each quarter and (ii) the distribution of
11,845,161 shares of Common Stock to Entertainment stockholders as if such
distribution had taken place as of the beginning of each quarter.

4. The extraordinary gain on extinguishment of debt for the quarter ended
December 31, 1996 consists of (i) a gain (net of taxes) of $9.9 million ($.81
per share) resulting from indebtedness owed Entertainment which was forgiven
as part of the December 1996 merger of Entertainment with and into Hilton
Hotels Corporation and (ii) a charge (net of taxes) of $4.2 million ($.35 per
share) resulting from the December 1996 refinancing of the Company's
securitization facility.

F-21
<PAGE> 53

BALLY TOTAL FITNESS HOLDING CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET

(In thousands)

(Unaudited)

<TABLE>
<CAPTION>
MARCH 31,
1997
---------
<S> <C>
ASSETS
Current assets:
Cash and equivalents............................................................ $ 9,924
Installment contracts receivable, less allowance for doubtful receivables and
cancellations of $45,291..................................................... 136,710
Retained interest in sold installment contracts receivable...................... 16,872
Other current assets............................................................ 28,314
---------
Total current assets......................................................... 191,820
Installment contracts receivable, less allowance for doubtful receivables and
cancellations of $28,238........................................................ 89,901
Retained interest in sold installment contracts receivable........................ 43,528
Property and equipment, less accumulated depreciation and amortization of
$312,628........................................................................ 320,666
Intangible assets, less accumulated amortization of $50,745....................... 104,599
Deferred income taxes............................................................. 19,321
Other assets...................................................................... 24,988
---------
$ 794,823
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................ $ 44,077
Income taxes payable............................................................ 414
Deferred income taxes........................................................... 29,353
Deferred revenues............................................................... 54,005
Accrued liabilities............................................................. 49,625
Current maturities of long-term debt............................................ 8,387
---------
Total current liabilities.................................................... 185,861
Long-term debt, less current maturities........................................... 357,740
Other liabilities and deferred credits............................................ 32,186
Stockholders' equity.............................................................. 219,036
---------
$ 794,823
=========
</TABLE>

See accompanying notes.

F-22
<PAGE> 54

BALLY TOTAL FITNESS HOLDING CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS

(In thousands, except per share data)
(Unaudited)

<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-----------------------
1997 1996
-------- --------
<S> <C> <C>
Net revenues:
Membership revenues --
New............................................................. $114,854 $112,424
Dues............................................................ 49,600 45,768
Finance charges earned............................................. 9,269 9,595
Fees and other..................................................... 3,598 3,294
-------- --------
177,321 171,081
Operating costs and expenses:
Fitness center operations.......................................... 96,450 96,299
Member processing and collection centers........................... 9,661 12,212
Advertising........................................................ 12,686 12,611
General and administrative......................................... 5,921 5,789
Provision for doubtful receivables................................. 25,537 20,902
Depreciation and amortization...................................... 13,065 13,676
-------- --------
163,320 161,489
-------- --------
Operating income..................................................... 14,001 9,592
Interest expense..................................................... 11,379 11,849
-------- --------
Income (loss) before income taxes.................................... 2,622 (2,257)
Income tax provision................................................. 100 200
-------- --------
Net income (loss).................................................... $ 2,522 $ (2,457)
======== ========
Net income (loss) per common share................................... $ .19 $ (.20)
======== ========
</TABLE>

See accompanying notes.

F-23
<PAGE> 55

BALLY TOTAL FITNESS HOLDING CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

(In thousands, except share data)

(Unaudited)

<TABLE>
<CAPTION>
COMMON STOCK UNEARNED
------------------- COMPENSATION TOTAL
NUMBER PAR CONTRIBUTED ACCUMULATED (RESTRICTED STOCKHOLDERS'
OF SHARES VALUE CAPITAL DEFICIT STOCK) EQUITY
---------- ----- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996..... 12,495,161 $125 $ 306,811 $ (88,378) $ (2,051) $ 216,507
Net income....................... 2,522 2,522
Issuance of common stock upon
exercise of stock options...... 1,814 7 7
---------- ---- -------- -------- ------- --------
Balance at March 31, 1997........ 12,496,975 $125 $ 306,818 $ (85,856) $ (2,051) $ 219,036
========== ==== ======== ======== ======= ========
</TABLE>

See accompanying notes.

F-24
<PAGE> 56

BALLY TOTAL FITNESS HOLDING CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

(In thousands)

(Unaudited)

<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-------------------
1997 1996
-------- --------
<S> <C> <C>
OPERATING:
Net income (loss)...................................................... $ 2,522 $ (2,457)
Adjustments to reconcile to cash used --
Depreciation and amortization, including amortization included in
interest expense................................................... 13,624 14,552
Provision for doubtful receivables.................................. 25,537 20,902
Deferred income taxes............................................... (450)
Change in operating assets and liabilities.......................... (52,562) (47,685)
-------- --------
Cash used in operating activities.............................. (10,879) (15,138)

INVESTING:
Purchases and construction of property and equipment................... (6,842) (7,172)
Other, net............................................................. (55) 747
-------- --------
Cash used in investing activities.............................. (6,897) (6,425)

FINANCING:
Debt transactions --
Net borrowings under revolving credit agreement..................... 12,000 9,000
Proceeds from other long-term borrowings............................ 1,500
Repayments of other long-term debt.................................. (834) (310)
Debt issuance costs................................................. (7) (144)
-------- --------
Cash provided by debt transactions............................. 11,159 10,046
Equity transaction --
Proceeds from issuance of common stock upon exercise of stock
options............................................................ 7
-------- --------
Cash provided by financing activities.......................... 11,166 10,046
-------- --------
Decrease in cash and equivalents......................................... (6,610) (11,517)
Cash and equivalents, beginning of period................................ 16,534 21,263
-------- --------
Cash and equivalents, end of period...................................... $ 9,924 $ 9,746
======== ========
</TABLE>

See accompanying notes.

F-25
<PAGE> 57

BALLY TOTAL FITNESS HOLDING CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS -- (CONTINUED)

(In thousands)

(Unaudited)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1997 1996
-------- --------
<S> <C> <C>
SUPPLEMENTAL CASH FLOWS INFORMATION:

Changes in operating assets and liabilities were as follows --
Increase in installment contracts receivable......................... $(42,341) $(31,601)
Increase in other current and other assets........................... (4,414) (747)
Increase (decrease) in accounts payable.............................. 2,512 (8,344)
Increase (decrease) in income taxes payable.......................... 64 (430)
Decrease in accrued and other liabilities............................ (5,550) (4,753)
Decrease in deferred revenues........................................ (2,833) (1,810)
-------- --------
$(52,562) $(47,685)
======== ========

Cash payments for interest and income taxes were as follows --
Interest paid........................................................ $ 17,823 $ 17,352
Interest capitalized................................................. (288) (55)
Income taxes paid, net............................................... 36 1,080

Investing and financing activities exclude the following non-cash
transactions --
Sale of installment contracts receivable to H&T Master Trust under
securitization facility, net of retained interest therein......... $ 30,000 $
Acquisition of property and equipment through capital leases......... 163 1,999
</TABLE>

See accompanying notes.

F-26
<PAGE> 58

BALLY TOTAL FITNESS HOLDING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All dollar amounts in thousands, except share data)

(Unaudited)

BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements include the
accounts of Bally Total Fitness Holding Corporation (the "Company") and the
subsidiaries which it controls. The Company, through its subsidiaries, is a
nationwide commercial operator of fitness centers with approximately 320
facilities concentrated in 27 states and Canada. The Company operates in one
industry segment, and all significant revenues arise from the commercial
operation of fitness centers, primarily in major metropolitan markets in the
United States. Unless otherwise specified in the text, references to the Company
include the Company and its subsidiaries. These condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements of the Company for the years ended December 31, 1996, 1995 and 1994
included elsewhere herein.

All adjustments have been recorded which are, in the opinion of management,
necessary for a fair presentation of the condensed consolidated balance sheet of
the Company at March 31, 1997, its consolidated statements of operations and
cash flows for the three months ended March 31, 1997 and 1996, and its
consolidated statement of stockholders' equity for the three months ended March
31, 1997. All such adjustments were of a normal recurring nature.

The accompanying condensed consolidated financial statements have been
prepared in conformity with generally accepted accounting principles which
require the Company's management to make estimates and assumptions that affect
the amounts reported therein. Actual results could vary from such estimates. In
addition, certain reclassifications have been made to prior period financial
statements to conform with the 1997 presentation.

SEASONAL FACTORS

The Company's operations are subject to seasonal factors and, therefore,
the results of operations for the three months ended March 31, 1997 and 1996 are
not necessarily indicative of the results of operations for the full year.

EARNINGS PER SHARE

Net income (loss) per common share is computed by dividing net income
(loss) applicable to common stock by the weighted average number of shares of
common stock and common stock equivalents (when applicable) outstanding during
each period, which totaled 14,074,455 shares and 12,170,161 shares for the three
months ended March 31, 1997 and 1996, respectively. Common stock equivalents
increased the weighted average number of shares outstanding by 1,795,324 shares
for the three months ended March 31, 1997, and represent the dilutive effect of
the assumed exercise of outstanding warrants and stock options. Restrictions
applicable to 216,645 shares of restricted stock awarded by the Company in 1996
have yet to lapse because the market price of the common stock has not reached a
targeted stock price and, as a result, these contingent shares are not common
stock equivalents for the three months ended March 31, 1997. The assumed
exercise of outstanding warrants and stock options and the dilutive effect of
restricted stock were not applicable for the three months ended March 31, 1996.

In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share", which
establishes new standards for computing and presenting earnings per share. SFAS
No. 128 requires a dual presentation of basic earnings per share (computed by
dividing income available to common stockholders by the weighted-average number
of common shares outstanding for the period) and diluted earnings per share
(computed similarly to fully diluted

F-27
<PAGE> 59

BALLY TOTAL FITNESS HOLDING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(All dollar amounts in thousands, except share data)
(Unaudited)

earnings per share pursuant to APB Opinion No. 15) on the face of the Company's
statement of operations. The Company will adopt SFAS No. 128 in the fourth
quarter of 1997; earlier application is not permitted. As computed under SFAS
No. 128, basic and diluted earnings per share for the three months ended March
31, 1997 would have been $.21 per share and $.18 per share, respectively.

LONG-TERM DEBT

In December 1996, the Company completed a private placement of asset-backed
securities (the "Securitization") pursuant to which $160,000 of trust
certificates were issued as undivided interests in the H&T Master Trust (the
"Trust"). The Trust was created for the issuance of asset-backed securities and
was formed pursuant to a pooling and servicing agreement. The Trust includes a
portfolio of substantially all of the Company's installment contracts receivable
from membership sales and the proceeds thereof. The amount by which installment
contracts receivable in the Trust exceed the $160,000 principal amount of
certificates issued by the Trust is generally retained by the Company. The
Company services the installment contracts receivable held by the Trust and
earns a servicing fee which approximates the servicing costs incurred by the
Company. Through July 1999, the principal amount of the certificates remains
fixed and collections of installment contracts receivable flow through to the
Company in exchange for the securitization of additional installment contracts
receivable, except that collections are first used to fund interest
requirements. The amortization period commences in August 1999, after which
collections of installment contracts receivable will be used first to fund
interest requirements and then to repay principal on the certificates. The
amortization period ends upon the earlier to occur of the certificates being
repaid in full or August 2002.

Accounting standards in effect in December 1996 treated this type of
securitization as indebtedness, with related interest expense. However, in June
1996, the Financial Accounting Standards Board issued SFAS No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities", which provides new accounting and reporting standards for sales,
securitizations, and servicing of receivables and other financial assets,
secured borrowing and collateral transactions, and extinguishments of
liabilities occurring after December 31, 1996. SFAS No. 125 addresses whether a
transfer of financial assets constitutes a sale and, if so, the determination of
any resulting gain or loss. SFAS No. 125 is based on a "financial-components
approach" that focuses on control. Under this approach, following a transfer of
financial assets (including portions of financial assets), an entity recognizes
the assets it controls and liabilities it has incurred, and derecognizes
financial assets for which control has been surrendered and financial
liabilities that have been extinguished.

Effective January 1, 1997, the Company adopted the requirements of SFAS No.
125. Although SFAS No. 125 could only be applied prospectively, SFAS No. 125 had
an impact on the accounting for the Securitization because its provisions apply
to the sale of installment contracts receivable to the Trust after December 31,
1996. As a result of applying the new requirements, net installment contracts
receivable decreased by approximately $90,000 and long-term debt decreased by
approximately $30,000 through March 31, 1997, and finance charges earned and
interest expense each decreased by approximately $500 for the three months ended
March 31, 1997. The Company's interest in the securitized receivables sold in
the three months ended March 31, 1997 (approximately $60,000 at March 31, 1997)
has been presented on the

F-28
<PAGE> 60

BALLY TOTAL FITNESS HOLDING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(All dollar amounts in thousands, except share data)
(Unaudited)

condensed consolidated balance sheet as "retained interest in sold installment
contracts receivable", and no gain or loss has been recognized in connection
with the sale of installment contracts receivable to the Trust during the three
months ended March 31, 1997. The Company expects further decreases in
installment contracts receivable and long-term debt (and, accordingly, related
decreases in finance charges earned and interest expense) in future quarters
under SFAS No. 125 as installment contracts receivable outstanding at December
31, 1996 are collected and additional installment contracts receivable are sold
to the Trust pursuant to the Securitization.

F-29
<PAGE> 61

[GRAPHIC DESCRIPTION: TWO PHOTOS OF PEOPLE
USING THE COMPANY'S FACILITIES AND A COLOR
CODED MAP OF THE UNITED STATES INDICATING
THE NUMBER OF THE COMPANY'S FACILITIES IN
EACH STATE AND THE LOCATION OF ITS REGIONAL
SERVICE CENTERS. THE LEGEND TO THE MAP SAYS
"STATES WITH FITNESS CENTERS INCLUDING
NUMBER OF CENTERS PER STATE"
AND "REGIONAL SERVICE CENTERS."]

<PAGE> 62

======================================================

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR THE AFFAIRS OF
THE COMPANY SINCE THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Special Note Regarding Forward Looking
Statements.......................... 7
Risk Factors.......................... 7
Use of Proceeds....................... 10
Price Range of Common Stock and
Dividend Policy..................... 10
Capitalization........................ 11
Selected Consolidated Financial
Data................................ 12
Management's Discussion and Analysis
of Results of Operations and
Financial Condition................. 13
Business.............................. 18
Management............................ 26
Underwriting.......................... 28
Legal Matters......................... 29
Experts............................... 29
Available Information................. 30
Incorporation of Certain Information
by Reference........................ 30
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>

======================================================
======================================================

6,000,000 SHARES

LOGO

BALLY TOTAL FITNESS

HOLDING CORPORATION

COMMON STOCK
------------------------

PROSPECTUS
------------------------
MERRILL LYNCH & CO.

LADENBURG THALMANN & CO. INC.

JEFFERIES & COMPANY, INC.

, 1997

======================================================
<PAGE> 63

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth expenses in connection with the issuance of
the Common Stock being registered. All of the amounts shown are estimates,
except the registration fee:

<TABLE>
<S> <C>
SEC registration fee.................................................. $ 17,642
Accounting fees and expenses.......................................... *
Legal fees and expenses............................................... *
Blue Sky fees and expenses............................................ *
Printing expenses..................................................... *
Miscellaneous expenses................................................ *
--------
Total....................................................... $ *
========

<FN>
- ---------------

* To be filed by amendment.
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the Delaware General Corporation Law ("DGCL") permits the
indemnification of the directors and officers of the Company. The Company
By-laws provide that it will indemnify the officers, directors, employees and
agents of the Company to the extent permitted by the DGCL.

The Company Certificate provides for the indemnification of directors and
officers of the Company, and persons who serve or served at the request of the
Company as a director, officer, employee or agent of another corporation,
including service with respect to employee benefit plans, against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties in amounts paid or to be paid in settlement) reasonably
incurred with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, provided, however, the Company shall
indemnify any such person seeking indemnification in connection with a
proceeding initiated by such person only if such proceeding was authorized by
the Board. In the event a claim for indemnification by any person has not been
paid in full by the Company after written request has been received by the
Company, the claimant may at any time thereafter bring suit against the Company
to recover the unpaid amount of the claim and, if successful in whole or in
part, the claimant shall be entitled to be paid also the expense of prosecuting
such claim. The right to indemnification conferred in the Company Certificate is
a contract right and shall include the right to be paid by the Company the
expenses incurred in defending any such proceeding in advance of its final
disposition. The Company maintains insurance, at its expense, to protect itself
and any director, officer, employee or agent of the Company against any such
expense, liability or loss, whether or not the Company would have the power to
indemnify such person against such expense, liability or loss under state law.

II-1
<PAGE> 64

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits

<TABLE>
<C> <S>
***1.1 Form of Underwriting Agreement among the Company and the Underwriters.
**4.1 Specimen stock certificate (filed as an exhibit to the Company's Registration
Statement on Form 8-A/A dated January 3, 1996, File No. 0-27478).
***5.1 Opinion of Benesch, Friedlander, Coplan & Aronoff LLP.
23.1 Consent of Ernst & Young LLP.
***23.2 Consent of Benesch, Friedlander, Coplan & Aronoff LLP (contained in its
Opinion filed as Exhibit 5.1 hereto).
*24.1 Powers of Attorney for the Company.
</TABLE>

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

<TABLE>
<S> <C>
* Filed previously.
** Incorporated by reference.
*** To be filed by amendment.

(b) Financial Statement Schedule
Report of independent auditors on financial statement schedule
Schedule II -- Valuation and qualifying accounts for each of the three years in the
period ended December 31, 1996
All other schedules specified under Regulation S-X for the Company are omitted because
they are either not applicable or required under the instructions, or because the
information required is already set forth in the consolidated financial statements or
related notes thereto.
</TABLE>

ITEM 17. UNDERTAKINGS.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrants in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4), or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

II-2
<PAGE> 65

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF CHICAGO, STATE OF ILLINOIS, ON MAY 30, 1997.

BALLY TOTAL FITNESS HOLDING
CORPORATION

By: /s/ John W. Dwyer

----------------------------------
John W. Dwyer
Senior Vice President, Chief
Financial
Officer and Treasurer

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------- ---------------------------------------------------------
<S> <C> <C>
* Chairman of the Board of May 30, 1997
- ----------------------------------- Directors
Arthur M. Goldberg

* Chief Executive Officer, President, May 30, 1997
- ----------------------------------- and Director
Lee S. Hillman

/s/ John W. Dwyer Senior Vice President, Chief May 30, 1997
- ----------------------------------- Financial Officer and Treasurer
John W. Dwyer
* Vice President and Controller May 30, 1997
- -----------------------------------
Julie Adams

* Director May 30, 1997
- -----------------------------------
Aubrey C. Lewis

* Director May 30, 1997
- -----------------------------------
J. Kenneth Looloian

* Director May 30, 1997
- -----------------------------------
James F. Mc Anally, M.D.

* Director May 30, 1997
- -----------------------------------
Liza M. Walsh
</TABLE>

*By: /s/ John W. Dwyer

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

John W. Dwyer

Attorney-in-fact

II-3
<PAGE> 66

INDEX TO FINANCIAL STATEMENT SCHEDULES

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of independent auditors on financial statement schedule.......................... S-2
Schedule II -- Valuation and qualifying accounts for each of the three years in the
period ended December 31, 1996........................................................ S-3
</TABLE>

All other schedules specified under Regulation S-X for Bally Total Fitness
Holding Corporation are omitted because they are either not applicable or
required under the instructions, or because the information required is already
set forth in the consolidated financial statements or related notes thereto.

S-1
<PAGE> 67

REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULE

In connection with our audits of the consolidated financial statements of
Bally Total Fitness Holding Corporation as of December 31, 1996 and 1995, and
for each of the three years in the period ended December 31, 1996, we have also
audited the consolidated schedule included in this Registration Statement on
Form S-3 as listed in Item 16(b).

In our opinion, the consolidated schedule referred to above presents
fairly, in all material respects, the information required to be stated herein.

ERNST & YOUNG LLP

Chicago, Illinois
February 25, 1997

S-2
<PAGE> 68

BALLY TOTAL FITNESS HOLDING CORPORATION

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(All dollar amounts in thousands)

<TABLE>
<CAPTION>
ADDITIONS
-------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF YEAR EXPENSES ACCOUNTS(a) DEDUCTIONS(b) YEAR
- ------------------------------------- ---------- ---------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
1996:
Allowance for doubtful receivables
and cancellations............... $ 112,528 $ 80,350 $ 111,736 $ 218,519 $ 86,095
======== ======= ======== ======== ========
1995:
Allowance for doubtful receivables
and cancellations............... $ 120,329 $ 72,145 $ 114,729 $ 194,675 $ 112,528
======== ======= ======== ======== ========
1994:
Allowance for doubtful receivables
and cancellations............... $ 82,317 $103,930 $ 113,320 $ 179,238 $ 120,329
======== ======= ======== ======== ========

<FN>
- ---------------

(a) Additions charged to accounts other than costs and expenses primarily
consist of charges to revenues.

(b) Deductions include write-offs of uncollectible amounts, net of recoveries.
</TABLE>
S-3
<PAGE> 69

EXHIBIT INDEX

<TABLE>
<CAPTION>
PAGE
NUMBER IN
SEQUENTIAL
NUMBERING
EXHIBIT SYSTEM
- -------- ---------
<C> <S> <C>
***1.1 Form of Underwriting Agreement among the Company and the Underwriters.
**4.1 Specimen stock certificate (filed as an exhibit to the Company's
Registration Statement on Form 8-A/A dated January 3, 1996, File No.
0-27478).
***5.1 Opinion of Benesch, Friedlander, Coplan & Aronoff LLP.
23.1 Consent of Ernst & Young LLP.
***23.2 Consent of Benesch, Friedlander, Coplan & Aronoff LLP (contained in
its Opinion filed as Exhibit 5.1 hereto).
*24.1 Powers of Attorney for the Company.

<FN>
- ---------------

* Filed previously.

** Incorporated by reference.

*** To be filed by amendment.

</TABLE>

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and
to the use of our reports dated February 25, 1997 in Amendment No. 1 to the
Registration Statement (Form S-3 No. 333-24175) and related Prospectus of Bally
Total Fitness Holding Corporation dated May 30, 1997.

ERNST & YOUNG LLP
Chicago, Illinois
May 28, 1997