LITCHFIELD FINANCIAL CORP /MA, 424B4, 1998-06-19

LITCHFIELD FINANCIAL CORP /MA
424B4, 1998-06-19
MORTGAGE BANKERS & LOAN CORRESPONDENTS

Previous: ACCESS HEALTH INC, S-8, 1998-06-19

Next: ADVANTAGE GROWTH & TREASURY SECURITIES TRUST SERIES 1, 24F-2NT, 1998-06-19

<PAGE> 1

Filed pursuant to rule 424(b)(4)
File No. 333-53293

PROSPECTUS

1,110,000 SHARES

[LITCHFIELD FINANCIAL CORP. LOGO]

COMMON STOCK

Of the 1,110,000 shares of Common Stock offered hereby, 1,000,000 shares
are being sold by Litchfield Financial Corporation (the "Company") and 110,000
shares are being sold by a certain selling stockholder (the "Selling
Stockholder"). See "Principal and Selling Stockholders." The Company will not
receive any of the proceeds from the sale of shares by the Selling Stockholder.
The Common Stock is quoted on The Nasdaq National Market under the symbol
"LTCH". On June 18, 1998, the last reported sale price for the Common Stock, as
reported on the Nasdaq National Market, was $19 1/8 per share. See "Market Price
of and Dividends on Common Stock."
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 9.
------------------------
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 PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)(3) SELLING STOCKHOLDER
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............ $19.00 $1.04 $17.96 $17.96
- -------------------------------------------------------------------------------------------------------------------------
Total................ $21,090,000 $1,154,400 $17,960,000 $1,975,600
=========================================================================================================================
</TABLE>

(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated to be $265,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an aggregate of 166,500 additional shares of Common Stock on the same terms
as set forth above, solely to cover over-allotments, if any. If all these
shares are purchased by the Underwriters, the total Price to Public will be
$24,253,500, the total Underwriting Discount will be $1,327,560, the total
Proceeds to the Company will be $20,950,340 and the total Proceeds to the
Selling Stockholder will be $1,975,600. See "Underwriting."

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

The shares of Common Stock are being offered by the Underwriters, subject
to prior sale, when, as and if delivered to and accepted by the Underwriters and
subject to their rights to reject orders in whole or in part. It is expected
that delivery of the certificates for the shares of Common Stock will be made in
Boston, Massachusetts on or about June 23, 1998.

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

TUCKER ANTHONY
INCORPORATED

MCDONALD & COMPANY
SECURITIES, INC.

J.C. BRADFORD & CO.

THE DATE OF THIS PROSPECTUS IS JUNE 18, 1998.
<PAGE> 2

Map showing location of collateral securing loans in the Serviced Portfolio

This map shows the percentage distribution by state of the principal amount
of the Serviced Portfolio as of March 31, 1998 based on the location of the
collateral securing the loans. In addition to the locations shown on the map,
approximately 1.0% of the principal amount of the Serviced Portfolio is secured
by collateral located in the Caribbean Islands.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OFFERED HEREBY, INCLUDING OVER-ALLOTMENTS, STABILIZING TRANSACTIONS, SYNDICATE
SHORT COVERING TRANSACTIONS AND PENALTY BIDS. SUCH TRANSACTIONS, IF COMMENCED,
MAY BE DISCONTINUED AT ANY TIME. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY ON THE
NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE
"UNDERWRITING."

2
<PAGE> 3

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere in this Prospectus or incorporated herein by reference.
Unless otherwise indicated, the information set forth herein does not reflect
the exercise of the Underwriters' over-allotment option and has been adjusted to
reflect a 3-for-2 stock split in 1993 and a 5% stock dividend in each of 1994,
1995 and 1996.

THE COMPANY

Litchfield Financial Corporation (the "Company") is a specialty finance
company that provides financing to creditworthy borrowers for assets not
typically financed by banks. The Company provides such financing by purchasing
consumer loans and by making loans to businesses secured by consumer receivables
or other assets.

The Company purchases consumer loans (the "Purchased Loans") consisting
primarily of loans to purchasers of rural and vacation properties ("Land Loans")
and vacation ownership interests popularly known as timeshare interests ("VOI
Loans"). The Company also provides financing to rural land dealers, timeshare
resort developers and other finance companies secured by receivables
("Hypothecation Loans") and to dealers and developers for the acquisition and
development of rural land and timeshare resorts ("A&D Loans"). In addition, the
Company purchases other loans, such as consumer home equity loans and consumer
construction loans, and provides financing to other businesses secured by
receivables or other assets ("Other Loans").

Land Loans are typically secured by one to twenty acre rural parcels. Land
Loans are secured by property located in 35 states, predominantly in the
southern United States. VOI Loans typically finance the purchase of ownership
interests in fully furnished vacation properties. VOI Loans are secured by
property located in 17 states, predominantly in California, Florida and
Pennsylvania. The Company requires most dealers or developers from whom it buys
Purchased Loans to guarantee repayment or replacement of any loan in default.
Ordinarily, the Company retains a percentage of the purchase price as a reserve
until the Purchased Loan is repaid.

The Company extends Hypothecation Loans to land dealers, resort developers
and other finance companies secured by receivables. Hypothecation Loans
typically have advance rates of 75% to 90% of the current balance of the pledged
receivables and variable interest rates based on the prime rate plus 2% to 4%.

The Company also makes A&D Loans to land dealers and resort developers for
the acquisition and development of rural land and timeshare resorts in order to
finance additional receivables generated by the A&D Loans. At the time the
Company makes A&D Loans, it typically receives an exclusive right to purchase or
finance the related consumer receivables generated by the sale of the subdivided
land or timeshare interests. A&D Loans typically have loan to value ratios of
60% to 80% and variable interest rates based on the prime rate plus 2% to 4%.

The principal sources of the Company's revenues are (i) interest and fees
on loans, (ii) gains on sales of loans and (iii) servicing and other fee income.
Gains on sales of loans are based on the difference between the allocated cost
basis of the assets sold and the proceeds received, which includes the fair
value of any assets or liabilities that are newly created as a result of the
transaction. Because a significant portion of the Company's revenue is comprised
of gains realized upon sales of loans, the timing of such sales has a
significant effect on the Company's results of operations. As of March 31, 1998,
the Company had sold $265.0 million of Land Loans, $54.1 million of VOI Loans
and $47.6 million of Hypothecation Loans since its inception.

3
<PAGE> 4
- --------------------------------------------------------------------------------

interest rate of 14.6%. Approximately 96.3% of such loans had fixed rates of
interest. The average principal balance of the Hypothecation Loans in the
Serviced Portfolio was $1,401,000 with a weighted average interest rate of 11.5%
and an average advance rate of 84.0%. Approximately 88.5% of such loans had
variable rates of interest. The average principal balance of the A&D Loans in
the Serviced Portfolio was $545,000 with a weighted average interest rate of
11.6% and an average loan to value ratio of 71%. Approximately 86.1% of such
loans had variable rates of interest. As of March 31, 1998, loans 30 days or
more past due which are not covered by dealer/developer reserves or guarantees
and not included in other real estate owned were 1.20% of the Serviced
Portfolio. For the three months ended March 31, 1998, annualized net charge-offs
were .66% of the average Serviced Portfolio.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company..................... 1,000,000 Shares
Common Stock offered by the Selling Stockholder......... 110,000 Shares
Common Stock to be outstanding after the Offering....... 6,667,751 Shares(1)
Use of proceeds......................................... To repay certain amounts outstanding
under the Company's lines of credit
and for general corporate purposes.
See "Use of Proceeds."
Nasdaq National Market symbol........................... LTCH
</TABLE>

- ---------------
(1) Excludes 752,030 shares issuable upon exercise of outstanding stock options
under the Company's 1990 Stock Option Plan at May 4, 1998, of which options
for 553,138 shares were exercisable as of such date, and 12,864 shares
issuable upon exercise of outstanding stock options under the Company's 1995
Stock Option Plan for Non-Employee Directors at May 4, 1998, of which
options for 12,864 shares were exercisable as of such date. See "Principal
and Selling Stockholders."

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

4
<PAGE> 5

SUMMARY CONSOLIDATED FINANCIAL INFORMATION

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------------- ---------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA(1):
Revenues:
Interest and fees on loans.... $ 4,330 $ 5,669 $ 11,392 $ 14,789 $ 19,374 $ 4,546 $ 5,233
Gain on sale of loans......... 4,550 4,847 5,161 7,331 8,564 1,504 2,227
Servicing and other fee
income...................... 501 459 908 1,576 1,753 357 493
--------- --------- --------- --------- --------- --------- ---------
Total revenues......... 9,381 10,975 17,461 23,696 29,691 6,407 7,953
--------- --------- --------- --------- --------- --------- ---------
Expenses:
Interest expense.............. 2,717 3,158 6,138 7,197 10,675 2,394 2,997
Salaries and employee
benefits.................... 1,350 1,776 2,798 2,824 3,399 813 1,133
Other operating expenses...... 1,017 1,164 2,120 3,147 3,480 903 953
Provision for loan losses..... 620 559 890 1,954 1,400 435 350
--------- --------- --------- --------- --------- --------- ---------
Total expenses......... 5,704 6,657 11,946 15,122 18,954 4,545 5,433
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes and
extraordinary item............ 3,677 4,318 5,515 8,574 10,737 1,862 2,520
Provision for income taxes...... 1,426 1,619 2,066 3,301 4,134 717 970
--------- --------- --------- --------- --------- --------- ---------
Income before extraordinary
item.......................... 2,251 2,699 3,449 5,273 6,603 1,145 1,550
Extraordinary item(2)........... -- (126) -- -- (220) -- --
--------- --------- --------- --------- --------- --------- ---------
Net income............. $ 2,251 $ 2,573 $ 3,449 $ 5,273 $ 6,383 $ 1,145 $ 1,550
========= ========= ========= ========= ========= ========= =========
Basic per common share amounts:
Income before extraordinary
item........................ $ .55 $ .66 $ .80 $ .97 $ 1.19 $ .21 $ .27
Extraordinary item............ -- (.03) -- -- (.04) -- --
--------- --------- --------- --------- --------- --------- ---------
Net income per share... $ .55 $ .63 $ .80 $ .97 $ 1.15 $ .21 $ .27
========= ========= ========= ========= ========= ========= =========
Basic weighted average number of
shares outstanding............ 4,065,688 4,116,684 4,315,469 5,441,636 5,572,465 5,446,679 5,659,756
Diluted per common share
amounts:
Income before extraordinary
item........................ $ .53 $ .63 $ .76 $ .93 $ 1.12 $ .20 $ .26
Extraordinary item............ -- (.03) -- -- (.04) -- --
--------- --------- --------- --------- --------- --------- ---------
Net income per share... $ .53 $ .60 $ .76 $ .93 $ 1.08 $ .20 $ .26
========= ========= ========= ========= ========= ========= =========
Diluted weighted average number
of shares outstanding......... 4,216,151 4,282,884 4,524,607 5,682,152 5,909,432 5,792,078 6,020,158
Cash dividends declared per
common share.................. $ .02 $ .03 $ .04 $ .05 $ .06 $ -- $ --
OTHER STATEMENT OF INCOME DATA:
Income before extraordinary item
as a percentage of revenues... 24.0% 24.6% 19.8% 22.3% 22.3% 17.9% 19.5%
Return on average assets(3)..... 5.0% 4.6% 3.7% 4.0% 3.8% 2.8% 3.1%
Return on average equity(3)..... 17.0% 17.2% 16.6% 13.3% 14.1% 10.6% 11.8%
</TABLE>

- ---------------
(1) Certain amounts in the 1993 through 1996 financial information have been
restated to conform to the 1997 and 1998 presentation.

(2) Reflects loss on early extinguishment of a portion of the Notes issued by
the Company in 1992 (the "1992 Notes"), net of applicable tax benefit of
$76,000, for 1994 and of the remainder of the 1992 Notes, net of applicable
tax benefit of $138,000, for 1997.

(3) The returns on average assets and average equity for the three month
periods are calculated on an annualized basis. Calculations are based on
income before extraordinary item. Historically, the Company's returns
generally have been lower in the first quarter than for the respective
fiscal year as a whole.

5
<PAGE> 6

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(4):
Total assets............................ $54,444 $ 63,487 $112,459 $152,689 $186,790 $210,176
Loans held for sale(5).................. 5,931 11,094 14,380 12,260 16,366 16,246
Other loans(5).......................... 10,306 15,790 33,613 79,996 86,307 116,816
Retained interests in loan sales(5)..... 11,764 11,996 22,594 28,912 30,299 29,937
Secured debt............................ -- 5,823 9,836 43,727 5,387 27,650
Unsecured debt.......................... 32,302 29,896 47,401 46,995 105,347 105,347
Stockholders' equity.................... 14,722 16,610 37,396 42,448 52,071 53,643
OTHER FINANCIAL DATA:
Loans purchased and originated(6)....... $42,410 $ 59,798 $121,046 $133,750 $184,660 $ 67,493
Loans sold(6)........................... 28,099 40,116 65,115 54,936 98,747 18,502
Loans participated(6)................... -- -- -- -- 6,936 1,452
Serviced Portfolio(7)................... 84,360 105,013 176,650 242,445 304,102 338,502
Loans serviced for others............... 59,720 72,731 111,117 129,619 179,790 184,157
Dealer/developer reserves............... 4,926 6,575 9,644 10,628 10,655 10,616
Allowance for loan losses(8)............ 1,064 1,264 3,715 4,528 5,877 6,164
Allowance ratio(9)...................... 1.26% 1.20% 2.10% 1.87% 1.93% 1.82%
Delinquency ratio(10)................... .61% .93% 1.73% 1.34% 1.20% 1.20%
Net charge-off ratio(6)(11)............. .69% .38% .67% .94% .74% .66%
Non-performing asset ratio(12).......... 1.48% 1.02% 1.35% 1.57% 1.03% .84%
</TABLE>

- ---------------
(4) In 1997 the Company adopted Statement of Financial Accounting Standards No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." Consequently, certain amounts included in
the 1993 through 1996 financial statements have been reclassified to
conform with the 1997 and 1998 presentation: "Subordinated passthrough
certificates held to maturity," "Excess servicing asset" and "Allowance for
loans sold" have been reclassified as "Retained interests in loan sales."
In addition, "Loans held for investment" have been reclassified as "Other
loans."

(5) Amount indicated is net of allowance for loan losses.

(6) During the relevant period.

(7) The Serviced Portfolio consists of the principal amount of loans serviced
by or on behalf of the Company, except loans participated without recourse
to the Company.

(8) The allowance for loan losses includes the recourse obligation on retained
interests in loan sales.

(9) The allowance ratio is the allowance for loan losses divided by the amount
of the Serviced Portfolio.

(10) The delinquency ratio is the amount of delinquent loans divided by the
amount of the Serviced Portfolio. Delinquent loans are those which are 30
days or more past due which are not covered by dealer/developer reserves or
guarantees and not included in other real estate owned.

(11) The net charge-off ratio is determined by dividing the amount of net
charge-offs for the period by the average Serviced Portfolio for the
period. The March 31, 1998 amount is calculated on an annualized basis.

(12) The non-performing asset ratio is determined by dividing the sum of the
amount of those loans which are 90 days or more past due and which are not
covered by dealer/developer reserves or guarantees and other real estate
owned by the amount of the Serviced Portfolio.

6
<PAGE> 7

THE COMPANY

Land Loans are typically secured by one to twenty acre rural parcels. Land
Loans are secured by property located in 35 states, predominantly in the
southern United States. VOI Loans typically finance the purchase of ownership
interests in fully furnished vacation properties. VOI Loans are secured by
property located in 17 states, predominantly in California, Florida and
Pennsylvania. The Company requires most dealers or developers from whom it buys
loans to guarantee repayment or replacement of any loan in default. Ordinarily,
the Company retains a percentage of the purchase price as a reserve until the
loan is repaid.

As of March 31, 1998, the Company serviced loans with a principal balance
of $338.5 million (the "Serviced Portfolio"), of which the Company owned $154.3
million. As of March 31, 1998 the Serviced Portfolio was comprised of 52.5%
Purchased Loans, 32.3% Hypothecation Loans, 12.8% A&D Loans and 2.4% Other
Loans. The average principal balance of the Land Loans in the Serviced Portfolio
was $13,200 with a weighted average remaining maturity of 12.1 years and a
weighted average interest rate of 12.0%. Approximately 82.5% of such loans had
fixed rates of interest. The average principal balance of the VOI Loans in the
Serviced Portfolio was $3,500 with a weighted average remaining maturity of 3.8
years and a weighted average interest rate of 14.6%. Approximately 96.3% of such
loans had fixed rates of interest. The average principal balance of the
Hypothecation Loans in the Serviced Portfolio was $1,401,000 with a weighted
average interest rate of 11.5% and an average advance rate of 84.0%.
Approximately 88.5% of such loans had variable rates of interest. The average
principal balance of the A&D Loans in the Serviced Portfolio was $545,000 with a
weighted average interest rate of 11.6% and an average loan to value ratio of
71%. Approximately 86.1% of such loans had variable rates of interest. As of
March 31, 1998, loans 30 days or more past due which are not covered by
dealer/developer reserves or guarantees and not included in other real estate
owned were 1.20% of the Serviced Portfolio. For the three months ended March 31,
1998, annualized net charge-offs were .66% of the average Serviced Portfolio.

7
<PAGE> 8

The Company was founded in November 1988. The Company's strategy has been
to build its Serviced Portfolio by acquiring loan portfolios from rural land
dealers, resort developers and financial institutions and by providing loans to
such dealers, developers and other finance companies secured by receivables. The
Company also provides A&D Loans in order to have the opportunity to finance
additional receivables generated by these A&D loans. As part of its business and
financing strategy, the Company seeks niche markets where its underwriting
expertise and ability to provide value-added services enable it to distinguish
itself from its competitors and earn an attractive rate of return on its
invested capital. Initially, the Company pursued this strategy by financing
consumer Land Loans through a land dealer network and portfolio acquisitions.
Subsequently, the Company extended its strategy to financing consumer VOI Loans
and providing Hypothecation Loans to land dealers and resort developers. In
1995, the Company significantly expanded its financing of VOIs when it acquired
approximately $41.5 million of VOI related loans and assets as part of its
purchase of the Government Employees Financial Corporation ("GEFCO") portfolio.
In 1997 and 1998, the Company has expanded its financing of Hypothecation Loans
to other finance companies secured by other types of receivables, which to date
have included construction loans, tax lien certificates and healthcare
receivables. The Company expects to continue to expand its specialty finance
company lending. These loans may be larger than the Company's average
Hypothecation Loans and may provide the Company an option to take an equity
position in the borrower. The Company's objective is to identify other lending
opportunities or lines of business to diversify its portfolio as it did with VOI
Loans and Hypothecation Loans.

8
<PAGE> 9

RISK FACTORS

In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of Common Stock offered hereby:

General Business Risks. The Company's business is subject to various
business risks. The level of the Company's revenues is dependent upon demand for
the type of loans purchased, sold and serviced by the Company from both
potential borrowers and investors. Future declines in real estate values,
changes in prevailing interest rates and changes in the availability of
attractive returns on alternative investments each could make loans of the type
originated and purchased by the Company less attractive to borrowers and
investors.

Funding and Liquidity. The Company has a constant need for working capital
to fund its lending, purchasing and securitization activities and, as a result,
generally has experienced negative cash flows from operations. Historically, the
Company has funded any negative cash flows from operations by borrowing under
secured lines of credit and issuing long-term debt and equity securities. The
Company's lines of credit are renewable on one to three year bases. The Company
had secured lines of credit totaling $117.5 million with six financial
institutions as of March 31, 1998. Outstanding borrowings on these lines of
credit were $23,125,000 at March 31, 1998. To date, the Company has issued
$122.8 million of long-term debt and has publicly issued $25.6 million of equity
securities.

The Company also has a $150.0 million revolving line of credit and sale
facility as part of an asset backed commercial paper facility with a
multi-seller commercial paper conduit. The facility expires in June 2001. As of
March 31, 1998, the outstanding balance of the sold or pledged loans securing
this facility was $116.6 million. Outstanding borrowings on this facility were
$97,000 at March 31, 1998. The Company has an additional revolving line of
credit and sale facility of $25.0 million with another multi-seller commercial
paper conduit. The facility expires in March 2000. As of March 31, 1998, the
outstanding aggregate balance of the sold or pledged loans under the facility
was $13.3 million.

There can be no assurance that the Company will continue to be able to
obtain financing or raise capital on terms satisfactory to the Company. To the
extent the Company cannot raise additional funds, lack of liquidity could have a
material adverse impact on its operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."

Impact of Economic Cycles. The business risks associated with the
Company's business become more acute in an economic slowdown. Asset values
generally decrease and delinquencies, foreclosures and loan losses generally
increase during economic slowdowns or recessions, and any such future slowdowns
could adversely affect future operations of the Company. See
"Business -- Collections and Delinquencies."

Interest Rate Risk. The Company's interest and fees on loans, gain on sale
of loans and interest expense are affected by changes in interest rates. The
Company could be adversely affected by interest rate increases if its variable
rate liabilities exceed its variable rate assets or if the rates on its variable
rate liabilities increase sooner or to a greater extent than the rates on its
variable rate assets.

The Company seeks to mitigate a portion of its interest rate risk by
attempting to match fixed and variable rate assets and liabilities, instituting
interest rate floors and by entering into interest rate swaps on certain of its
variable rate assets, and purchasing interest rate caps on certain of its
variable rate liabilities. There can be no assurance that the Company's attempts
to mitigate its interest rate risk will be effective.

Competition. The finance business is highly competitive, with competition
occurring primarily on the basis of customer service and the term and interest
rate of the loans. Traditional competitors in the finance business include
commercial banks, credit unions, thrift institutions, industrial banks and other
finance companies, many of which have considerably greater financial, technical
and marketing resources than the Company. There can be no assurance that the
Company will not face increased competition from existing or new financial
institutions and finance companies. In addition, the Company may enter new lines
of business

9
<PAGE> 10

that may be highly competitive and may have competitors with greater financial
resources than the Company. See "Business -- Competition."

Credit Risks. The Company's loans are subject to delinquency and default
risk. General downturns in the economy and other factors beyond the Company's
control may have an adverse effect on the Company's delinquency and default
rates. The Company's A&D Loans and, to a lesser extent, its Hypothecation Loans
have a greater concentration of credit risk due to their larger size and their
development and marketing risk.

The Company's VOI business is subject to certain risks associated with VOI
ownership. Although individual VOI owners are obligated to make payments under
their notes irrespective of any defect in, damage to, or change in conditions of
the vacation resort (such as erosion, construction of adjacent or nearby
properties, or environmental problems) or of any breach of contract by the
property owners association to provide certain services to the VOI borrowers
(including any such breach resulting from a destruction of the resort) or of any
other loss of benefits of ownership of their unit week(s) (including cessation
of the ability of the borrowers to exchange their time intervals in the resort
for time intervals in other unaffiliated resorts), any such material defect,
damage, change, breach of contract, or loss of benefits is likely to result in a
delay in payment or default by a substantial number of the borrowers whose VOIs
are affected. The costs of foreclosure and resale of unit weeks securing
defaulted loans are likely to be substantially higher than such costs for
traditional mortgage loans, and this may materially affect the amounts realized
by the Company on defaulted loans.

Estimates of Future Prepayment and Default Rates. A significant portion of
the Company's revenues historically has been comprised of gains on sales of
loans. The gains are recorded in the Company's revenues and on its balance sheet
(as retained interests on loan sales) at the time of sale, and the amount of
gains recorded is based in part on management's estimates of future prepayment
and default rates and other considerations in light of then-current conditions.
If actual prepayments with respect to loans occur more quickly than was
projected at the time such loans were sold, as can occur when interest rates
decline, interest income would be less than expected and earnings would be
charged in the current period. If actual defaults with respect to loans sold are
greater than estimated, charge-offs would exceed previously estimated amounts
and earnings would be charged in the current period.

Expansion of Business. The Company has increased the number and average
principal amount of its Hypothecation and A&D Loans. A&D Loans are larger
commercial loans to land dealers and resort developers and, consequently, have a
greater concentration of credit risk than the Company's Purchased Loans. A&D
Loans for timeshare resorts are also subject to greater risk because their
repayment depends on the successful completion of the development of the resort
and the subsequent successful sale of a substantial portion of the resort's
timeshare interests. The Company may seek to limit its exposure to any one
developer by participating a portion of an A&D Loan with another lender.

The Company has historically made Hypothecation Loans to land dealers and
resort developers secured by Land Loans and VOI Loans, respectively.
Hypothecation Loans are commercial loans that have significantly larger balances
than the Company's Purchased Loans and, consequently, have a greater
concentration of credit risk which is only partially offset by the lesser
concentration of credit risk of the underlying collateral.

In addition, the Company has recently expanded its marketing of
Hypothecation Loans to include loans to other finance companies secured by other
types of receivables. These loans may be subject to additional risk because the
Company has relatively less experience with these other types of receivables
than with Land Loans or VOI Loans. In addition, these loans may be larger than
the Company's average Hypothecation Loans and may provide the Company with an
option to take an equity position in the borrower.

Fluctuations in Quarterly Results of Operations. Since gains on sales of
loans are a significant portion of the Company's revenues, the timing of loan
sales has a significant effect on the Company's quarterly results of operations,
and the results of one quarter are not necessarily indicative of results for the
next quarter. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

10
<PAGE> 11

Contingent Repurchase Obligations. In connection with certain of the
Company's whole loan sales to investors, the Company has committed to repurchase
such loans that become 90 days past due. These contingent obligations are
subject to various terms and conditions, including limitations on the amounts of
loans which must be repurchased. The Company has also guaranteed payment of
mortgage loans included in certain of its mortgage securitization programs. As
of March 31, 1998, the Company had outstanding contingent repurchase obligations
in the aggregate amount of approximately $9.9 million. In addition, when the
Company sells mortgage loans through mortgage securitization programs, the
Company commits to replace any loans that do not conform to certain
representations and warranties included in the operative loan sale documents.

Third Party Servicer. The Company uses a third party servicer to service
its loans. The third party servicer's systems and controls support the
servicing, collecting and monitoring of the Serviced Portfolio as well as
certain accounting and management functions of the Company. There can be no
assurance that the third party servicer will continue to provide these services
in the future or that its systems and controls will continue to be adequate to
support the Company's growth. A failure of the third party servicer's automated
systems or its controls over data integrity or accuracy could have a material
adverse effect on the Company's operations and financial condition. The Company
expects to resume certain customer service and collection functions during the
third quarter of 1998.

Year 2000 Compliance. The Company uses and is dependent upon a significant
number of computer software programs and operating systems to conduct its
business. The Company believes that substantially all of its operating systems
are year 2000 compliant. To the extent that the Company relies on outside
software vendors, year 2000 compliance matters will not be within the Company's
direct control. In addition, the Company has relationships with vendors,
customers and other third parties that rely on computer software that may not be
year 2000 compliant. There can be no assurance that year 2000 compliance
failures by such third parties will not have a material adverse effect on the
Company's results of operations.

Regulation. The operations of the Company are subject to extensive
regulation by federal, state and local government authorities and are subject to
various laws and judicial and administrative decisions imposing various
requirements and restrictions, including among other things, regulating credit
granting activities, establishing maximum interest rates and finance charges,
requiring disclosures to customers, governing secured transactions and setting
collection, repossession and claims handling procedures and other trade
practices. In addition, certain states have enacted legislation which restricts
the subdivision of rural land and numerous states have enacted regulations in
connection with VOIs. Although the Company believes that its activities are in
compliance in all material respects with applicable federal, state and local
laws, rules and regulations, there can be no assurance that more restrictive
laws, rules and regulations or interpretations thereof will not be adopted in
the future which could make compliance much more difficult or expensive,
restrict the Company's ability to originate, purchase or sell loans, further
limit or restrict the amount of interest and other charges earned under loans
originated or purchased by the Company, or otherwise adversely affect the
business or prospects of the Company. See "Business -- Regulation."

Environmental Liabilities. In the course of its business, the Company has
acquired, and may in the future acquire, properties securing defaulted loans.
Although substantially all of the Company's Land Loans are secured by mortgages
on rural land, there is a risk that hazardous substances or waste could be
discovered on such properties after foreclosure by the Company. In such event,
the Company might be required to remove such substances from the affected
properties at its sole cost and expense. There can be no assurances that the
cost of such removal would not substantially exceed the value of the affected
properties or the loans secured by the properties or that the Company would have
adequate remedies against the prior owner or other responsible parties, or that
the Company would not find it difficult or impossible to sell the affected
properties either prior to or following any such removal.

Dependence on Senior Management. The Company's success depends upon the
continued contributions of its senior management. The loss of services of
certain of the Company's executive officers could have an adverse effect upon
the Company's business. The Company maintains key man insurance on the life of
Richard A. Stratton, its Chief Executive Officer and President.

11
<PAGE> 12

INCORPORATION OF DOCUMENTS BY REFERENCE

The following documents filed by the Company with the Commission pursuant
to the Exchange Act, are incorporated in and made a part of this Prospectus by
reference:

(a) The Company's Annual Report on Form 10-K for the year ended
December 31, 1997.

(b) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998.

(c) The definitive Proxy Statement dated March 24, 1998 for the Annual
Meeting of the Company's stockholders held on April 24, 1998.

All reports and any definitive proxy or information statements filed by the
Company with the Commission pursuant to Sections 13, 14 and 15(d) of the
Exchange Act subsequent to the date of this Prospectus and prior to the
termination of the offering of the shares offered hereby shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents.

Any statement contained in a document incorporated or deemed to be
incorporated herein by reference 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 herein by reference modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.

The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, on the written
or oral request of any such person, a copy of any or all of the documents
incorporated herein by reference (other than exhibits not specifically
incorporated in such documents). Requests for such copies should be directed to
Ronald E. Rabidou, Chief Financial Officer and Treasurer, Litchfield Financial
Corporation, 430 Main Street, Williamstown, MA 01267 (telephone number:
413-458-1000).

FORWARD-LOOKING STATEMENTS

Except for the historical information contained or incorporated by
reference in this Prospectus, the matters discussed or incorporated by reference
herein are forward-looking statements. Such forward-looking statements involve
known and unknown risks, uncertainties and other factors that may cause the
actual results, performance or achievements of the Company, or industry results,
to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the risk factors set forth under "Risk Factors" as well as the
following: general economic and business conditions; industry trends; changes in
business strategy or development plans; availability and quality of management;
and availability, terms and deployment of capital. Special attention should be
paid to such forward-looking statements including, but not limited to,
statements relating to (i) the Company's ability to execute its growth
strategies and to realize its growth objectives and (ii) the Company's ability
to obtain sufficient resources to finance its working capital needs and provide
for its known obligations.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the Common Stock offered
hereby are estimated to be $17,695,000 after deducting the underwriting discount
and estimated offering expenses payable by the Company. It is expected that the
net proceeds of this Offering will be used to repay certain amounts outstanding
under the Company's lines of credit and for general corporate purposes. The
Company will not receive any proceeds from the sale of Common Stock by the
Selling Stockholder.

12
<PAGE> 13

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
March 31, 1998, and as adjusted to reflect the sale of 1,000,000 of the shares
of Common Stock offered hereby by the Company and the application of the net
proceeds as set forth under "Use of Proceeds."

<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------------
ACTUAL AS ADJUSTED
------------ ------------
<S> <C> <C>
Long-term debt:
Notes..................................................... $105,347,000 $105,347,000
Stockholders' equity:
Preferred stock, $.01 par value; authorized 1,000,000
shares, none issued and outstanding.................... -- --
Common stock, $.01 par value; authorized 8,000,000 shares,
5,660,790 shares issued and outstanding (6,667,751
shares issued and outstanding, as adjusted)(1)(2)...... 56,000 66,000
Additional paid in capital................................ 36,727,000 54,677,000
Net unrealized gain on retained interests in loan sales... 1,047,000 1,047,000
Retained earnings......................................... 15,813,000 15,813,000
------------ ------------
Total stockholders' equity............................. 53,643,000 71,603,000
------------ ------------
Total capitalization(3)........................... $158,990,000 $176,950,000
============ ============
</TABLE>

(2) At the Company's Annual Meeting held on April 24, 1998, the stockholders
voted to increase the authorized shares of common stock from 8,000,000 to
12,000,000.

(3) Total capitalization includes total stockholders' equity and total long-term
debt.

13
<PAGE> 14

MARKET PRICE OF AND DIVIDENDS ON COMMON STOCK

The following table sets forth for the periods indicated the high and low
sale prices of the Common Stock as reported by The Nasdaq Stock Market's
National Market under the symbol "LTCH." All share prices have been adjusted for
a 5% stock dividend in each of 1996 and 1995.

On June 18, 1998, the last reported sale price of the Common Stock as
reported by The Nasdaq Stock Market's National Market was $19 1/8 per share. As
of March 12, 1998, the approximate number of holders of record of the Common
Stock was 1,100.

<TABLE>
<CAPTION>
HIGH LOW DIVIDENDS
---- --- ---------
<S> <C> <C> <C>
1995
1st Quarter................................................. $10 7/8 $ 9 5/8 --
2nd Quarter................................................. 12 7/8 10 --
3rd Quarter................................................. 16 12 3/8 --
4th Quarter................................................. 15 1/4 12 3/8 $.04
1996
1st Quarter................................................. 13 5/8 11 --
2nd Quarter................................................. 14 1/4 12 7/8 --
3rd Quarter................................................. 15 11 1/2 --
4th Quarter................................................. 15 12 1/2 $.05
1997
1st Quarter................................................. 16 3/4 14 --
2nd Quarter................................................. 17 13 7/8 --
3rd Quarter................................................. 21 3/4 16 3/8 --
4th Quarter................................................. 21 1/2 16 1/2 $.06
1998
1st Quarter................................................. 24 17 1/2 --
2nd Quarter (through June 18, 1998)......................... 24 19 1/8 --
</TABLE>

The Company paid annual cash dividends of $.06 per share in 1997, $.05 per
share in 1996 and $.04 per share in 1995. In addition, the Company paid a 5%
stock dividend in each of 1996 and 1995. Any declaration and payment of future
dividends will be determined at the discretion of the Board of Directors in
light of then current conditions, including the Company's earnings, financial
condition and cash requirements, restrictions in its debt agreements and other
factors the Board of Directors determines relevant. The Company's outstanding
long-term debt agreements contain certain restrictions on its ability to pay
dividends.

14
<PAGE> 15

SELECTED CONSOLIDATED FINANCIAL INFORMATION

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------------- ---------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA(1):
Revenues:
Interest and fees on loans............... $ 4,330 $ 5,669 $ 11,392 $ 14,789 $ 19,374 $ 4,546 $ 5,233
Gain on sale of loans.................... 4,550 4,847 5,161 7,331 8,564 1,504 2,227
Servicing and other fee income........... 501 459 908 1,576 1,753 357 493
--------- --------- --------- --------- --------- --------- ---------
Total revenues.................... 9,381 10,975 17,461 23,696 29,691 6,407 7,953
--------- --------- --------- --------- --------- --------- ---------
Expenses:
Interest expense......................... 2,717 3,158 6,138 7,197 10,675 2,394 2,997
Salaries and employee benefits........... 1,350 1,776 2,798 2,824 3,399 813 1,133
Other operating expenses................. 1,017 1,164 2,120 3,147 3,480 903 953
Provision for loan losses................ 620 559 890 1,954 1,400 435 350
--------- --------- --------- --------- --------- --------- ---------
Total expenses.................... 5,704 6,657 11,946 15,122 18,954 4,545 5,433
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes and
extraordinary item....................... 3,677 4,318 5,515 8,574 10,737 1,862 2,520
Provision for income taxes................. 1,426 1,619 2,066 3,301 4,134 717 970
--------- --------- --------- --------- --------- --------- ---------
Income before extraordinary item........... 2,251 2,699 3,449 5,273 6,603 1,145 1,550
Extraordinary item(2)...................... -- (126) -- -- (220) -- --
--------- --------- --------- --------- --------- --------- ---------
Net income........................ $ 2,251 $ 2,573 $ 3,449 $ 5,273 $ 6,383 $ 1,145 $ 1,550
========= ========= ========= ========= ========= ========= =========
Basic per common share amounts:
Income before extraordinary item......... $ .55 $ .66 $ .80 $ .97 $ 1.19 $ .21 $ .27
Extraordinary item....................... -- (.03) -- -- (.04) -- --
--------- --------- --------- --------- --------- --------- ---------
Net income per share.............. $ .55 $ .63 $ .80 $ .97 $ 1.15 $ .21 $ .27
========= ========= ========= ========= ========= ========= =========
Basic weighted average number of shares
outstanding.............................. 4,065,688 4,116,684 4,315,469 5,441,636 5,572,465 5,446,679 5,659,756
Diluted per common share amounts:
Income before extraordinary item......... $ .53 $ .63 $ .76 $ .93 $ 1.12 $ .20 $ .26
Extraordinary item....................... -- (.03) -- -- (.04) -- --
--------- --------- --------- --------- --------- --------- ---------
Net income per share.............. $ .53 $ .60 $ .76 $ .93 $ 1.08 $ .20 $ .26
========= ========= ========= ========= ========= ========= =========
Diluted weighted average number of shares
outstanding.............................. 4,216,151 4,282,884 4,524,607 5,682,152 5,909,432 5,792,078 6,020,158
Cash dividends declared per common share... $ .02 $ .03 $ .04 $ .05 $ .06 $ -- $ --

OTHER STATEMENT OF INCOME DATA:
Income before extraordinary item as a
percentage of revenues................... 24.0% 24.6% 19.8% 22.3% 22.3% 17.9% 19.5%
Return on average assets(3)................ 5.0% 4.6% 3.7% 4.0% 3.8% 2.8% 3.1%
Return on average equity(3)................ 17.0% 17.2% 16.6% 13.3% 14.1% 10.6% 11.8%
</TABLE>

- ---------------
(1) Certain amounts in the 1993 through 1996 financial information have been
restated to conform to the 1997 and 1998 presentation.

(2) Reflects loss on early extinguishment of a portion of the 1992 Notes, net
of applicable tax benefit of $76,000, for 1994 and of the remainder of the
1992 Notes, net of applicable tax benefit of $138,000, for 1997.

15
<PAGE> 16

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
------- ------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(4):
Total assets......................................... $54,444 $63,487 $112,459 $152,689 $186,790 $210,176
Loans held for sale(5)............................... 5,931 11,094 14,380 12,260 16,366 16,246
Other loans(5)....................................... 10,306 15,790 33,613 79,996 86,307 116,816
Retained interests in loan sales(5).................. 11,764 11,996 22,594 28,912 30,299 29,937
Secured debt......................................... -- 5,823 9,836 43,727 5,387 27,650
Unsecured debt....................................... 32,302 29,896 47,401 46,995 105,347 105,347
Stockholders' equity................................. 14,722 16,610 37,396 42,448 52,071 53,643

OTHER FINANCIAL DATA:
Loans purchased and originated(6).................... $42,410 $59,798 $121,046 $133,750 $184,660 $ 67,493
Loans sold(6)........................................ 28,099 40,116 65,115 54,936 98,747 18,502
Loans participated(6)................................ -- -- -- -- 6,936 1,452
Serviced Portfolio(7)................................ 84,360 105,013 176,650 242,445 304,102 338,502
Loans serviced for others............................ 59,720 72,731 111,117 129,619 179,790 184,157
Dealer/developer reserves............................ 4,926 6,575 9,644 10,628 10,655 10,616
Allowance for loan losses(8)......................... 1,064 1,264 3,715 4,528 5,877 6,164
Allowance ratio(9)................................... 1.26% 1.20% 2.10% 1.87% 1.93% 1.82%
Delinquency ratio(10)................................ .61% .93% 1.73% 1.34% 1.20% 1.20%
Net charge-off ratio(6)(11).......................... .69% .38% .67% .94% .74% .66%
Non-performing asset ratio(12)....................... 1.48% 1.02% 1.35% 1.57% 1.03% .84%
</TABLE>

- ---------------
(4) In 1997 the Company adopted Statement of Financial Accounting Standards No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." Consequently, certain amounts included in
the 1993 through 1996 financial statements have been reclassified to
conform with the 1997 and 1998 presentation: "Subordinated pass through
certificates held to maturity," "Excess servicing asset" and "Allowance for
loans sold" have been reclassified as "Retained interests in loan sales."
In addition, "Loans held for investment" have been reclassified as "Other
loans."

(5) Amount indicated is net of allowance for loan losses.

(6) During the relevant period.

(7) The Serviced Portfolio consists of the principal amount of loans serviced
by or on behalf of the Company, except loans participated without recourse
to the Company.

(8) The allowance for loan losses includes the recourse obligation on retained
interests in loan sales.

(9) The allowance ratio is the allowance for loan losses divided by the amount
of the Serviced Portfolio.

16
<PAGE> 17

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

OVERVIEW

The Company purchases consumer loans (the "Purchased Loans") consisting
primarily of loans to purchasers of rural and vacation properties ("Land Loans")
and vacation ownership interests popularly known as timeshare interests ("VOI
Loans"). Land Loans are typically secured by one to twenty acre rural parcels.
VOI Loans typically finance the purchase of ownership interests ("VOIs") in
fully furnished vacation properties.

The Company also provides financing to rural land dealers, timeshare resort
developers and other finance companies secured by receivables ("Hypothecation
Loans") and to dealers and developers for the acquisition and development of
rural land and timeshare resorts ("A&D Loans"). In addition, the Company
purchases other loans, such as consumer home equity loans and consumer
construction loans, and provides financing to other businesses secured by
receivables or other assets ("Other Loans").

The principal sources of the Company's revenues are (i) interest and fees
on loans, (ii) gains on sales of loans and (iii) servicing and other fee income.
Gains on sales of loans are based on the difference between the allocated cost
basis of the assets sold and the proceeds received, which includes the fair
value of any assets or liabilities that are newly created as a result of the
transaction. Because a significant portion of the Company's revenues is
comprised of gains realized upon sales of loans, the timing of such sales has a
significant effect on the Company's results of operations.

RESULTS OF OPERATIONS

The following table sets forth the percentage relationship to revenues of
certain items included in the Company's statements of income.

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- --------------
1995 1996 1997 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Interest and fees on loans....................... 65.2% 62.4% 65.3% 70.9% 65.8%
Gain on sale of loans............................ 29.6 30.9 28.8 23.5 28.0
Servicing and other fee income................... 5.2 6.7 5.9 5.6 6.2
----- ----- ----- ----- -----
100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Expenses:
Interest expense................................. 35.2 30.4 36.0 37.3 37.7
Salaries and employee benefits................... 16.0 11.9 11.4 12.7 14.2
Other operating expenses......................... 12.1 13.3 11.7 14.1 12.0
Provision for loan losses........................ 5.1 8.2 4.7 6.8 4.4
----- ----- ----- ----- -----
68.4 63.8 63.8 70.9 68.3
----- ----- ----- ----- -----
Income before income taxes and extraordinary
item............................................. 31.6 36.2 36.2 29.1 31.7
Provision for income taxes......................... 11.8 13.9 13.9 11.2 12.2
----- ----- ----- ----- -----
Income before extraordinary item................... 19.8 22.3 22.3 17.9 19.5
Extraordinary item................................. -- -- (0.8) -- --
----- ----- ----- ----- -----
Net income......................................... 19.8% 22.3% 21.5% 17.9% 19.5%
===== ===== ===== ===== =====
</TABLE>

17
<PAGE> 18

THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997

Revenues increased 24.1% to $7,953,000 for the three months ended March 31,
1998, from $6,407,000 for the same period in 1997. Net income for the three
months ended March 31, 1998 increased 35.4% to $1,550,000 compared to $1,145,000
for the same period in 1997. Loan originations grew 87.2% to $67,493,000 for the
three months ended March 31, 1998 from $36,063,000 for the same period in 1997.
Net income as a percentage of revenues increased to 19.5% for the three months
ended March 31, 1998 from 17.9% for the same period in 1997. The Serviced
Portfolio increased 32.1% to $338,502,000 at March 31, 1998 from $256,192,000 at
March 31, 1997.

Interest and fees on loans increased 15.1% to $5,233,000 for the three
months ended March 31, 1998 from $4,546,000 for the same period in 1997,
primarily as the result of the higher average balance of other loans during the
1998 periods. The average rate earned on the Serviced Portfolio decreased to
12.0% at March 31, 1998 from 12.4% at March 31, 1997, primarily due to the
effect of the growth in Hypothecation Loans as a percentage of the portfolio.
Hypothecation Loan yields are usually less than Land Loan or VOI Loan yields,
but Hypothecation Loans servicing costs and loan losses are generally less as
well.

Gain on the sale of loans increased 48.1% to $2,227,000 for the three
months ended March 31, 1998 from $1,504,000 in the same period in 1997. The
volume of loans sold increased 53.6% to $18,502,000 for the three months ended
March 31, 1998 from $12,043,000 during the corresponding period in 1997
primarily due to the growth in originations.

Servicing and other fee income increased 38.1% to $493,000 for the three
months ended March 31, 1998, from $357,000 for the same period in 1997 mostly
due to the increase in the other fee income resulting from the collection of a
significant prepayment penalty from a Hypothecation Loan. Although loans
serviced for others increased 40.4% to $184,157,000 as of March 31, 1998 from
$131,162,000 at March 31, 1997, servicing income remained relatively constant
due to an increase in Hypothecation Loans serviced for others and a decrease in
the average servicing fee per loan.

Interest expense increased 25.2% to $2,997,000 during the three months
ended March 31, 1998 from $2,394,000 for the same period in 1997. The increase
in interest expense primarily reflects an increase in average borrowings. During
the three months ended March 31, 1998, borrowings averaged $119,122,000 at an
average rate of 8.9% as compared to $98,952,000 at an average rate of 8.9%
during the same period in 1997. Interest expense includes the amortization of
deferred debt issuance costs.

Salaries and employee benefits increased 39.4% $1,133,000 for the three
months ended March 31, 1998 from $813,000 for the same period in 1997 because of
an increase in the number of employees in 1998 and, to a lesser extent, an
increase in salaries. Personnel costs as a percentage of revenues increased to
14.2% for the three months ended March 31, 1998 compared to 12.7% for the same
period in 1997. As a percentage of the Serviced Portfolio, personnel costs
increased to 1.34% for the three months ended March 31, 1998 from 1.27% for the
same period in 1997.

Other operating expenses increased 5.5% to $953,000 for the three months
ended March 31, 1998 from $903,000 for the same period in 1997. As a percentage
of revenues, other operating expenses decreased to 12.0% for the three months
ended March 31, 1998 compared to 14.1% for the corresponding period in 1997. As
a percentage of the Serviced Portfolio, other operating expenses decreased to
1.13% for the three months ended March 31, 1998 from 1.41% for the same period
in 1997.

During the three months ended March 31, 1998, the provision for loan losses
decreased 19.5% to $350,000 from $435,000 for the same period in 1997. The
provision for loan losses decreased because of the growth in Hypothecation Loans
as a percentage of the Serviced Portfolio. Hypothecation Loans have experienced
significantly lower delinquency and default rates than Purchased Loans.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

Revenues increased 25.3% to $29,691,000 for the year ended December 31,
1997, from $23,696,000 for the year ended December 31, 1996. Net income for 1997
increased 21.1% to $6,383,000 compared to

18
<PAGE> 19

$5,273,000 in 1996. Net income as a percentage of revenues was 21.5% for the
year ended December 31, 1997 compared to 22.3% for the year ended December 31,
1996. Loan purchases and originations grew 38.1% to $184,660,000 in 1997 from
$133,750,000 in 1996. The Serviced Portfolio increased 25.4% to $304,102,000 at
December 31, 1997 from $242,445,000 at December 31, 1996.

Interest and fees on loans increased 31.0% to $19,374,000 in 1997 from
$14,789,000 in 1996, primarily as the result of the higher average balance of
loans held for sale and other loans during 1997. The average rate earned on
loans owned and retained interests in loan sales decreased to 12.2% for the year
ended December 31, 1997 from 12.5% for the year ended December 31, 1996,
primarily due to the effect of the growth in Hypothecation Loans and A&D Loans
as a percentage of the Serviced Portfolio. Hypothecation Loan and A&D Loan
yields are usually less than Land Loan or VOI Loan yields, but servicing costs
and loan losses are generally less as well.

Gain on the sale of loans increased 16.8% to $8,564,000 in 1997 from
$7,331,000 in 1996. The volume of loans sold increased 79.7% to $98,747,000 for
the year ended 1997 from $54,936,000 for the same period in 1996. Gain on sale
of loans increased less than the volume of loans sold for the year ended
December 31, 1997 primarily due to the lower yield on the sale of Hypothecation
Loans in 1997 and, to a lesser extent, the lower amount of discount relating to
loans sold. The yield on the sale of Hypothecation Loans is significantly less
than the typical yield on sales of consumer receivables primarily due to shorter
average maturities and the nature of the underlying collateral.

Servicing and other fee income increased 11.2% to $1,753,000 for the year
ended December 31, 1997, from $1,576,000 for the year ended December 31, 1996
mostly due to the increase in other fee income resulting from the collection of
significant prepayment penalties from a Hypothecation Loan and an A&D Loan in
1997. Although loans serviced for others increased 38.7% to $179,790,000 at
December 31, 1997 from $129,619,000 at December 31, 1996, servicing income
remained relatively constant due to a decrease in the average servicing fee per
loan primarily as the result of the decrease in the number of purchased VOI
Loans in the Serviced Portfolio.

Interest expense increased 48.3% to $10,675,000 for 1997, from $7,197,000
in 1996. The increase in interest expense primarily reflects an increase in
average borrowings that were only partially offset by a decrease in average
rates. During the year ended December 31, 1997, borrowings averaged $107,900,000
at an average rate of 9.1% compared to $71,800,000 and 9.3%, respectively,
during 1996. Interest expense includes the amortization of deferred debt
issuance costs.

Salaries and employee benefits increased 20.4% to $3,399,000 for the year
ended December 31, 1997 from $2,824,000 for the year ended December 31, 1996
because of an increase in the number of employees and, to a lesser extent, an
increase in salaries. The number of full time equivalents increased to 71 at
December 31, 1997 compared to 57 at December 31, 1996. Personnel costs as a
percentage of revenues decreased slightly to 11.4% for the year ended December
31, 1997 compared to 11.9% in 1996. As a percentage of the Serviced Portfolio,
personnel costs decreased to 1.12% for the year ended December 31, 1997 from
1.16% for the same period in 1996.

Other operating expenses increased 10.6% to $3,480,000 for the year ended
December 31, 1997 from $3,147,000 for the same period in 1996 primarily as the
result of the growth in the Serviced Portfolio. As a percentage of revenues,
other operating expenses decreased to 11.7% in 1997 compared to 13.3% in 1996.
As a percentage of the Serviced Portfolio, other operating expenses decreased to
1.14% for 1997 from 1.30% for 1996.

During 1997, the provision for loan losses decreased 28.4% to $1,400,000
from $1,954,000 in 1996. The provision for loan losses decreased despite the
increase in loans owned and retained interests in loans sold because of the
growth in Hypothecation Loans as a percentage of the Serviced Portfolio.
Hypothecation Loans have experienced significantly lower delinquency and default
rates than Purchased Loans.

19
<PAGE> 20

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

Revenues increased 35.7% to $23,696,000 for the year ended December 31,
1996, from $17,461,000 for the year ended December 31, 1995. Net income for the
year ended December 31, 1996 increased 52.9% to $5,273,000 compared to
$3,449,000 in 1995. Net income as a percentage of revenues was 22.3% for the
year ended December 31, 1996 compared to 19.8% for the year ended December 31,
1995. Loan originations grew 10.5% to $133,750,000 in 1996 from $121,046,000 in
1995. Excluding the 1995 purchase of $41,500,000 of loans from the Government
Employees Financial Corporation ("GEFCO"), originations increased 68.1%. The
Serviced Portfolio increased 37.2% to $242,445,000 at December 31, 1996 from
$176,650,000 at December 31, 1995.

Interest and fees on loans increased 29.8% to $14,789,000 in 1996 from
$11,392,000 in 1995, primarily as the result of increases in loans held for
investment, subordinated pass-through certificates and fees related to
Hypothecation Loan originations. The average rate earned on loans owned and
subordinated pass-through certificates decreased to 12.5% for the year ended
December 31, 1996 from 13.2% in 1995, primarily due to the effect of the growth
in Hypothecation Loans as a percentage of the loan portfolio. Hypothecation Loan
yields are usually less than Land Loan or VOI Loan yields, but Hypothecation
Loan servicing costs and loan losses are generally less as well.

Gain on the sale of loans increased 42.0% to $7,331,000 in 1996 from
$5,161,000 in 1995. The volume of loans sold decreased 15.6% to $54,936,000 for
the year ended 1996 from $65,115,000 in 1995. The primary reason for the
increase in the gain on sale of loans despite the decrease in the volume of
loans sold was that the Company did not recognize any gain on the sale of
$27,155,000 of VOI Loans purchased from GEFCO in the second quarter of 1995.

Loans serviced for others increased 16.7% to $129,619,000 at December 31,
1996 from $111,117,000 at December 31, 1995. Servicing and other fee income
increased 73.6% to $1,576,000 for the year ended December 31, 1996, from
$908,000 in 1995 because of the higher average Serviced Portfolio in 1996. In
connection with the Company's continued growth, the Company decided to
subcontract its servicing rights in order to avoid incurring additional fixed
overhead costs associated with such servicing. Accordingly, the Company
subcontracted to an unaffiliated third party the servicing of VOI Loans in 1995
and the remaining loans in April 1996.

Interest expense increased 17.3% to $7,197,000 for the year ended December
31, 1996, from $6,138,000 in 1995. The increase in interest expense primarily
reflects an increase in average borrowings which was only partially offset by a
decrease in average rates. During the year ended December 31, 1996, borrowings
averaged $71,800,000 at an average rate of 9.3% as compared to $60,500,000 and
9.7%, respectively, during 1995. Interest expense includes the amortization of
deferred debt issuance costs.

Salaries and employee benefits remained relatively constant at $2,824,000
for the year ended December 31, 1996 from $2,798,000 in 1995 despite increases
in incentive compensation, salaries and the average number of employees in 1996.
The average number of employees increased to 56 in 1996 from 45 in 1995,
primarily as the result of the GEFCO acquisition. The number of full time
equivalents increased to 57 at December 31, 1996 compared to 55 at December 31,
1995. The small increase in the number of full-time equivalents despite the
significant growth in originations and the Serviced Portfolio described above is
partially the result of subcontracting servicing to a third party. As a result,
personnel costs as a percentage of revenues decreased to 11.9% for the year
ended December 31, 1996 compared to 16.0% in 1995.

Other operating expenses increased 48.4% to $3,147,000 for the year ended
December 31, 1996 from $2,120,000 for the same period in 1995 primarily as the
result of the subcontracting of servicing to a third party. As a percentage of
revenues, other operating expenses increased to 13.3% in 1996 compared to 12.1%
in 1995.

During 1996, the Company increased its provision for loan losses 119.6% to
$1,954,000 from $890,000 in 1995, primarily as the result of the overall
increase in the Serviced Portfolio as well as the proportionate increase in the
percentage of nonguaranteed loans in the Serviced Portfolio. Historically, the
loan loss rate for nonguaranteed loans has been higher than the rate for
guaranteed loans.
20
<PAGE> 21

LIQUIDITY AND CAPITAL RESOURCES

The Company's business requires continued access to short and long-term
sources of debt financing and equity capital. The Company's principal cash
requirements arise from loan originations, repayment of debt on maturity,
payments of operating and interest expenses and loan repurchases. The Company's
primary sources of liquidity are loan sales, short-term borrowings under secured
lines of credit, long-term debt and equity offerings and cash flows from
operations.

Since its inception, the Company has sold $366,700,000 of loans at face
value ($348,198,000 through December 31, 1997). The principal amount remaining
on the loans sold was $184,157,000 at March 31, 1998 and $179,790,000 at
December 31, 1997. In connection with certain loan sales, the Company commits to
repurchase from investors any loans that become 90 days or more past due. This
obligation is subject to various terms and conditions, including, in some
instances, a limitation on the amount of loans that may be required to be
repurchased. There were approximately $9,940,000 of loans at March 31, 1998
which the Company could be required to repurchase in the future should such
loans become 90 days or more past due. The Company repurchased $118,000 and
$335,000 of loans under the recourse provisions of loan sales during the three
months ended March 31, 1998 and 1997, respectively. As of March 31, 1998,
$22,751,000 of the Company's cash was restricted as credit enhancement for
certain securitization programs. To date, the Company has sold participations in
$8,388,000 of A&D and Other Loans without recourse to the Company ($6,936,000
through December 31, 1997).

The Company funds its loan purchases in part with borrowings under various
lines of credit. Lines are paid down when the Company receives the proceeds from
the sale of the loans or when cash is otherwise available. These lines of credit
totaled $116,000,000 at March 31, 1998 and December 31, 1997. Outstanding
borrowings on these lines of credit were $22,627,000 at March 31, 1998, and none
at December 31, 1997. At March 31, 1998 and December 31, 1997, lines of credit
also included a $1,500,000 construction mortgage loan, under which there were
outstanding borrowings of $498,000 and $8,000, respectively. Interest rates on
these lines of credit range from the Eurodollar or LIBOR rate plus 2% to the
prime rate plus 1.25%. The Company is not required to maintain compensating
balances or forward sales commitments under the terms of these lines of credit.

The Company also finances its loan purchases with two revolving line of
credit and sale facilities as part of asset backed commercial paper facilities
with multi-seller commercial paper issuers. Such facilities totaled $150,000,000
at March 31, 1998 and December 31, 1997. In May 1998, one of the facilities,
totalling $125,000,000, was increased to $150,000,000, and the term was extended
from June 1998 to June 2001. As of March 31, 1998 and December 31, 1997, the
outstanding balances of loans sold or pledged under these facilities were
$129,873,000 and $121,142,000, respectively. Outstanding borrowings under these
lines of credit were $97,000 at March 31, 1998 and $169,000 at December 31,
1997. Interest is payable on these lines of credit based on certain commercial
paper rates.

The Company also finances its liquidity needs with long-term debt.
Long-term debt totaled $105,347,000 at March 31, 1998 and December 31, 1997.

The Company also has a term note payable monthly based on the collection of
the underlying collateral. The note is currently redeemable only with the
approval of the noteholder. The note is collateralized by certain of the
Company's retained interests in loan sales and cash. The balance outstanding on
the note was $4,428,000 and $5,210,000 at March 31, 1998 and December 31, 1997,
respectively.

In June 1997, the Company entered into two interest rate swap agreements.
The swap agreements involve the payment of interest to the counterparty at the
prime rate on a notional amount of $110,000,000 and the receipt of interest at
the commercial paper rate plus a spread and the LIBOR rate plus a spread on
notional amounts of $80,000,000 and $30,000,000, respectively. The swap
agreements expire in June 2000. There is no exchange of the notional amounts
upon which interest payments are based.

Historically, the Company has not required major capital expenditures to
support its operations.

21
<PAGE> 22

CREDIT QUALITY AND ALLOWANCES FOR LOAN LOSSES

The Company maintains allowances for loan losses and recourse obligations
on retained interests in loan sales at levels which, in the opinion of
management, provide adequately for current and estimated future losses on such
assets. Past-due loans (loans 30 days or more past due which are not covered by
dealer/developer reserves and guarantees and not included in other real estate
owned) as a percentage of the Serviced Portfolio remained constant at 1.20% as
of March 31, 1998 compared with December 31, 1997, and decreased compared with
1.34% at March 31, 1997. Management evaluates the adequacy of the allowances on
a quarterly basis by examining current delinquencies, the characteristics of the
accounts, the value of the underlying collateral, and general economic
conditions and trends. Management also evaluates the extent to which
dealer/developer reserves and guarantees can be expected to absorb loan losses.
When the Company does not receive guarantees on loan portfolios purchased, it
adjusts its purchase price to reflect anticipated losses and its required yield.
This purchase adjustment is recorded as an increase in the allowance for loan
losses and is used only for the respective portfolio. A provision for loan
losses is recorded in an amount deemed sufficient by management to maintain the
allowances at adequate levels. Total allowances for loan losses and recourse
obligations on retained interests in loan sales increased to $6,164,000 at March
31, 1998 compared to $5,877,000 at December 31, 1997. The allowance ratio (the
allowances for loan losses divided by the amount of the Serviced Portfolio) at
March 31, 1998 decreased slightly to 1.82% from 1.93% at December 31, 1997.

As part of the Company's financing of Purchased Loans, arrangements are
entered into with dealers and resort developers, whereby reserves are
established to protect the Company from potential losses associated with such
loans. As part of the Company's agreement with the dealers and resort
developers, a portion of the amount payable to each dealer and resort developer
for a Purchased Loan is retained by the Company and is available to the Company
to absorb loan losses for those loans. The Company negotiates the amount of the
reserves with the dealers and developers based upon various criteria, two of
which are the financial strength of the dealer or developer and credit risk
associated with the loans being purchased. Dealer/developer reserves amounted to
$10,616,000 and $10,655,000 at March 31, 1998 and December 31, 1997,
respectively. The Company generally returns any excess reserves to the
dealer/developer on a quarterly basis as the related loans are repaid by
borrowers.

IMPACT OF YEAR 2000

As the year 2000 approaches, an issue impacting all companies has emerged
regarding how existing application software programs and operating systems can
accommodate this date value. Substantially all of the Company's operating
systems are already year 2000 compliant. The Company does not expect to incur
any significant additional costs to make its remaining applications year 2000
compliant.

INFLATION

Inflation has not had a significant effect on the Company's operating
results to date.

22
<PAGE> 23

BUSINESS

OVERVIEW

The Company purchases and services Land Loans which are typically secured
by one to twenty acre rural parcels. The Company also purchases and services VOI
Loans which finance the purchase of ownership interests in a fully furnished
vacation property. The Company makes Hypothecation Loans to rural land dealers
and resort developers and other businesses secured by receivables. The Company
also makes A&D Loans to rural land dealers and resort developers in order to
finance additional receivables generated by these A&D Loans. The Company sells
substantially all the Land Loans and VOI Loans it purchases and certain of the
Hypothecation Loans it originates either as whole loans or securitizations. The
principal sources of the Company's revenues are (i) interest and fees on loans,
(ii) gains from the sale of loans and (iii) servicing and other fee income.
Because a significant portion of the Company's revenues is comprised of gains
realized upon sales of loans, the timing of such sales has a significant effect
on the Company's results of operations.

CHARACTERISTICS OF THE SERVICED PORTFOLIO, LOAN PURCHASES AND ORIGINATIONS

The following table shows the growth in the diversity of the Serviced
Portfolio from primarily Purchased Loans to a mix of Purchased Loans,
Hypothecation Loans, A&D Loans and Other Loans:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
----- ----- ----- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Purchased Loans......................... 89.0% 85.3% 81.6% 67.1% 56.6% 52.5%
Hypothecation Loans..................... 5.0 9.0 12.5 20.7 26.9 32.3
A&D Loans............................... 4.3 3.3 3.1 8.7 13.7 12.8
Other Loans............................. 1.7 2.4 2.8 3.5 2.8 2.4
----- ----- ----- ----- ----- -----
Total......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== ===== =====
</TABLE>

The following table shows the growth in the diversity of the Company's
originations from primarily Purchased Loans to a mix of Purchased Loans,
Hypothecation Loans, A&D Loans and Other Loans:

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------- --------------
1993 1994 1995 1996 1997 1997 1998
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Purchased Loans................... 77.8% 67.6% 71.4% 49.9% 30.3% 34.6% 25.8%
Hypothecation Loans............... 11.8 22.2 20.9 29.6 37.1 46.7 58.2
A&D Loans......................... 7.1 6.0 3.1 14.4 24.0 5.7 11.5
Other Loans....................... 3.3 4.2 4.6 6.1 8.6 13.0 4.5
----- ----- ----- ----- ----- ----- -----
Total................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== ===== ===== =====
</TABLE>

(1) Purchased Loans

The Company provides indirect financing to consumers through a large number
of experienced land dealers and resort developers from which it regularly
purchases land loans and VOI loans. The dealers and resort developers make loans
to consumers generally using the Company's standard forms and subject to the
Company's underwriting criteria. The Company then purchases such loans from the
land dealers and resort developers on an individually approved basis in
accordance with its credit guidelines.

Each land dealer and resort developer from whom the Company purchases loans
is interviewed by the Company's management and approved by its credit committee.
Management evaluates each land dealer's and resort developer's experience,
financial statements and credit references and personally inspects a substantial
portion of the land dealer's and resort developer's inventory of land and VOIs
prior to approval of loan purchases.

23
<PAGE> 24

In order to enhance the creditworthiness of loans purchased from land
dealers and resort developers, the Company typically requires land dealers and
resort developers to guarantee payment of the loans and typically retains a
portion of the amount payable by the Company to each land dealer and resort
developer on purchase of the loan. The retained portion, or reserve, is released
to the land dealer or resort developer as the related loan is repaid.

Prior to purchasing land loans or VOI loans, the Company evaluates the
credit and payment history of each borrower in accordance with its underwriting
guidelines, performs borrower interviews on a sample of loans, reviews the
documentation supporting the loans for completeness and obtains an appropriate
opinion from local legal counsel. The Company purchases only those loans which
meet its credit standards.

The Company also purchases portfolios of seasoned loans primarily from land
dealers and resort developers. The land dealers or resort developers typically
guarantee the loans sold and the Company typically withholds a reserve as
described above. Management believes that the portfolio acquisition program is
attractive to land dealers and resort developers because it provides them with
liquidity to purchase additional inventory. The Company also purchases
portfolios of seasoned loans from financial institutions and others. Sellers
generally do not guarantee such loans, but the Company sets aside a portion of
the purchase discount as an allowance for future loan losses.

In evaluating such seasoned portfolios, the Company conducts its normal
review of the borrower's documentation, payment history and underlying
collateral. However, the Company may not always be able to reject individual
loans.

The Company's portfolio of Purchased Loans is secured by property located
in 38 states.

<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF LOANS
-------------------------------------------------
DECEMBER 31,
------------------------------------ MARCH 31,
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Southwest...................................... 18% 19% 16% 26% 30% 31%
South.......................................... 33 37 31 31 31 30
West........................................... 2 3 20 20 17 19
Mid-Atlantic................................... 17 16 16 10 10 9
Northeast...................................... 30 25 17 13 12 11
--- --- --- --- --- ---
Total................................ 100% 100% 100% 100% 100% 100%
=== === === === === ===
</TABLE>

a. Land Loans

Dealers from whom the Company purchases Land Loans are typically
closely-held firms with annual revenues of less than $3.0 million. Dealers
generally purchase large rural tracts (generally 100 or more acres) from farmers
or other owners and subdivide the property into one to twenty acre parcels for
resale to consumers. Generally the subdivided property is not developed
significantly beyond the provision of graded access roads. In recreational
areas, sales are made primarily to urban consumers who wish to use the property
for a vacation or retirement home or for recreational purposes such as fishing,
hunting or camping. In other rural areas, sales are more commonly made to
persons who will locate a manufactured home on the parcel. The aggregate
principal amount of Land Loans purchased from individual dealers during the
three months ended March 31, 1998 varied significantly from a low of
approximately $9,000 to a high of approximately $2.0 million. As of March 31,
1998 and December 31, 1997, the five largest dealers accounted for approximately
18.0% and 18.4%, respectively, of the principal amount of the Land Loans in the
Serviced Portfolio. No single dealer accounted for more than 5.0% at March 31,
1998 or at December 31, 1997.

As of March 31, 1998 and December 31, 1997, 44.7% and 47.0%, respectively,
of the Serviced Portfolio consisted of Land Loans. The average principal balance
of such Land Loans was approximately $13,200 and

24
<PAGE> 25

$13,000, respectively. The following table sets forth as of March 31, 1998 the
distribution of Land Loans in the Company's Serviced Portfolio:

<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
PRINCIPAL PRINCIPAL NUMBER OF NUMBER OF
PRINCIPAL BALANCE AMOUNT AMOUNT LOANS LOANS
----------------- ------------ ------------- --------- -------------
<S> <C> <C> <C> <C>
Less than $10,000........................ $ 27,448,000 18.1% 5,198 45.5%
$10,000-$19,999.......................... 58,650,000 38.7 4,120 36.0
$20,000 and greater...................... 65,325,000 43.2 2,118 18.5
------------ ----- ------ -----
Total.......................... $151,423,000 100.0% 11,436 100.0%
============ ===== ====== =====
</TABLE>

As of March 31, 1998 and December 31, 1997, the weighted average interest
rate of the Land Loans included in the Company's Serviced Portfolio was 12.0%
and 12.1%, respectively. The weighted average remaining maturity was 12.1 years
at March 31, 1998 and December 31, 1997. The following table sets forth as of
March 31, 1998 the distribution of interest rates payable on the Land Loans:

<TABLE>
<CAPTION>
PERCENTAGE OF
PRINCIPAL
INTEREST RATE PRINCIPAL AMOUNT AMOUNT
------------- ---------------- -------------
<S> <C> <C>
Less than 12.0%............................................. $ 55,256,000 36.5%
12.0%-13.9%................................................. 70,131,000 46.3
14.0% and greater........................................... 26,036,000 17.2
------------ -----
Total............................................. $151,423,000 100.0%
============ =====
</TABLE>

As of March 31, 1998 and December 31, 1997, the Company's Land Loan
borrowers resided in 50 states, the District of Columbia and two territories or
foreign countries.

b. VOI Loans

The Company purchases VOI Loans from various resort developers. The Company
generally targets small to medium size resorts with completed amenities and
established property owners associations. These resorts participate in programs
that permit purchasers of VOIs to exchange their timeshare intervals for
timeshare intervals in other resorts around the world. During the three months
ended March 31, 1998, the Company acquired approximately $772,000 of VOI Loans.
As of March 31, 1998 and December 31, 1997, the five largest developers
accounted for approximately 37.1% and 36.6%, respectively, of the principal
amount of the VOI Loans in the Serviced Portfolio, and no single developer
accounted for more than 9.2% and 9.0%, respectively.

As of March 31, 1998 and December 31, 1997, 7.8% and 9.6%, respectively, of
the Serviced Portfolio consisted of VOI Loans. The average principal balance of
such VOI Loans was approximately $3,500 and $3,600, respectively. The following
table sets forth as of March 31, 1998 the distribution of VOI Loans.

<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
PRINCIPAL PRINCIPAL NUMBER OF NUMBER OF
PRINCIPAL BALANCE AMOUNT AMOUNT LOANS LOANS
----------------- ----------- ------------- --------- -------------
<S> <C> <C> <C> <C>
Less than $4,000.......................... $ 9,442,000 35.9% 4,606 61.7%
$4,000-$5,999............................. 8,654,000 32.9 1,754 23.5
$6,000 and greater........................ 8,192,000 31.2 1,100 14.8
----------- ----- ----- -----
Total........................... $26,288,000 100.0% 7,460 100.0%
=========== ===== ===== =====
</TABLE>

As of March 31, 1998 and December 31, 1997, the weighted average interest
rate of the VOI Loans included in the Company's Serviced Portfolio was 14.6% and
the weighted average remaining maturity was 3.8

25
<PAGE> 26

years and 3.7 years, respectively. The following table sets forth as of March
31, 1998 the distribution of interest rates payable on the VOI Loans:

<TABLE>
<CAPTION>
PERCENTAGE OF
PRINCIPAL
INTEREST RATE PRINCIPAL AMOUNT AMOUNT
------------- ---------------- -------------
<S> <C> <C>
Less than 14.0%............................................. $10,906,000 41.5%
14.0%-15.9%................................................. 6,862,000 26.1
16.0% and greater........................................... 8,520,000 32.4
----------- -----
Total..................................................... $26,288,000 100.0%
=========== =====
</TABLE>

As of March 31, 1998 and December 31, 1997, the Company's VOI borrowers
resided in 50 states, the District of Columbia and four territories or foreign
countries.

(2) Hypothecation Loans

The Company extends Hypothecation Loans to land dealers and resort
developers and other businesses secured by receivables. The Company has recently
expanded its marketing of Hypothecation Loans to include loans to other finance
companies secured by other types of collateral. These loans may be larger than
the Company's average Hypothecation Loans and may provide the Company with an
option to take an equity position in the borrower. During the three months ended
March 31, 1998, the Company extended or acquired approximately $39.2 million of
Hypothecation Loans, of which $1.6 million, or 4.1%, were secured by Land Loans,
$14.9 million, or 38.0%, were secured by VOI Loans and $22.7 million, or 57.9%,
were secured by other types of collateral.

The Company typically extends Hypothecation Loans based on advance rates of
75% to 90% of the eligible receivables which serve as collateral. The Company's
Hypothecation Loans are typically made at variable rates based on the prime rate
of interest plus 2% to 4%. As of March 31, 1998 and December 31, 1997, the
Company had $109.3 million and $81.9 million of Hypothecation Loans outstanding,
none of which were 30 days or more past due. During the three months ended March
31, 1998, the Company acquired a $17.0 million participation interest in an
Hypothecation Loan from another financial institution. As planned, subsequent to
March 31, 1998, the Company purchased the underlying receivables, which the
Company will classify as Other Loans in future periods. The proceeds of the
receivables purchased were applied to pay off the Company's participation
interest. At March 31, 1998, Hypothecation Loans, excluding the participation
interest described above, ranged in size from $6,900 to $10.4 million with an
average principal balance of $1,198,000. At December 31, 1997, Hypothecation
Loans ranged in size from $7,800 to $8.7 million with an average balance of
$1,204,000. The five largest Hypothecation Loans, excluding the participation
interest described above, represented 10.3% and 10.7% of the Serviced Portfolio
at March 31, 1998 and December 31, 1997, respectively.

(3) A&D Loans

The Company also makes A&D Loans to dealers and developers for the
acquisition and development of rural and timeshare resorts in order to finance
additional receivables generated by the A&D Loans. During the three months ended
March 31, 1998, the Company made $7.8 million of A&D Loans to land dealers and
resort developers, of which $1.7 million, or 21.8%, were secured by land and
$6.1 million, or 78.2%, were secured by resorts.

The Company generally makes A&D Loans to land dealers and resort developers
based on loan to value ratios of 60% to 80% at variable rates based on the prime
rate plus 2% to 4%. As of March 31, 1998 and December 31, 1997, the Company had
$43.1 million and $41.7 million, respectively, of A&D Loans outstanding, none of
which were 30 days or more past due. At March 31, 1998 and December 31, 1997,
A&D Loans were secured by timeshare resort developments and rural land
subdivisions in 20 states and one foreign territory and 18 states and one
foreign territory, respectively. A&D Loans ranged in size from $1,800 to $8.1
million with an average principal balance of $545,000 at March 31, 1998. A&D
Loans ranged in size from

26
<PAGE> 27

$7,800 to $7.3 million with an average principal balance of $622,000 at December
31, 1997. The five largest A&D Loans represented 5.5% and 6.1%, of the Serviced
Portfolio at March 31, 1998 and December 31, 1997, respectively.

(4) Other Loans

At March 31, 1998, Other Loans consisted primarily of consumer home equity
loans, consumer construction loans and other secured commercial loans.
Historically, the Company has made or acquired certain other secured and
unsecured loans to identify additional lending opportunities or lines of
business for possible future expansion as it did with VOI Loans and
Hypothecation Loans. Subsequent to March 31, 1998, the Company purchased 232
builder construction loans totalling $32.7 million, a portion of which had
previously been collateral for the Hypothecation Loan in which the Company owned
a participation interest as described above. The Company expects to purchase
additional builder construction loans from finance companies from time to time
in the future. The Company had $8.4 million and $8.5 million of such Other
Loans, 0.62% and 1.97% of which were 90 days or more past due at March 31, 1998
and December 31, 1997, respectively. At March 31, 1998, Other Loans ranged in
size from less than $500 to $158,000 with an average principal balance of
$16,000. At December 31, 1997, Other Loans ranged in size from less than $500 to
$151,000 with an average principal balance of $13,800. The five largest Other
Loans represent 0.2% of the Serviced Portfolio at March 31, 1998 and December
31, 1997.

LOAN UNDERWRITING

The Company has established loan underwriting criteria and procedures
designed to reduce credit losses on its Serviced Portfolio. The loan
underwriting process includes reviewing each borrower's credit history. In
addition, the Company's underwriting staff routinely conducts telephone
interviews with a sample of borrowers. The primary focus of the Company's
underwriting is to assess the likelihood that the borrower will repay the loan
as agreed by examining the borrower's credit history through credit reporting
bureaus.

The Company's loan policy is to purchase Land and VOI Loans from $3,000 to
$50,000. On a case by case basis, the Company will also consider purchasing such
loans in excess of $50,000. As of March 31, 1998, the Company had 163 Land Loans
exceeding $50,000 representing 3.5% of the number of such loans in the Serviced
Portfolio, for a total of $11.9 million. There were no VOI Loans exceeding
$50,000 as of March 31, 1998. The Company will originate Hypothecation Loans up
to $20 million and A&D Loans up to $10 million. From time to time the Company
may have an opportunity to originate larger Hypothecation Loans or A&D Loans in
which case the Company may exceed such amounts or may seek to participate such
loans with other financial institutions. Construction Loans greater than
$200,000 and any other loans greater than $100,000 must be approved by the
Credit Committee which is comprised of the Chief Executive Officer, Executive
Vice President, Chief Financial Officer and two Senior Vice Presidents.

COLLECTIONS AND DELINQUENCIES

Management believes that the relatively low delinquency rate for the
Serviced Portfolio is attributable primarily to the application of its
underwriting criteria, as well as to dealer guarantees and reserves withheld
from dealers and developers. No assurance can be given that these delinquency
rates can be maintained in the future.

Collection efforts are managed and delinquency information is analyzed at
the Company's headquarters. Unless circumstances otherwise dictate, collection
efforts are generally made by mail and telephone. Collection efforts begin when
an account is four days past due, at which time the Company sends out a late
notice. When an account is sixteen days past due the Company attempts to contact
the borrower to determine the reason for the delinquency and to attempt to cause
the account to become current. If the status of the account continues to
deteriorate, an analysis of that delinquency is undertaken by the collection
supervisor to determine the appropriate action. When the loan is 90 days past
due in accordance with its original terms and it is determined that the amounts
cannot be collected from the dealer or developer guarantees or reserves, the
loan is generally placed on a nonaccrual status and the collection supervisor
determines the action to be taken.

27
<PAGE> 28

The determination of how to work out a delinquent loan is based upon many
factors, including the borrower's payment history and the reason for the current
inability to make timely payments. The Company has not restructured a material
number of problem loans. When a guaranteed loan becomes 60 days (90 days in some
cases) past due, in addition to the Company's collection procedures, the Company
generally obtains the assistance of the dealer or developer in collecting the
loan.

The Company extends a limited number of its loans for reasons the Company
considers acceptable such as temporary loss of employment or serious illness. In
order to qualify for a one to three month extension, the customer must make
three timely payments without any intervention from the Company. For extensions
of four to six months, the customer must make four to six timely payments,
respectively, without any intervention from the Company. The Company will not
extend a loan more than two times for an aggregate six months over the life of
the loan. The Company has extended approximately 1.1% of its loans through March
31, 1998. The Company does not generally modify any other loan terms such as
interest rates or payment amounts.

Regulations and practices regarding the rights of the mortgagor in default
vary greatly from state to state. To the extent permitted by applicable law, the
Company collects late charges and return-check fees and records these items as
additional revenue. Only if a delinquency cannot otherwise be cured will the
Company decide that foreclosure is the appropriate course of action. If the
Company determines that purchasing a property securing a mortgage loan will
minimize the loss associated with such defaulted loan, the Company may accept a
deed in lieu of foreclosure, take legal action to collect on the underlying note
or bid at the foreclosure sale for such property.

Serviced Portfolio

The following table shows the Company's delinquencies and delinquency
rates, net of dealer/developer reserves and guarantees for the Serviced
Portfolio:

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED
----------------------------------------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Serviced Portfolio....... $84,360,000 $105,013,000 $176,650,000 $242,445,000 $304,102,000 $338,502,000
Delinquent loans(1)...... 511,000 981,000 3,062,000 3,255,000 3,642,000 4,064,000
Delinquency as a
Percentage of Serviced
Portfolio.............. .61% .93% 1.73% 1.34% 1.20% 1.20%
</TABLE>

- ---------------
(1) Delinquent loans are those which are 30 days or more past due which are not
covered by dealer/developer reserves or guarantees and not included in other
real estate owned.

Land Loans

The following table shows the Company's delinquencies and delinquency
rates, net of dealer/developer reserves and guarantees for Land Loans in the
Serviced Portfolio:

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED
--------------------------------------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
----------- ----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Land Loans in Serviced
Portfolio................. $77,258,000 $90,502,000 $97,266,000 $119,370,000 $142,828,000 $151,423,000
Delinquent Land Loans(1).... 511,000 981,000 1,059,000 1,920,000 2,453,000 2,662,000
Delinquency as a Percentage
of Land Loans in Serviced
Portfolio................. .66% 1.08% 1.09% 1.61% 1.72% 1.76%
</TABLE>

- ---------------
(1) Delinquent loans are those which are 30 days or more past due which are not
covered by dealer/developer reserves or guarantees and not included in other
real estate owned.

28
<PAGE> 29

VOI Loans

The following table shows the Company's delinquencies and delinquency
rates, net of dealer/developer reserves and guarantees for VOI Loans in the
Serviced Portfolio:

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED
----------------------------------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
---------- ---------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
VOI Loans in Serviced
Portfolio..................... $1,434,000 $2,851,000 $46,700,000 $43,284,000 $29,232,000 $26,288,000
Delinquent VOI Loans(1)......... -- -- 1,958,000 1,316,000 739,000 724,000
Delinquency as a percentage of
VOI Loans in Serviced
Portfolio..................... -- -- 4.19% 3.04% 2.53% 2.75%
</TABLE>

- ---------------
(1) Delinquent loans are those which are 30 days or more past due which are not
covered by dealer/developer reserves or guarantees and not included in other
real estate owned.

Hypothecation, A&D and Other Loans

The Company did not have any delinquent Hypothecation Loans or A&D Loans
for the years ended December 31, 1993 through December 31, 1997 or for the three
months ended March 31, 1998. The Company did not have significant amounts of
delinquent Other Loans for the years ended December 31, 1993 through December
31, 1996. At December 31, 1997, there were $8.5 million of Other Loans of which
$450,000 or 5.3% were 30 days or more past due and not covered by
dealer/developer reserves or guarantees and not included in other real estate
owned. At March 31, 1998, there were $8.4 million of Other Loans of which
$677,000 or 8.1% were 30 days or more past due and not covered by
dealer/developer reserves or guarantees and not included in other real estate
owned.

ALLOWANCE FOR LOAN LOSSES, NET CHARGE-OFFS AND DEALER RESERVES

The following is an analysis of the total allowances for all loan losses:

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED
---------------------------------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
---------- ---------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Allowance, beginning of year..... $ 498,000 $1,064,000 $1,264,000 $ 3,715,000 $ 4,528,000 $5,877,000
Provision for loan losses........ 620,000 559,000 890,000 1,954,000 1,400,000 350,000
Net charge-offs of uncollectible
accounts....................... (493,000) (359,000) (946,000) (1,965,000) (2,010,000) (528,000)
Allocation of purchase
adjustment(1).................. 439,000 -- 2,507,000 824,000 1,959,000 465,000
---------- ---------- ---------- ----------- ----------- ----------
Allowance, end of year........... $1,064,000 $1,264,000 $3,715,000 $ 4,528,000 $ 5,877,000 $6,164,000
========== ========== ========== =========== =========== ==========
</TABLE>

- ---------------
(1) Represents allocation of purchase adjustment related to purchase of certain
nonguaranteed loans.

29
<PAGE> 30

The following is an analysis of net charge-offs by major loan and
collateral types experienced by the Company:

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED
-------------------------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
-------- -------- -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Land Loans............................. $493,000 $359,000 $546,000 $ 669,000 $ 986,000 $305,000
VOI Loans.............................. -- -- 45,000 1,284,000 939,000 100,000
Hypothecation Loans.................... -- -- -- -- -- --
A&D Loans.............................. -- -- 352,000 (8,000) (2,000) --
Other Loans............................ -- -- 3,000 20,000 87,000 123,000
-------- -------- -------- ---------- ---------- --------
Total net charge-offs.................. $493,000 $359,000 $946,000 $1,965,000 $2,010,000 $528,000
======== ======== ======== ========== ========== ========
Net charge-offs as a percentage of the
average Serviced Portfolio........... .69% .38% .67% .94% .74% .66%
</TABLE>

As part of the Company's financing of Land Loans and VOI Loans, the Company
enters into arrangements with most land dealers and resort developers whereby
the Company establishes reserves to protect the Company from potential losses
associated with such loans. The Company retains a portion of the amount payable
to a dealer when purchasing a Land Loan or a VOI Loan and uses the amount
retained to absorb loan losses. The Company negotiates the amount of the
reserves with the land dealers and resort developers based upon various
criteria, two of which are the financial strength of the land dealer or resort
developer and the credit risk associated with the loans being purchased. Dealer
reserves for Land Loans were $6,420,000, $7,555,000 and $8,321,000 at December
31, 1995, 1996 and 1997, respectively, and $8,458,000 at March 31, 1998.
Developer reserves for VOI Loans amounted to $3,224,000, $3,072,000 and
$2,299,000 at December 31, 1995, 1996 and 1997, respectively, and $2,134,000 at
March 31, 1998. Most dealers and developers provide personal and, when relevant,
corporate guarantees to further protect the Company from loss.

LOAN SERVICING AND SALES

The Company retains the right to service all the loans it purchases or
originates. Servicing includes collecting payments from borrowers, remitting
payments to investors who have purchased the loans, accounting for principal and
interest, contacting delinquent borrowers and supervising foreclosure and
bankruptcies in the event of unremedied defaults. Substantially all servicing
results from the origination and purchase of loans by the Company, and the
Company has not historically purchased loan servicing rights except in
connection with the purchase of loans. Servicing rates generally approximate .5%
to 2% of the principal balance of a loan.

In connection with the Company's continuing growth, the Company decided to
subcontract its servicing rights in order to avoid incurring additional fixed
overhead costs associated with such servicing. Accordingly, the Company
subcontracted to an unaffiliated third party the servicing of VOI Loans in 1995
and the remaining loans in April 1996. The Company retains responsibility for
servicing all loans as master servicer. The Company expects to resume certain
customer service and collection functions during the third quarter of 1998.

In 1990, the Company began privately placing issues of pass-through
certificates evidencing an undivided beneficial ownership interest in pools of
mortgage loans which have been transferred to trusts. The principal and part of
the interest payments on the loans transferred to the trust are collected by the
Company, as the servicer of the loan pool, remitted to the trust for the benefit
of the investors, and then distributed by the trust to the investors in the
pass-through certificates.

As of March 31, 1998, the Company had sold or securitized a total of
approximately $366.7 million in loans. In certain of the Company's issues of
pass-through certificates, credit enhancement was achieved by dividing the issue
into a senior portion which was sold to the investors and a subordinated portion
which was retained by the Company. In certain other of the Company's private
placements, credit enhancement was achieved through cash collateral. If
borrowers default in the payment of principal or interest on the loans
underlying these issues of pass-through certificates, losses would be absorbed
first by the subordinated portion

30
<PAGE> 31

or cash collateral account retained by the Company and might, therefore, have to
be charged against the allowance for loan losses to the extent dealer guarantees
and reserves are not available.

The Company also has a $150.0 million revolving line of credit and sale
facility for its land loans as part of an asset backed commercial paper facility
with a multi-seller commercial paper conduit. The facility expires in June 2001.
As of March 31, 1998, the outstanding balance of the sold or pledged loans
securing this facility was $116.6 million. The Company has an additional
revolving line of credit and sale facility of $25.0 million with another
multi-seller commercial paper conduit. The facility expires in March 2000. As of
March 31, 1998, the outstanding aggregate balance of the sold loans under the
facility was $13.3 million.

MARKETING AND ADVERTISING

The Company markets its program to rural land dealers and resort developers
through brokers, referrals, dealer and developer solicitation, and targeted
direct mail. The Company employs three marketing executives based in Denver,
Colorado and six marketing executives based in Williamstown, Massachusetts. In
the last 5 years the Company has closed loans with over 300 different dealers
and developers.

Management believes that the Company benefits from name recognition as a
result of its referral, advertising and other marketing efforts. Referrals have
been the strongest source of new business for the Company and are generated in
the states in which the Company operates by dealers, brokers, attorneys and
financial institutions. Management and marketing representatives also conduct
seminars for dealers and brokers and attend trade shows to improve awareness and
understanding of the Company's programs.

REGULATION

The Company is licensed as a mortgage banker in 15 of the states in which
it operates, and in those states its operations are subject to supervision by
state authorities (typically state banking or consumer credit authorities).
Expansion into other states may be dependent upon a finding of financial
responsibility, character and fitness of the Company and various other matters.
The Company is generally subject to state regulations, examination and reporting
requirements, and licenses are revocable for cause. The Company is subject to
state usury laws in all of the states in which it operates.

The consumer loans purchased or financed by the Company are subject to the
Truth-in-Lending Act. The Truth-in-Lending Act contains disclosure requirements
designed to provide consumers with uniform, understandable information with
respect to the terms and conditions of loans and credit transactions in order to
give them the ability to compare credit terms. Failure to comply with the
requirements of the Truth-in-Lending Act may give rise to a limited right of
rescission on the part of the borrower. The Company believes that its purchase
or financing activities are in substantial compliance in all material respects
with the Truth-in-Lending Act.

Origination of the loans also requires compliance with the Equal Credit
Opportunity Act of 1974, as amended ("ECOA"), which prohibits creditors from
discriminating against applicants on the basis of race, color, sex, age or
marital status. Regulation B promulgated under ECOA restricts creditors from
obtaining certain types of information from loan applicants. It also requires
certain disclosures by the lender regarding consumer rights and requires lenders
to advise applicants of the reasons for any credit denial. In instances where
the applicant is denied credit or the interest rate charged increases as a
result of information obtained from a consumer credit agency, another statute,
the Fair Credit Reporting Act of 1970, as amended, requires the lenders to
supply the applicant with a name and address of the reporting agency.

COMPETITION

The finance business is highly competitive, with competition occurring
primarily on the basis of customer service and the term and interest rate of the
loans. Traditional competitors in the finance business include commercial banks,
credit unions, thrift institutions, industrial banks and other finance
companies, many of

31
<PAGE> 32

which have considerably greater financial, technical and marketing resources
than the Company. There can be no assurance that the Company will not face
increased competition from existing or new financial institutions and finance
companies. In addition, the Company may enter new lines of business that may be
highly competitive and may have competitors with greater financial resources
than the Company.

The Company believes that it competes on the basis of providing competitive
rates and prompt, efficient and complete service, and by emphasizing customer
service on a timely basis to attract borrowers whose needs are not met by
traditional financial institutions.

EMPLOYEES

As of March 31, 1998, the Company and its subsidiaries had 84 full-time
equivalent employees. None of the Company's employees is covered by a collective
bargaining agreement. The Company considers its relations with its employees to
be good.

FACILITIES

The Company owns a leasehold interest in approximately 26,000 square feet
of office space in Williamstown, Massachusetts, which is used as the Company's
headquarters. The initial ten year lease term expires in May 2007 and is
renewable at the Company's option for two additional ten year periods. The
initial land lease provides for an annual rental of $20,000. The Company also
occupies an aggregate of approximately 5,100 square feet of office space in
Lakewood, Colorado, pursuant to a lease expiring in January 2001, with an option
to renew until 2004, providing for an annual rental of approximately $56,000,
including utilities and exterior maintenance expenses. A subsidiary of the
Company occupies an aggregate of approximately 6,100 square feet of office space
in Birmingham, Alabama, pursuant to a lease expiring in December 1999, providing
for an annual rental of approximately $60,000. The Company also owns, in
Stamford, Vermont, an aggregate of approximately 13,000 square feet of office
space, which is currently under contract for sale.

LEGAL PROCEEDINGS

The Company is not a party to any material legal proceedings.

32
<PAGE> 33

MANAGEMENT

The following table sets forth the name, age and position with the Company
of each person who is an executive officer or director of the Company as of
April 30, 1998:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Richard A. Stratton(1).................... 47 Chief Executive Officer, President and
Director
Heather A. Sica........................... 35 Executive Vice President and Director
Ronald E. Rabidou......................... 46 Chief Financial Officer and Treasurer
Wayne M. Greenholtz....................... 57 Senior Vice President
John J. Malloy............................ 40 Senior Vice President, General Counsel and
Clerk
James H. Shippee.......................... 37 Senior Vice President
Michael A. Spadacino...................... 36 Senior Vice President
Joseph S. Weingarten...................... 32 Senior Vice President
James A. Yearwood......................... 50 First Vice President
John A. Costa(1), (2), (3)................ 42 Director
Gerald Segel(1), (2), (3)................. 77 Director
James Westra.............................. 46 Director
</TABLE>

- ---------------
(1) Member of Compensation Committee
(2) Member of Stock Option Committee
(3) Member of Audit Committee

EXECUTIVE OFFICERS

Richard A. Stratton, 47 years old, has been a director of the Company since
1988. Mr. Stratton was a cofounder of the Company and has been the Chief
Executive Officer of the Company since 1996 and President of the Company since
1988. Prior to joining the Company, Mr. Stratton served as Vice President of
Finance for Patten Corporation and Vice President of Marketing for Summit
Software Technology, Inc. and held senior marketing and management positions
with the Gillette Company and the American Appraisal Company in Boston,
Massachusetts. Mr. Stratton is a graduate of The College of The Holy Cross.

Heather A. Sica, 35 years old, has been a director of the Company since
1995. Ms. Sica has been the Executive Vice President of the Company since 1991.
She served as Chief Financial Officer of the Company from 1991 to 1995 and
Treasurer from 1991 to April 1998. She served as a Vice President of the Company
from 1989 to 1991. Prior to joining the Company, Ms. Sica was an associate with
the Real Estate Group of General Electric Investment Corporation and a certified
public accountant with KPMG Peat Marwick. Ms. Sica received her B.S. in Business
Administration from the University of Vermont and her MBA from the Wharton
School of the University of Pennsylvania.

Ronald E. Rabidou, 46 years old, has been Chief Financial Officer of the
Company since May 1995 and Treasurer since April 1998. Prior to joining the
Company, Mr. Rabidou was a certified public accountant with Ernst & Young LLP
from 1987 to May 1995. Mr. Rabidou received his MBA and BA from the University
of Massachusetts.

Wayne M. Greenholtz, 57 years old, has been a Senior Vice President of the
Company since April 1995. Prior to joining the Company, Mr. Greenholtz was the
Senior Vice President of Operations for Government Employees Financial
Corporation, a subsidiary of GEICO Corporation, from 1989 to 1995. Mr.
Greenholtz is a graduate of the University of Maryland.

John J. Malloy, 40 years old, has been a Senior Vice President and General
Counsel of the Company since January 1998. Prior to joining the Company, Mr.
Malloy was an attorney in private practice from 1986 to 1997 at Battle Fowler
LLP, New York, New York, where he was a partner in the corporate department. Mr.
Malloy received his BA from Carleton College and his JD from Rutgers University
School of Law.

33
<PAGE> 34

James Shippee, 37 years old, has been Senior Vice President of Mortgage
Operations since 1989. Prior to joining the Company, Mr. Shippee was Vice
President of Patten Financial Services from 1987 to 1989.

Michael A. Spadacino, 36 years old, has been a Senior Vice President of the
Company since January 1994 after joining the Company in 1992 as a Vice President
in charge of land portfolio acquisitions. Prior to joining the Company, Mr.
Spadacino attended law school from 1989 to 1992 at the Albany Law School of
Union University where he received a JD. Mr. Spadacino received a BBA in
Accounting from St. Bonaventure University and MS in Taxation from Georgetown
University and is also a CPA.

Joseph S. Weingarten, 32 years old, has been a Senior Vice President of the
Company since 1997. Prior to joining the Company, Mr. Weingarten served from
1993 to 1997 in the Structured Finance Group of ING Capital, most recently as a
Vice President, originating and managing structured lending and asset-backed
securitization transactions, with an emphasis on specialty finance companies.
Previously, he served as the Manager of Portfolio Administration for US West
Financial Services, Inc., and as a CPA with Arthur Andersen & Co. Mr. Weingarten
received his B.A. from New York University.

James A. Yearwood, 50 years old, has been a First Vice President of the
Company since 1996 after joining the Company in 1992 as a Vice President in
charge of vacation ownership receivable funding. Prior to joining the Company,
Mr. Yearwood was a Vice President with Del-Val Capital Corporation from 1989 to
1991 where he specialized in vacation ownership receivable lending. Mr. Yearwood
graduated from Southern Connecticut State University.

DIRECTORS

John A. Costa, 42 years old, has been a director of the Company since 1995.
Mr. Costa has been at Cardholder Management Services, L.P., a credit card
servicing business since 1993, serving first as Managing Director of Planning
and Business Development, and presently as Senior Vice President. Mr. Costa
served as a consultant to corporate clients from 1992 to 1995 in areas that
include mergers and acquisitions, financial modeling, asset securitization and
lending facility development. Previously, he served as Director of Consumer
Finance with US West Financial Services, Inc. in 1992 and as Director of
Structured Finance for Arsht & Company, Inc. from 1990 to 1992. Mr. Costa
received his B.A. from New York University.

Gerald Segel, 77 years old, has been a Director of the Company since 1989.
Prior to his retirement in May 1990, Mr. Segel was Chairman of Tucker Anthony
Incorporated from January 1987 to May 1990. From 1983 to January 1987 he served
as President of Tucker Anthony Incorporated. Mr. Segel is also a Director of
Hologic, Inc., Vivid Technologies, Inc. and Boston Communications Group, Inc.
Mr. Segel received his A.B. from Harvard College.

James Westra, 46 years old, has been a director of the Company since 1995.
Mr. Westra is a stockholder of the law firm of Hutchins, Wheeler & Dittmar, A
Professional Corporation, where he has practiced law since 1977. Mr. Westra
serves as a Director of several companies, including Bertucci's, Inc. Mr. Westra
graduated from Harvard College in 1973 and from Boston University Law School in
1977.

34
<PAGE> 35

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth information with respect to the beneficial
ownership of shares of Common Stock of the Company, as of April 30, 1998, by all
stockholders of the Company known to be beneficial owners of more than 5% of the
outstanding Common Stock of the Company, by each director, the Selling
Stockholder, each of the Company's executive officers whose total annual salary
and bonus for 1997 exceeded $100,000 and all directors and officers of the
Company as a group:

<TABLE>
<CAPTION>
BENEFICIAL NUMBER OF BENEFICIAL
OWNERSHIP PRIOR SHARES BEING OWNERSHIP AFTER
TO THE OFFERING(a) OFFERED THE OFFERING(a)
-------------------- ------------ --------------------
NUMBER OF NUMBER OF
NAME SHARES PERCENT SHARES PERCENT
---- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
Arthur D. Charpentier.................. 588,229 10.4% 588,229 8.8%
660 White Plains Road, Suite 400
Tarrytown, NY 10591
J.P. Morgan Inv. Mgt., Inc............. 581,510 10.3% 581,510 8.7%
522 Fifth Ave.
New York, NY 10036
Richard A. Stratton.................... 449,450(b) 7.6% 110,000 339,450 4.9%
Chief Executive Officer, President
and Director
Wellington Management Co............... 416,802 7.4% 416,802 6.3%
75 State Street
Boston, MA 02109
Nicholas Company, Inc.................. 413,287 7.3% 413,287 6.2%
700 North Water Street
Milwaukee, WI 53202
Munder Capital Management.............. 317,675 5.6% 317,675 4.8%
480 Pierce Street
Birmingham, MI 48009
Citibank Global Asset Management....... 300,967 5.3% 300,967 4.5%
399 Park Ave.
New York, NY 10043
Heather A. Sica........................ 125,847(c) 2.2% 125,847 1.9%
Executive Vice President and Director
Michael A. Spadacino................... 45,532(d) * 45,532 *
Senior Vice President
Ronald E. Rabidou...................... 24,172(e) * 24,172 *
Chief Financial Officer and Treasurer
Gerald Segel........................... 21,316(f) * 21,316 *
Director
James Westra........................... 7,915(g) * 7,915 *
Director
Joseph S. Weingarten................... 7,500(h) * 7,500 *
Senior Vice President
</TABLE>

35
<PAGE> 36

- ---------------
* Less than one percent.

(a) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission and includes general voting power and/or
investment power with respect to securities. Shares of common stock subject
to options and warrants currently exercisable or exercisable within 60 days
of April 30, 1998 are deemed outstanding for computing the percentage of
stock owned by a person holding such options but are not deemed outstanding
for computing the percentage of stock owned by any other person. Except as
otherwise specified below, the persons named in the table above have sole
voting and investment power with respect to all shares of common stock shown
as beneficially owned by them.

(b) Includes 226,392 shares of Common Stock issuable upon exercise of options.
Such options are exercisable within 60 days.

(c) Includes 123,532 shares of Common Stock issuable upon exercise of options.
Such options are exercisable within 60 days.

(d) Includes 45,532 shares of Common Stock issuable upon exercise of options.
Such options are exercisable within 60 days.

(e) Includes 24,172 shares of Common Stock issuable upon exercise of options.
Such options are exercisable within 60 days.

(f) Includes 21,316 shares of Common Stock issuable upon exercise of options.
Such options are exercisable within 60 days.

(g) Includes 6,180 shares of Common Stock issuable upon exercise of options.
Such options are exercisable within 60 days.

(h) Includes 7,500 shares of Common Stock issuable upon exercise of options.
Such options are exercisable within 60 days.

(i) In addition to the shares of Common Stock and options to purchase Common
Stock deemed to be beneficially owned by the directors and officers, as set
forth above, includes options to purchase Common Stock held by the following
executive officers in the following amounts: James Shippee -- 31,862 shares;
Wayne M. Greenholtz -- 11,769 shares and James Yearwood --10,607. Such
options are exercisable currently or within 60 days.

36
<PAGE> 37

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 12,000,000 shares
of Common Stock, par value $.01 per share, of which 6,667,751 shares will be
outstanding following the Offering, and 1,000,000 shares of Preferred Stock, par
value $.01 per share, none of which are outstanding.

COMMON STOCK

Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of the stockholders. Voting rights are not
cumulative. Accordingly, holders of a majority of the voting power entitled to
vote in any election of directors may elect all of the directors standing for
election. Holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor, subject to any preferential
dividend rights of, and sinking fund or redemption or purchase rights with
respect to, outstanding shares of Preferred Stock. In the event of voluntary or
involuntary liquidation, distribution, dissolution, or winding up of the
Company, the holders of Common Stock shall be entitled to receive all of the
remaining assets of the Company, ratably and in proportion to the shares of
Common Stock held by them, available after distribution in full of preferential
amounts, if any, to be distributed to holders of Preferred Stock. Holders of
Common Stock have no preemptive, subscription or redemption rights. The
outstanding shares of Common Stock are. and the shares offered by this offering
will be, when issued and paid for, fully paid and nonassessable. The rights,
preferences and privileges of holders of Common Stock are subject to, and may be
adversely affected by, the rights of holders of shares of any series of
Preferred Stock which the Company may designate and issue in the future.

PREFERRED STOCK

The authorized Preferred Stock of the Company consists of 1,000,000 shares,
par value $.01 per share, none of which will be issued and outstanding upon
completion of this offering. Preferred Stock may be issued from time to time in
one or more series. The Board of Directors, without further approval of the
stockholders, is authorized to fix the dividend rights and terms, conversion
rights, voting rights, redemption rights and terms, liquidation preferences, and
any other rights, preferences, privileges and restrictions applicable to each
series of Preferred Stock. The issuance of Preferred Stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, could, among other things, adversely affect the voting power of the
holders of Common Stock, and, under certain circumstances, make it more
difficult for a third party to gain control of the Company.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is State Street Bank
and Trust Company.

CERTAIN PROVISIONS AFFECTING STOCKHOLDERS

The Articles of Organization and By-laws of the Company include provisions
which are intended by the Board of Directors to help assure fair and equitable
treatment of the Company's stockholders in the event that a person or group
should seek to gain control of the Company in the future. Such provisions, which
are discussed below, may make a takeover attempt more difficult, whether by
tender offer, proxy contest or otherwise. Accordingly, such provisions might be
viewed as disadvantageous to stockholders inasmuch as they might diminish the
likelihood that a potential acquiror would make an offer for the Company's stock
(perhaps at an attractive premium over the market price), or impede a
transaction favorable to the interests of the stockholders, or increase the
difficulty of removing the incumbent Board of Directors and management, even if
in a particular case removal would be beneficial to the stockholders.

The Company's Board of Directors is divided into three classes, each of
which serves for three years, with one class being elected each year. Removal of
a member of the Board of Directors with or without cause requires a majority
vote of the Board of Directors or of the stockholders. A majority of the
remaining directors then in office, though less than a quorum, or the
stockholders are empowered to fill any vacancy on the Board of Directors.
Advance notice of stockholder nominations and any other matter to be brought
before a meeting

37
<PAGE> 38

of stockholders is required to be given in writing to the Clerk of the Company
within the time periods provided in the By-laws. A majority vote of the
stockholders is required to alter, amend or repeal the foregoing provisions.

The Company is subject to Chapter 110D of the Massachusetts General Laws,
which regulates so-called control share acquisitions. A "control share
acquisition" is the acquisition of shares which, when added to shares already
owned, would (but for the statute) entitle the acquiring person to vote at least
20% of a corporation's stock. Shares acquired in such a transaction would, under
the statute, have no voting rights unless a majority of noninterested
stockholders voted to grant such voting rights. In general, the person acquiring
such shares, officers of the Company and those directors of the Company who are
also employees, are not permitted to vote on whether such voting rights shall be
granted. Pursuant to the statute, the Articles of Organization permit the
Company, at its option, to redeem, without the concurrence of the person making
the control share acquisition, shares acquired in such acquisition at the fair
value of the shares if voting rights are not authorized by the stockholders. So
long as Chapter 110D is applicable, stockholders may act with regard to a
control share acquisition only subsequent to such an event. The stockholders, at
a duly constituted meeting, may, by amendment to the By-laws or the Articles of
Organization, provide that the provisions of Chapter 110D shall not apply to
control share acquisitions of the Company.

The Company is also subject to Chapter 110F of the Massachusetts General
Laws, which prohibits a business combination with a holder of 5% or more of the
voting stock of a corporation (an "interested stockholder") for three years
after the stockholder becomes an interested stockholder, unless the acquiror
receives prior Board approval, acquires 90% or more of the outstanding shares
(excluding stock controlled by management and certain ESOPs), or receives
approval from two-thirds of the stockholders (other than the interested
stockholder). The stockholders are permitted to amend a corporation's by-laws to
opt out of this legislation effective twelve months after such stockholder vote.

The Massachusetts General Laws explicitly permit directors to adopt
stockholder rights plans. The Company has not adopted any such plans. The
Massachusetts General Laws also permit directors to consider the interests of
employees, creditors, suppliers, customers, the community and other long-term
economic and societal effects in determining the best interests of a corporation
and its stockholders. In addition, Massachusetts law requires that, after a
transfer of control (defined as acquisition of beneficial ownership of 50% or
more of a corporation's voting securities), the acquiror must pay two weeks
severance pay for each year of service to any employee whose employment is
terminated (a) in the next two years, or (b) in the shorter of either the
previous year or the period of time it took the acquiror to go from a 5%
interest to the 50% level.

As permitted by the Massachusetts General Laws, the Company's Articles of
Organization limit the personal liability of its directors to the Company or its
stockholders for monetary damages for breach of fiduciary duty. The limitation
applies only with respect to breaches of fiduciary duty constituting violations
of the director's duty to act with such care as an ordinarily prudent person in
a like position would use under similar circumstances. As a result, the
Company's directors would ordinarily not be liable to stockholders for monetary
damages even if they are guilty of negligence or gross negligence in exercising
their business judgment, including the exercise of judgment with respect to a
takeover or other acquisition proposal involving the Company. The limitation
does not affect the ability of the Company or its stockholders to seek equitable
remedies, such as an injunction or rescission, against a director for breach of
his fiduciary duty and would not limit the liability under Federal securities
law.

38
<PAGE> 39

UNDERWRITING

Pursuant to the Underwriting Agreement, and subject to the terms and
conditions thereof, the Underwriters named below have agreed, severally, to
purchase from the Company and the Selling Stockholder the number of shares of
Common Stock set forth below opposite their respective names.

<TABLE>
<CAPTION>
NUMBER
OF SHARES OF
NAME OF UNDERWRITER COMMON STOCK
- ------------------- ------------
<S> <C>
Tucker Anthony Incorporated................................. 444,000
McDonald & Company Securities, Inc.......................... 444,000
J.C. Bradford & Co.......................................... 222,000
---------
Total............................................. 1,110,000
=========
</TABLE>

In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions therein set forth, to purchase all the shares of Common
Stock offered hereby if any of such shares are purchased.

The Company and the Selling Stockholder have been advised by the
Underwriters 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 $0.58 per share. The Underwriters may allow and such dealers may
reallow a concession not in excess of $0.10 per share to certain other dealers.
After the initial public offering, the public offering price and such
concessions may be changed. The Underwriters have informed the Company and the
Selling Stockholder that they do not intend to confirm sales to accounts over
which they exercise discretionary authority.

The offering of the shares of Common Stock is made for delivery when, as
and if accepted by the Underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offer without notice. The Underwriters
reserve the right to reject any order for the purchase of the shares.

The Company has granted to the Underwriters an option, exercisable not
later than 30 days from the date of the Prospectus, to purchase up to an
aggregate of 166,500 additional shares of Common Stock to cover over-allotments.
To the extent the Underwriters exercise this option, each of the Underwriters
will have a firm commitment to purchase approximately the same percentage
thereof which the number of shares of Common Stock to be purchased by it shown
in the table above bears to 1,110,000, and the Company will be obligated,
pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the 1,110,000 shares of Common Stock offered hereby.
If purchased, the Underwriters will sell these additional shares on the same
terms as those on which the 1,110,000 shares are being offered.

The executive officers and directors of the Company, beneficially owning an
aggregate of approximately 633,143 shares of Common Stock have agreed that they
will not, without the prior written consent of the Underwriters, sell, transfer,
assign or otherwise dispose of any of the Common Stock or options, warrants or
rights to acquire Common Stock owned by them prior to the expiration of 120 days
from the date of this Prospectus.

The Underwriting Agreement provides that the Company and the Selling
Stockholder will indemnify the Underwriters, and controlling persons, if any,
against certain liabilities, including liabilities under the Securities Act of
1933, as amended, or will contribute to payments which the Underwriters or any
such controlling persons may be required to make in respect thereof.

Pursuant to regulations promulgated by the Securities and Exchange
Commission (the "Commission"), market makers in the Common Stock who are
Underwriters or prospective underwriters ("passive market makers") may, subject
to certain limitations, make bids for or purchases of shares of Common Stock
until the earlier of the time of commencement (the "Commencement Date") of
offers or sales of the Common Stock contemplated by this Prospectus or the time
at which a stabilizing bid for such shares is made. In general, on and after the
date two days prior to the Commencement Date (1) each such market maker's net
daily

39
<PAGE> 40

purchases of the Common Stock may not exceed 30% of the average daily trading
volume in such stock for the two full consecutive calendar months immediately
preceding the filing date of the Registration Statement of which this Prospectus
forms a part, (2) such market maker may not effect transactions in, or display
bids for, the Common Stock at a price that exceeds the highest bid for the
Common Stock by persons who are not passive market makers and (3) bids made by
passive market makers must be identified as such.

LEGAL MATTERS

Hutchins, Wheeler & Dittmar, A Professional Corporation, 101 Federal
Street, Boston, Massachusetts, will render an opinion on the legality of the
shares of Common Stock being offered hereby. Bass, Berry & Sims PLC, 2700 First
American Center, Nashville, Tennessee, will pass upon certain legal matters for
the Underwriters. James Westra, a shareholder of Hutchins, Wheeler & Dittmar, is
a Director of the Company. Mr. Westra owns 1,735 shares of the Company's Common
Stock and has options to acquire another 7,512 shares.

EXPERTS

The consolidated financial statements of Litchfield Financial Corporation
incorporated by reference in Litchfield Financial Corporation's Annual Report
(Form 10-K) for the year ended December 31, 1997, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon
incorporated by reference therein and incorporated herein by reference. Such
financial statements are, and audited financial statements to be included in
subsequently filed documents will be, incorporated herein in reliance upon the
reports of Ernst & Young LLP pertaining to such financial statements (to the
extent covered by consents filed with the Securities and Exchange Commission)
given upon the authority of such firm as experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Commission a registration statement on Form
S-3 (herein, with all amendments and exhibits thereto, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the shares of Common Stock offered hereby.
This Prospectus, which is part of the Registration Statement, does not contain
all of the information set forth in the Registration Statement or the exhibits
and schedules thereto, certain portions having been omitted pursuant to the
rules and regulations of the Commission. Statements made in this Prospectus as
to the contents of any contract or other document are not necessarily complete;
with respect to each such contract or other document filed with the Commission
as an exhibit to the Registration Statement, or incorporated by reference to
exhibits previously filed, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the Public Reference Section of the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following
Regional Offices of the Commission: New York Regional Office, Seven World Trade
Center, New York, New York 10048 and Chicago Regional Office, Northwestern
Atrium Center, 500 West Madison Street, Room 3190, Chicago, Illinois 60661.
Copies of such material can also be obtained at prescribed rates by writing to
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. The Commission maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission at http://www.sec.gov.
The Company's Common Stock is listed on The Nasdaq Stock Market's National
Market, and such reports, proxy statements and other information can also be
inspected at the Offices of Nasdaq Operations, 1735 K Street, N.W., Washington
D.C. 20006.

40
<PAGE> 41

[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 42

[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 43

[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 44

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
The Company........................... 7
Risk Factors.......................... 9
Incorporation by Reference............ 12
Forward-Looking Statements............ 12
Use of Proceeds....................... 12
Capitalization........................ 13
Market Price of and Dividends on
Common Stock........................ 14
Selected Consolidated Financial
Information......................... 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 17
Business.............................. 23
Management............................ 33
Principal and Selling Stockholders.... 35
Description of Capital Stock.......... 37
Underwriting.......................... 39
Legal Matters......................... 40
Experts............................... 40
Additional Information................ 40
</TABLE>

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

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN 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 BY THE COMPANY OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD
BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
======================================================
======================================================
1,110,000 SHARES

[LITCHFIELD FINANCIAL CORP. LOGO]

COMMON STOCK

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

PROSPECTUS

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

JUNE 18, 1998

TUCKER ANTHONY
INCORPORATED

MCDONALD & COMPANY
SECURITIES, INC.

J.C. BRADFORD & CO.

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