<PAGE>   1

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

                                   FORM 10-K

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

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

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

          FOR THE TRANSITION PERIOD FROM ____________ TO ____________

                        COMMISSION FILE NUMBER 333-26861

                            TRENDWEST RESORTS, INC.
               (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

<TABLE>
<S>                                            <C>
                    OREGON                                       93-1004403
(STATE OR OTHER JURISDICTION OF ORGANIZATION)        (IRS EMPLOYER IDENTIFICATION NO.)

              9805 WILLOWS ROAD                                    98052
                 REDMOND, WA                                     (ZIP CODE)
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>

                                 (425) 990-2300
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                                      NONE

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                           COMMON STOCK, NO PAR VALUE
                                (TITLE OF CLASS)

     Aggregate market price of shares held by non-affiliates at March 20, 2000
was $50,141,385.25, consisting of 2,145,086 shares.

     The number of shares of common stock outstanding on March 20, 2000 was
16,932,378 shares.

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]  No [ ]

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

                      DOCUMENTS INCORPORATED BY REFERENCE:

     Portions of the Company's Proxy Statement for the 2000 Annual Meeting of
shareholders are incorporated by reference into Part III of this Form 10-K.

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<PAGE>   2

                                     PART I

ITEM 1. BUSINESS

     Trendwest Resorts, Inc., (Company) markets, sells and finances timeshare
Vacation Ownership Interests in the form of Vacation Credits and Fractional
Interests. The Company also acquires, develops and manages timeshare resorts.
The Company's timeshare resorts (except Fractional Interests) are owned and
operated through WorldMark, the Club, (WorldMark) a non-profit mutual benefit
corporation organized by Trendwest in 1989 to provide an innovative, flexible
vacation ownership system. The Company presently sells Vacation Ownership
interests in Alaska, Arizona, California, Idaho, Oregon, Utah and Washington
primarily through off-site sales offices. Fractional Interests are sold on-site
at the Depoe Bay resort in Oregon.

     Trendwest sells Vacation Ownership Interests in the form of Vacation
Credits, which are created by the transfer to WorldMark of resort units
purchased or developed by the Company, and Fractional Interests. Vacation
Credits can be used by Owners to reserve units at any of the WorldMark resorts,
at any time of the year and in increments as short as one day. The use of
Vacation Credits is not tied to any particular resort unit or time period as is
typical in the timeshare industry. The Company believes that the combination of
multiple WorldMark Resorts and the Company's Vacation Credit system provides
Owners with an attractive range of vacation planning choices and values not
generally available within the timeshare industry. The Company's Vacation Credit
system with multiple WorldMark Resorts facilitates the sale of Vacation Credits
at off-site sales offices located in major metropolitan areas and reduces
dependence on on-site sales centers located at more remote resort locations. The
Company was formed as a pure Vacation Credit system and its operations
infrastructure was designed to facilitate such an operation. Often, other
timeshare operations have overlaid a "points-based" club onto a traditional
fixed week product.

     Fractional Vacation Ownership Interests represent deeded fixed intervals in
timeshare condominiums and are not transferred to WorldMark. The Company's first
Fractional program, at the Depoe Bay resort on the Oregon Coast, commenced
pre-selling in October, 1998 and began recognizing revenue from these sales in
April, 1999 when the Company took possession of the property. The 377 Fractional
Interests each representing a 13th share ownership in a condominium were
completely sold out by October, 1999. The Company will continue to develop
Fractional ownership programs at strategic locations with high demand.

     The Company sells vacation credits at twenty-four sales offices, fifteen of
which are located off-site in metropolitan areas. The other sales offices are
located on-site at nine of the WorldMark Resorts.

RECENT DEVELOPMENTS

     On October 22, 1999, the Company formed Trendwest South Pacific, Pty. Ltd.
(Trendwest South Pacific) as a wholly-owned subsidiary. Trendwest South Pacific
is an Australian corporation formed for the purpose of conducting sales,
marketing and resort development activities in the South Pacific. As of December
31, 1999, Trendwest South Pacific had no activity other than general and
administrative expenses associated with the start-up of operations.

     The Company is currently in the process of registering its product with
Australian regulators. The Company anticipates commencing sales operations in
April, 2000 following regulatory approval.

CORPORATE BACKGROUND AND CONSOLIDATION OF FINANCE SUBSIDIARIES

     The Company commenced its timeshare business as a wholly-owned subsidiary
of JELD-WEN in 1989 with three condominium units. JELD-WEN is currently the
Company's principal shareholder. JELD-WEN is a privately owned company that was
founded in 1960 and is a major manufacturer of doors, windows and millwork
products. Headquartered in Klamath Falls, Oregon, JELD-WEN has diversified
operations located throughout the United States and in numerous foreign
countries that include manufacturing, hospitality and recreation, retail,
financial services and real estate.

     The Company raises capital for property acquisitions and working capital by
selling or securitizing Notes Receivable through four subsidiaries (the "Finance
Subsidiaries"). Prior to June 30, 1997, two of the Finance
                                        2
<PAGE>   3

Subsidiaries were owned by JELD-WEN. Effective June 30, 1997, the Company
acquired the two Finance Subsidiaries from JELD-WEN for 5,193,693 shares of the
Company's Common Stock (the "Consolidation Transactions"). On August 15, 1997,
the Company consummated its public offering.

     The Company has transactions with other JELD-WEN subsidiaries and related
parties. See note 14 "Related Party Transactions" in the notes to the combined
and consolidated financial statements included herein.

     The Company was incorporated in Oregon in 1989. The Company's principal
executive offices are located at 9805 Willows Road, Redmond, Washington 98052,
and its telephone number is (425) 498-2500.

WORLDMARK

     WorldMark is a California nonprofit mutual benefit corporation formed by
Trendwest in 1989. WorldMark's articles of incorporation provide that the
specific purpose for which it was formed is to own, operate and manage the real
property conveyed to it by the Company for the benefit of the WorldMark Owners.
There are 87,432 Owners at December 31, 1999. Owners receive the right to use
all WorldMark Resort units and the right to vote to elect WorldMark's board
members and to vote with respect to certain major WorldMark matters. The number
of votes that each Owner has is based on the number of Vacation Credits owned.

     The Resorts are owned by WorldMark free and clear of all monetary
encumbrances. WorldMark maintains a replacement reserve for the WorldMark
Resorts which is funded from the annual assessments of the Owners. The
replacement reserve is utilized to refurbish and replace the interiors and
furnishings of the condominium units and to maintain the exteriors and common
areas in WorldMark Resorts in which all units are owned by WorldMark.

     Compared to other timeshare arrangements, the WorldMark concept provides
Owners significant flexibility in planning vacations. Depending on how many
Vacation Credits an Owner has purchased, the Owner may use the Vacation Credits
for one or more vacations annually. The number of Vacation Credits that are
required to stay one day at WorldMark's units varies, depending upon the resort
location, the size of the unit, the vacation season and the day of the week. For
example, a Friday or Saturday night stay at a one-bedroom unit may require 825
Vacation Credits per night off-season and 1,450 Vacation Credits per night in
peak season. A midweek stay at the same one-bedroom unit would require less
Vacation Credits. The range of Vacation Credits that is required to stay one day
enables an Owner to receive a varying number of days at the WorldMark Resorts
depending on the vacation choices made by the Owner. Under this system, Owners
can select vacations according to their schedules, space needs and available
Vacation Credits. Vacation Credits are reissued on an anniversary date basis and
any unused Vacation Credits may be carried over for one year. An Owner may also
borrow Vacation Credits from the Owner's succeeding year's allotment.

     An Owner may also purchase bonus time ("Bonus Time") from WorldMark for use
when space is available. Bonus Time can only be reserved within fourteen days of
use for drive-to locations and within thirty days of use for exotic locations
(Hawaii, Mexico and Fiji). Bonus Time gives Owners the opportunity to use
available units on short notice at a reduced rate (generally from $20 to $50 per
night, mid-week in the off-season) and to obtain usage beyond their Vacation
Credit allotment.

     WorldMark collects maintenance dues from Owners based on the number of
Vacation Credits owned. Currently, the annual dues are $249 for the first 5,000
Vacation Credits owned, plus approximately $76 for each additional increment of
2,500 Vacation Credits owned. These dues are intended to cover WorldMark's
operating costs, including condominium association dues at the WorldMark
Resorts. The Company pays WorldMark the dues on all unsold Vacation Credits.
Such payments totaled $1,376,000, $1,107,000 and $793,000 in 1999, 1998 and
1997, respectively.

     WorldMark has a five member board of directors that manages its business
and affairs. Three of the directors and principal executive officers of
WorldMark are also officers of the Company. The Board must obtain the approval
of a majority of the voting power of the Owners represented (excluding
Trendwest) to take certain actions, including (i) incurrence of capital
expenditures exceeding 5% of WorldMark's budgeted gross expenses during any
fiscal year and (ii) selling property of WorldMark during any fiscal year with
an aggregate fair market value in excess of 5% of WorldMark's budgeted gross
expenses for such year.
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<PAGE>   4

                             THE WORLDMARK RESORTS

     The following table sets forth certain information as of December 31, 1999,
regarding each existing WorldMark Resort, planned expansion at existing
WorldMark Resorts through 2001, and planned new WorldMark Resorts through 2001:

<TABLE>
<CAPTION>
                                                                   EXISTING
                                                    DATE            UNITS
                                                 CONTRIBUTED          IN       PLANNED    TOTAL UNITS
   EXISTING RESORTS          LOCATION          TO WORLDMARK(a)     SERVICE    EXPANSION   ANTICIPATED   RCI RATING(b)
   ----------------          --------          ---------------     --------   ---------   -----------   -------------
<S>                      <C>                 <C>                   <C>        <C>         <C>           <C>
ARIZONA
  Pinetop                Pinetop/Lakeside     August 1999              60          --           60       (f)
  Vistoso                Tucson               December 1999            19          85          104       (f)
BRITISH COLUMBIA
  Sundance               Whistler             February 1992            25          --           25       Gold Crown
  Cascade Lodge          Whistler             September 1999           42          --           42       (f)
CALIFORNIA
  North Shore Estates    Bass Lake            October 1991             61          --           61       Gold Crown
  Beachcomber            Pismo Beach          April 1993               20          --           20       Gold Crown
  Palm Springs           Palm Springs         July 1995                64          --           64       R.I.D.
  Big Bear               Big Bear Lake        April 1996               58          --           58       Gold Crown
  Clear Lake             Nice                 July 1998                88          --           88       Gold Crown
  Angels Camp            Angels Camp          September 1998          100          --          100       Gold Crown
  Marina                 Monterey Bay         November 1999            33          --           33       (f)
FIJI
  Denarau Island         Denarau Island       December 1999            38          38           76(c)    (f)
HAWAII
  Valley Isle            Maui                 April 1990               14          --           14       Gold Crown
  Kapaa Shores           Kauai                July 1991                49          --           49       Gold Crown
  Kona                   Hawaii               November 1997            64          --           64       Gold Crown
MEXICO
  Coral Baja             San Jose del Cabo    November 1994           136          --          136       Gold Crown
NEVADA
  Lake Tahoe             Stateline            January 1991             50          --           50       R.I.D
  Las Vegas              Las Vegas            December 1996            42          --           42       Gold Crown
OREGON
  Eagle Crest            Redmond              September 1989           81          --           81       Gold Crown
  Gleneden Beach         Lincoln City         March 1996               80          --           80       Gold Crown
  Running Y Ranch        Klamath Falls        February 1997            81          --           81       Gold Crown
  Schooner Landing       Newport              September 1997           13(d)       --           13       Gold Crown
  Depoe Bay              Depoe Bay            April 1999               54          60          114       Gold Crown
UTAH
  Wolf Creek             Eden                 June 1998                71(e)       --           71       Gold Crown
  Harbor Village         Bear Lake            January 1999              6          20           26       (f)
WASHINGTON
  Lake Chelan Shores     Chelan               August 1990              13          --           13       Gold Crown
  Surfside               Long Beach           September 1991           25          --           25       R.I.D.
  Discovery Bay          Sequim               January 1992             41           5           46       Gold Crown
  Park Village           Leavenworth          July 1992                72          --           72       Gold Crown
  Mariner Village        Ocean Shores         June 1994                32          --           32       Gold Crown
  Birch Bay              Blaine               January 1995            103          --          103       Gold Crown

                                              EXPECTED
PLANNED RESORTS                               COMPLETION
-----------------------                        --------------
  The Canadian           Vancouver, BC        April 2000               --          43           43
  Lake of the Ozarks     Ozarks, MO           September 2000           --         100          100
  Branson                Branson, MO          December 2000            --          81           81
  Kihei                  Maui, HI             April 2001               --         200          200
  Oceanside              Oceanside, CA        July 2001                --         140          140
  Las Vegas              Las Vegas, NV        October 2001             --         200          200
  St. George             St. George, UT       December 2000            --          60           60
                                                                    -----       -----        -----
         Total                                                      1,635       1,032        2,667
                                                                    =====       =====        =====
</TABLE>

                                        4
<PAGE>   5

---------------
(a) The dates in this column indicate, for each resort, the month and year in
    which the first completed units at such resort were transferred to
    WorldMark. At certain resorts, additional units were transferred to
    WorldMark at later dates.

(b) Gold Crown and Resort of International Distinction ("R.I.D.") are resort
    ratings awarded annually by RCI. In February 2000, approximately 19% of the
    resorts reviewed by RCI received a Gold Crown rating, the highest rating
    awarded by RCI, and approximately 14% of the resorts reviewed by RCI
    received an R.I.D. rating, the second-highest rating awarded by RCI.

(c) Ten units will be contributed to WorldMark South Pacific (see "Recent
    Developments") when completed.

(d) The Company purchased 659 weeks of time per year from Schooner's Landing and
    deeded the rights to this time to WorldMark. This is equivalent to 13
    condominium units.

(e) The Company purchased 490 weeks of time per year from Wolf Creek and deeded
    the rights to this time to WorldMark. This is equivalent to 9 condominium
    units. The remaining 62 units were constructed by the Company.

(f) This resort has not yet been rated by RCI.

SALES AND MARKETING

     The Company's sales of Vacation Credits primarily occur at fifteen off-site
sales offices located in metropolitan areas in four regions. The remainder of
the Company's sales of Vacation Credits occur at nine on-site sales offices.
Fractional Interest sales occurred on-site at the Depoe Bay resort in Depoe Bay,
Oregon. In 1999, 80% of the Company's Vacation Credit sales were generated by
off-site sales offices.

     The Company believes the advantages of using off-site sales offices
compared to sales offices located at more remote resorts include (i) access to
larger numbers of potential customers, (ii) convenience for prospective
customers to attend a sales presentation, (iii) access to a wider group of
qualified sales personnel due to more convenient work locations, (iv) ability to
open new sales offices quickly and without significant capital expenditures and
(v) lower marketing costs to attract prospective customers to visit an off-site
sales office.

     The Company's off-site sales offices are approximately 6,000 square feet
and include a theater, sales area and reception area. Each off-site sales center
is staffed by a sales manager, an office administrator, approximately 10 to 25
salespeople, two developer's representatives, and additional staff for guest
registration and clerical assistance. The on-site sales offices are
approximately 3,000 square feet and generally include similar facilities and a
smaller number of staff compared to the off-site sales offices.

     The Company uses a variety of marketing programs to attract prospective
Owners, including sponsored promotional contests offering vacation packages or
gifts, targeted mailings and telemarketing efforts, and various other
promotional programs. The Company also co-sponsors sweepstakes, giveaways and
other promotional programs with professional teams at major sporting events
(such as Portland Trail Blazers basketball games and Seattle Mariners baseball
games) and with supermarkets. The Company continually monitors and adjusts its
marketing programs to improve efficiency. Trendwest targets prospective Owners
through an analysis of age, income and travel interests. One of the many
marketing programs used by the Company delivers targeted prospective Owners a
notice related to the specific promotion, inviting the prospective Owner to call
the Company's toll-free voice mail system to leave a return phone number. Those
persons who call the Company and leave their phone number receive a call from
the Company to invite them to visit an off-site sales office and attend a sales
presentation. As an incentive to attend the presentation, the Company offers
gifts, such as an overnight trip or electronic equipment.

     Printed information regarding Trendwest and WorldMark's properties, as well
as the rights and obligations of Owners, is provided to each prospective member
before Vacation Ownership Interests are sold. Prior to finalizing a sale, each
new Owner meets with one of the Company's developer's representatives to discuss
the new Owner's reasons for joining and to review the rights and obligations of
Owners. The purpose of

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<PAGE>   6

this meeting is to allow prospective Owners to review their proposed commitment
in an environment separate from the sales process.

     Under the laws of each state where the Company sells Vacation Ownership
Interests, each purchaser has a right to rescind the purchase for a period
ranging from three to fourteen calendar days following the later of the date the
contract was signed or the date the purchaser received the last of the documents
required to be provided by the Company, depending on the state. The Company's
current practice is to allow all purchasers a minimum rescission period of seven
days, even if state law allows a shorter period. During 1999 and 1998, the
Company had a rescission rate of 16.3% and 16.7% respectively, which is
consistent with the Company's historical experience.

     Trendwest offers existing Owners cash awards for referrals of potential new
Owners. The Company maintains a staff of marketing individuals who specialize in
promoting referrals by existing Owners. In addition, as part of the Company's
ongoing marketing efforts, it offers existing Owners the opportunity to purchase
additional Vacation Credits (Upgrade Sales) generally at a discount from the
current price. Owners may purchase additional Vacation Credits in increments of
1,000. Trendwest currently employs 36 sales representatives who specialize in
Upgrade Sales. Sales of Vacation Credits from the Company's owner referral
program and Upgrade Sales contributed in the aggregate approximately 27.6% and
26.5% of the Company's net Vacation Credit sales in 1999 and 1998, respectively.

CUSTOMER FINANCING

     Since an important component of the Company's sales strategy is the
affordability of Vacation Credits, the Company believes that a significant
portion of its sales will continue to be financed by the Company. In 1999, the
average new Owner purchased approximately 6,519 Vacation Credits for a purchase
price of approximately $8,855 and the Company financed approximately 88% of the
aggregate purchase price of Vacation Credits sold to new Owners with an average
new Note Receivable of approximately $7,794. During 1999, the aggregate amount
of Notes Receivable generated in connection with the sale of Vacation Credits to
new Owners was approximately $175.0 million. Both Vacation Credit and Fractional
Interest sales require a down payment of at least 10% of the purchase price.
Notes Receivable relating to Vacation Credit sales have a term of up to seven
years at interest rates of 13.9% or 14.9%. Notes Receivable relating to
Fractional Interest sales have a term of up to ten years at interest rates of up
to 11.9%.

     Existing Owners purchasing additional Vacation Credits must either make a
down payment of 10% of the price of the Upgrade Sale or have sufficient equity
in their existing Vacation Credits to provide at least 10% of the value of all
Vacation Credits, including the Upgrade. The amount of the existing receivable
is cancelled and a new seven-year note secured by an interest in all Vacation
Credits owned is issued.

     At December 31, 1999, an aggregate of $389.9 million of Notes Receivable
were outstanding, of which approximately $100.9 million with a weighted average
interest rate of 14.1% per annum had been retained by the Company. The balance
of approximately $289.0 million of Notes Receivable had been sold by the Company
prior to that date. The Company retains limited recourse liability for Notes
Receivable sold. The Company may continue to sell a substantial amount of its
Notes Receivable. See "Liquidity and Capital Resources -- Finance Subsidiaries",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Risk Factors -- Risks Associated with Customer Financing."

     Notes Receivable become delinquent when a scheduled payment is 30 days or
more past due and reservation privileges are suspended when a scheduled payment
is 60 days or more past due. At December 31, 1999, approximately $7.5 million,
or 1.91% of the Company's total receivables portfolio of $389.9 million,
including Notes Receivable previously sold by the Company, were past due 60 days
or more. The Notes Receivable are secured by a security interest in the related
Vacation Credits or Fractional Interest. The Company's practice has been to
continue to accrue interest on Notes Receivable until such accounts are deemed
uncollectible (generally when the receivable becomes 180 days past due), at
which time the Company writes off such Notes Receivable and reverses any
interest that had been accrued, reclaims the related Vacation Credits that
secure such Notes Receivable and returns such Vacation Credits to inventory as

                                        6
<PAGE>   7

available for resale. In the event of default of a Fractional Interest, the
Company would foreclose on the title and re-market the interest.

     The Company maintains an allowance for doubtful accounts in respect of the
Notes Receivable owned by the Company and an allowance for recourse liability in
respect of the Notes Receivable that have been sold by the Company. The
aggregate amount of these allowances at December 31, 1999 and 1998 were $29.1
million and $20.9 million, respectively, representing approximately 7.5% and
6.8%, respectively, of the total portfolio of Notes Receivable at those dates,
including the Notes Receivable that had been sold by the Company. The increase
in the provision as a percentage of the total portfolio reflects sales growth in
new regions with anticipated future default rates higher than the Company's
historical average. No assurance can be given that these allowances will be
adequate, and if the amount of the Notes Receivable that is ultimately written
off materially exceeds the related allowances, the Company's business, results
of operations and financial condition could be materially adversely affected.

     The Company estimates its allowance for doubtful accounts and recourse
liability by analysis of bad debts by each sales site by year of Note Receivable
origination. The Company uses this historical analysis, in conjunction with
other factors such as local economic conditions and industry trends. The Company
also utilizes experience factors of more mature sales sites in establishing the
allowance for bad debts at new sales offices. The Company generally charges off
all receivables when they become 180 days past due and returns the reclaimed
credits associated with such charge-offs to inventory. At December 31, 1999 and
1998, 1.91% and 1.97%, respectively, of the Company's total receivables
portfolio of $389.9 million and $307.7 million, respectively, were more than 60
days past due (with reservation privileges suspended).

     Sage Systems, Inc. ("Sage"), a licensed escrow company, services the
Company's entire portfolio of Notes Receivable under an Escrow Agreement with
the Company. Under the Escrow Agreement, contracts for the sale of Vacation
Credit and Fractional Interest sales by the Company, and the monthly contract
payments from such sales, are placed in escrow with Sage. Sage disburses the
escrowed funds to the Company, in the case of Notes Receivable owned by the
Company, or to the purchasers of the Company's Notes Receivable, in the case of
Notes Receivable sold by the Company (see "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Finance Subsidiaries"). The
Company handles billing inquiries and all other personal interaction with the
Owners, including collections on its Notes Receivable.

PROPERTY OWNERSHIP

  (i) Vacation Credits

     Unlike many "right-to-use" timeshare operations in which a developer sells
timeshare interests in properties it owns, the Company does not own the
properties designated for timeshare use. Rather, when the Company purchases
resort property, it vests in WorldMark title to the property free and clear of
any debt encumbrance. With respect to property developed by the Company, the
Company may initially obtain title in the undeveloped property and then deed the
developed resort property to WorldMark. At the time the Company vests title to
the property in WorldMark, a "Declaration of Vacation Owner Program" is recorded
against the property. This declaration establishes the usage rights of Owners as
a covenant on title, thus protecting those rights against the effect of any
future encumbrance. This ownership structure is designed to protect the
timeshare usage rights of the Owners and comply with statutory regulations.

     The Company's only consideration for paying for the properties and for
arranging for the seller of the property to transfer title of the property
directly to WorldMark is the exclusive right to sell Vacation Credits and to add
new properties and additional units at the Company's discretion. The Company's
rights to sell Vacation Credits against the deeded properties are protected by a
security interest in the unsold inventory of Vacation Credits. This lien
prevents WorldMark from revoking such rights or transferring them to another
party.

     Vacation Credits are allocated to each unit based on its vacation use value
relative to existing properties. Vacation Credits are assigned for weeks of
peak, shoulder and off-peak use, reserving time for Bonus Time,

                                        7
<PAGE>   8

repairs and maintenance. At non-exotic resorts (exotic resorts are Hawaii,
Mexico and Fiji), only 48 weeks of time of each unit are available for sale to
Owners leaving 4 weeks for Bonus Time and maintenance and upkeep on the units.
At exotic locations, 51 weeks of time of each unit are available for sale to
Owners leaving the remaining time for maintenance and upkeep. The aggregate
Vacation Credits assigned to each unit may not be changed in the future, and the
actual number of Credits assigned are contained in the recorded declaration.
This system of irrevocable allocation and registration with the state protects
the Owners by preventing dilution in the usage value of the Owner's Vacation
Credits.

     As of December 31, 1999, WorldMark had a reserve for replacement costs of
approximately $12.2 million for all depreciable assets (e.g., furniture,
appliances, carpeting, roofs and decks) of the WorldMark Resorts. In those
WorldMark Resorts where WorldMark owns only a small percentage of the units in a
complex and belongs to an independent homeowners' association, the dues paid to
such association by WorldMark are partially used to provide adequate reserves
for replacement costs relating to such properties.

  (ii) Fractional Interests

     Fractional Interests represent deeded intervals in condominium units. The
purchaser of a Fractional Interest owns an equal share of the condominium and
pays maintenance dues to a Homeowner's Association made up of other Fractional
Owners.

     Fractional Owners have been deeded specific weeks of time spaced evenly
throughout the year. The current Fractional Project at Depoe Bay in Oregon are
13th shares. Each share represents four one-week intervals thirteen weeks apart.
These intervals rotate forward one week each year allowing a Fractional Owner to
have access to every calendar week over a thirteen year period.

PARTICIPATION IN VACATION INTERVAL EXCHANGE NETWORK

     The Company believes that the sale of Vacation Credits is made more
attractive by the Company's participation in the vacation interval exchange
network operated by Resort Condominiums International, LLC (RCI). For a
membership fee (currently $84 per year with no commitment beyond one year),
Owners may participate in RCI, which allows Owners to exchange Vacation Credits
for an occupancy right at a participating resort in RCI based upon availability
and the payment of an additional exchange fee (currently $124 for exchanges in
North America and $162 for International exchanges). The Company pays the RCI
annual membership fee for the Owner's first year. An Owner may exchange Vacation
Credits for an occupancy right in a resort participating in the RCI network by
requesting occupancy and specifying the desired unit size and time period. RCI
provides an Owner hotline with direct phone access to representatives who are
knowledgeable about WorldMark and are responsible for assisting Owners with an
exchange. RCI assigns a weekly exchange value for Vacation Credits. This
exchange value is based upon a number of factors. If RCI is unable to meet the
Owner's initial request, it suggests alternative resorts based on availability.

COMPETITION

     The Company is subject to significant competition from other entities
engaged in the business of resort development, sales and operation, including
vacation interval ownership, condominiums, hotels and motels. See "Risk
Factors -- Competition".

EMPLOYEES

     As of December 31, 1999, Trendwest had 1,494 full-time employees. The
Company believes that its employee relations are good. None of the Company's
employees are represented by a labor union.

     The Company prefers to fill promotional opportunities from within the
existing staff. To support this philosophy, a full array of training curriculums
have been designed and offered. These "in-house" training courses range from
curriculums including management training, product knowledge, recruiting and
interviewing, employee orientation, and job specific training such as Best Sales
Practices, and Customer Service.

                                        8
<PAGE>   9

     In 1999, the Company introduced as a new benefit, the Employee Stock
Purchase Plan. This program allows employees to purchase company stock through a
payroll deduction, with certain provisions, at a discount.

                                  RISK FACTORS

     In addition to the other information contained in this Form 10-K, the
following risk factors should be carefully considered in evaluating the Company
and its business. The Company cautions the reader that this list of risk factors
may not be exhaustive. This document contains forward-looking statements which
involve risks and uncertainties. The Company's actual results and the timing of
certain events could differ materially from those anticipated by such
forward-looking statements as a result of certain factors, including the factors
set forth below and in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business," as well as those discussed
elsewhere in the Form 10-K.

DEPENDENCE ON ACQUISITIONS OF ADDITIONAL RESORT UNITS FOR GROWTH; NEED FOR
ADDITIONAL CAPITAL

     The Company purchases or develops resort units for WorldMark in exchange
for the exclusive right to sell the Vacation Credits assigned to these units.
When the Company purchases or develops a new resort or additional units at an
existing WorldMark Resort, the Company causes the units to be conveyed directly
to WorldMark free of any monetary encumbrances, and therefore must purchase its
properties without any financing secured by the properties. The Company can only
sell additional Vacation Credits to the extent that it acquires or develops
additional resort units for WorldMark. The Company's future growth and financial
success therefore will depend to a significant degree on the availability of
attractive resort locations and the Company's ability to acquire and develop
additional resort units on favorable terms and to obtain additional debt and
equity capital to fund such acquisitions and development. There can be no
assurance that the Company will be successful in this regard. As of December 31,
1999, the Company had purchase agreements, developments in progress or plans to
obtain 1,032 additional resort units by the end of 2001. No assurance can be
given that all of such units will be acquired or completed on a timely basis or
at all. There are numerous potential buyers of resort real estate competing to
acquire resort properties which the Company may consider attractive resort
acquisition opportunities. There can be no assurance that the Company will be
able to compete against such other buyers successfully.

     Since the Company generally finances approximately 88% of the aggregate
purchase price of Vacation Credits sold to new Owners, it does not generate
sufficient cash from sales to provide the necessary capital to purchase
additional resort units. No assurance can be given that the Company will be able
to obtain debt or equity capital through the sale or securitization of its Notes
Receivable, or otherwise, in order to continue to acquire additional properties
or that such future financing can be obtained on terms favorable to the Company.
See "Liquidity and Capital Resources -- Finance Subsidiaries".

RISKS ASSOCIATED WITH DEVELOPMENT AND CONSTRUCTION ACTIVITIES

     The Company intends to expand its acquisition, development, construction
and expansion of timeshare resorts. There can be no assurance that the Company
will complete current or future development or expansion projects. Risks
associated with these activities include the risk that (i) acquisition or
development opportunities may be abandoned; (ii) construction costs may exceed
original estimates, possibly making the development or expansion uneconomical or
unprofitable; (iii) financing may not be available on favorable terms or at all;
and (iv) construction may not be completed on schedule, resulting in increased
interest expense and delays in the availability for sale of Vacation Credits.
Development activities are also subject to risks relating to inability to
obtain, or delays in obtaining, all necessary zoning, land-use, building,
occupancy and other required governmental permits and authorizations, the
ability of the Company to coordinate construction activities with the process of
obtaining such permits and authorizations, and the ability of the Company to
obtain the financing necessary to complete the necessary acquisition,
construction and conversion work. In addition, the Company's construction
activities are generally performed by third-party contractors. These third-party
contractors generally control the timing, quality and completion of the
construction

                                        9
<PAGE>   10

activities. Nevertheless, construction claims may be asserted against the
Company for construction defects and such claims may give rise to liabilities.
New development activities, regardless of whether or not they are ultimately
successful, typically require a substantial portion of management's time and
attention. The ability of the Company to expand its business to include new
resorts will in part depend upon the availability of suitable properties at
reasonable prices and the availability of financing for the acquisition and
development of such properties. In the future, the Company may undertake the
development of larger resort complexes. No assurance can be given that any such
larger resort complexes will be developed in a profitable manner, if at all.

FACTORS AFFECTING SALES VOLUME

     As the number of potential customers in the geographic area of a sales
office who have attended a sales presentation increases, the Company may have
increasing difficulty in attracting additional potential customers to a sales
presentation at that office and it may become increasingly difficult for the
Company to maintain current sales levels at its existing sales offices.
Accordingly, the Company anticipates that a substantial portion of its future
sales growth will depend on the opening of additional sales offices. No
assurance can be given, however, that sales from existing or new sales offices
will meet management's expectations. If the Company does not open additional
sales offices or if existing or new sales offices do not perform as expected,
the Company's business, results of operations and financial condition could be
materially adversely affected.

     The Company's marketing is dependent on outbound telemarketing activity to
contact prospects and invite guests to attend a sales presentation. Any
disruption in the Company's ability to utilize outbound telemarketing, in the
short term, could have a material adverse affect on attendance at sales
presentations and sales volume until suitable substitute programs could be
developed.

GEOGRAPHIC CONCENTRATION IN THE WESTERN UNITED STATES

     The Company presently sells Vacation Credits in Alaska, Arizona,
California, Idaho, Oregon, Utah and Washington primarily to residents of those
states and of British Columbia. The Company intends to continue to sell Vacation
Credits and Fractional Interests in these seven states and to increase the
number of its sales offices. Since all of the Company's sales offices are in the
western United States, any economic downturn in this area of the country could
have a material adverse effect on the Company's business, results of operations
and financial condition. In addition, the appeal of becoming an Owner may
decrease if residents of the western United States and British Columbia do not
continue to view the locations of WorldMark's Resorts (which are primarily
located in these areas) as attractive vacation destinations.

GENERAL ECONOMIC CONDITIONS; CONCENTRATION IN TIMESHARE INDUSTRY

     Any downturn in economic conditions or significant price increases or
adverse events related to the travel and tourism industry, such as the cost and
availability of fuel, could depress discretionary consumer spending and have a
material adverse effect on the Company's business, results of operations and
financial condition. Any such economic conditions, including recession, may also
adversely affect the future availability of attractive financing rates for the
Company or its customers and may materially impact the Company's business.
Furthermore, adverse changes in general economic conditions may adversely affect
the collectibility of the Notes Receivable. Because the Company's operations are
conducted solely within the timeshare industry, any adverse changes affecting
the timeshare industry could have a material adverse effect on the Company's
business, results of operations and financial condition.

RISKS ASSOCIATED WITH CUSTOMER FINANCING

     The Company obtains a security interest in the purchased Vacation Credits
and Fractional Interests and it does not verify a prospective Owner's credit
history for Vacation Credit sales. At December 31, 1999, an aggregate of $389.9
million of Notes Receivable were outstanding, of which approximately $100.9
million had been retained by the Company. The remaining balance of approximately
$289.0 million of Notes Receivable had been sold by the Company prior to that
date. The Company retains limited recourse liability for Notes

                                       10
<PAGE>   11

Receivable sold. This recourse is limited to the retained and residual interest
in Notes Receivable sold. As of December 31, 1999 and 1998, total retained
interest in Notes Receivable sold of $36,782 and $37,063, respectively, was
included in Notes Receivable in the accompanying consolidated balance sheets
relating to Notes Receivable sold of $288,950 and $200,840, respectively.
Although it is not required to do so, the Company's historical practice has been
to repurchase defaulted sold Notes Receivable up to certain limits, generally
10% to 17% of the face amount of the original balance of Notes Receivable sold.

     Notes Receivable become delinquent when a scheduled payment is 30 days or
more past due and reservation privileges are suspended when a scheduled payment
is 60 days or more past due. At December 31, 1999, approximately $7.5 million,
or 1.91% of the Company's total receivables portfolio of $389.9 million,
including Notes Receivable previously sold by the Company, were past due 60 days
or more. The Notes Receivable are secured by a security interest in the related
Vacation Credits or Fractional Interests. The Company's practice has been to
continue to accrue interest on Notes Receivable until such accounts are deemed
uncollectible, at which time the Company writes off such Notes Receivable and
records an expense for any interest that had been accrued, reclaims the related
Vacation Credits that secure such Notes Receivable and returns such Vacation
Credits or Fractional Interests to inventory available for sale. However, the
associated marketing costs and sales commissions are not recovered by the
Company and these expenses must be incurred again to resell the Vacation Credits
or Fractional Interests.

     The Company maintains an allowance for doubtful accounts in respect of the
Notes Receivable owned by the Company and an allowance for recourse liability
for the Company's limited recourse in Notes Receivable sold. These allowances
are estimates and if the amount of the Notes Receivable that is ultimately
uncollectible materially exceeds the related allowances, the Company's business,
results of operations and financial condition could be materially adversely
affected. See "Business -- Customer Financing."

INTEREST RATE RISK

     The Company generally provides financing for a significant portion of the
aggregate purchase price of Vacation Credits and Fractional interests sold at a
fixed interest rate. In order to provide liquidity, the Company through the
Finance Subsidiaries, sells or securitizes its Notes Receivable. Although a
significant portion of the existing financing of the Notes Receivable through
the Finance Subsidiaries is at a fixed rate, if interest rates were to increase
significantly, the Company's future cost of funds would also likely increase
significantly. The Company has the ability to respond to rising interest rates
by increasing the interest rate offered to finance Vacation Credit and
Fractional Interest purchases. However, such an increase could have a material
adverse effect on sales or on the percentage of Owners who finance their
purchases through the Company, which could have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Business -- Customer Financing" and "Liquidity and Capital Resources -- Finance
Subsidiaries."

     The Company may be exposed to credit losses in the event of nonperformance
by the counterparties to its interest rate caps and forward swap agreements used
to hedge interest rate risk in securitization transactions. The Company does not
obtain collateral to support financial instruments but monitors the credit
standing of the counterparties.

FOREIGN EXCHANGE RISK

     The Company is subject to foreign currency exchange rate risk when
developing resort properties denominated in a foreign currency and future sales
operations in the South Pacific. While the Company intends to mitigate its
foreign exchange risk through swap agreements and borrowings denominated in
foreign currencies, no assurance can be given that these strategies will be
successful and that changes in foreign currency exchange rates could have a
material adverse effect on the Company's business, results of operations and
financial condition

     The Company may be exposed to losses in the event of nonperformance by the
counterparties to its forward swap agreements used to hedge foreign exchange
risks. The Company does not obtain collateral to support financial instruments
but monitors the credit standing of the counterparties.
                                       11
<PAGE>   12

RISKS ASSOCIATED WITH OVERSEAS DEVELOPMENT

     The Company is subject to risks arising from developing resort properties
and sales and marketing activities in the South Pacific. The Company is in the
process of registering its product under Australian regulations. Unlike the
United States, Australian law requires a vacation ownership interest to be sold
as a security. No assurance can be given that the Company will be successful in
its efforts to register its product under Australian law.

     The Company's Vacation Credit system is not widely known in the South
Pacific. No assurance can be given that consumers in that market will find the
benefits of the Company's Vacation Credit program or the resort locations
desirable.

     Many, if not all of the risks described herein, are potential risk factors
for development activities in the South Pacific.

COMPETITION

     The Company is subject to significant competition from other entities
engaged in the business of resort development, sales and operation, including
vacation interval ownership, condominiums, hotels and motels. Major companies
that now operate or are developing or planning to develop vacation interval
resorts include Marriott International, Inc., The Walt Disney Company, Hilton
Hotels Corporation and Starwood Hotels and Resorts, Inc. In addition, other
companies in the timeshare industry, such as Sunterra Corp., Westgate Resorts,
Fairfield Communities, Inc. and Silverleaf Resorts, Inc., currently compete or
may in the future compete with the Company.

     Resales of Vacation Credits by Owners may compete with sales of Vacation
Credits by the Company and may inhibit the Company's ability to increase the
market price of Vacation Credits it sells.

REGULATION OF MARKETING AND SALES OF VACATION CREDITS; OTHER LAWS

     The Company's marketing and sales of Vacation Credits and certain of its
other operations are subject to extensive regulation by the states and foreign
jurisdictions in which the WorldMark Resorts are located and in which Vacation
Credits are marketed and sold and also by the federal government.

     State and Provincial Regulations. Most U.S. states and Canadian provinces
have adopted specific laws and regulations regarding the sale of vacation
interval ownership programs. Alaska, Arizona, California, Hawaii, Idaho, Oregon,
Utah, Washington and British Columbia require the company to register WorldMark
Resorts, the Company's vacation program and the number of Vacation Credits
available for sale in such state or province with a designated state or
provincial authority. The Company must amend its registration if it desires to
increase the number of Vacation Credits registered for sale in that state or
province. Either the Company or the state or provincial authority assembles a
detailed offering statement describing the Company and all material aspects of
the project and sale of Vacation Credits. The company is required to deliver the
offering statement to all new purchasers of Vacation Credits, together with
certain additional information concerning the terms of the purchase. Hawaii
imposes particularly stringent and broad regulation requirements for the sale of
interests in interval ownership programs that have resort units located in
Hawaii. The Company has incurred substantial expenditures over an extended
period of time in the registration process in Hawaii and still has not completed
this process. Hawaii has allowed the use of WorldMark units in Hawaii, provided
that the company continues in good faith to pursue registration in Hawaii. Laws
in each state where the Company sells Vacation Credits grant the purchaser from
three to fourteen calendar days following the later of the date the contract was
signed or the date the purchaser received the last of the documents required to
be provided by the Company to rescind the contract. Most states have other laws
which regulate the Company's activities, such as real estate licensure laws,
laws relating to the use of public accommodations, and facilities by disabled
persons, sellers of travel licensure laws, anti-fraud laws, advertising laws and
labor laws.

     Federal Regulations. The Federal Trade Commission has taken an active
regulatory role in the interval ownership industry through the Federal Trade
Commission Act, which prohibits unfair or deceptive acts or
                                       12
<PAGE>   13

competition in interstate commerce. Other federal legislation to which the
Company is or may be subject includes the Truth-In-Lending Act and Regulation Z,
the Equal Opportunity Credit Act and Regulation B, the Interstate Land Sales
Full Disclosure Act, the Real Estate Standards Practices Act, the Telephone
Consumer Protection Act, the Telemarketing and Consumer Fraud and Abuse
Prevention Act, the Civil Rights Act of 1964 and 1968, the Fair Housing Act and
the Americans with Disabilities Act.

     Although the Company believes that it is in material compliance with all
federal, state, local and foreign laws and regulations to which it is currently
subject, there can be no assurance that it is in fact, in compliance. Any
failure by the Company to comply with applicable laws or regulations could have
a material adverse effect on the Company's business, results of operations and
financial condition. In addition, the Company will continue to incur significant
costs to remain in compliance with applicable laws and regulations, and such
costs could increase substantially in the future.

POSSIBLE ENVIRONMENTAL LIABILITIES

     Under various federal, state, local and foreign laws, ordinances and
regulations, the owner or operator of real property generally is liable for the
costs of removal or remediation of certain hazardous or toxic substances located
on or in, or emanating from, such property, as well as related costs of
investigation and property damage. Such laws often impose such liability without
regard to whether the owner or operator knew of, or was responsible for, the
presence of such hazardous or toxic substances. Other federal and state laws
require the removal or encapsulation of asbestos-containing material when such
material is in poor condition or in the event of construction, demolition,
remodeling or renovation. Other statutes may require the removal of underground
storage tanks. Noncompliance with these and other environmental, health or
safety requirements may result in the need to cease or alter operations at the
property. Although the Company conducts an environmental assessment with respect
to the properties it acquires for WorldMark, the Company has not received a
Phase I environmental report for every WorldMark Resort. There can be no
assurance that any environmental assessments undertaken by the Company with
respect to the WorldMark Resorts have revealed all potential environmental
liabilities, or that an environmental condition does not otherwise exist as to
any one or more of the WorldMark Resorts that could have a material adverse
effect on the Company's business, results of operations and financial condition.

NATURAL DISASTERS; UNINSURED LOSS

     WorldMark maintains property insurance and liability insurance for the
units at the WorldMark Resorts, with certain policy specifications, insured
limits and deductibles. Certain types of losses, such as losses arising from war
or military action, nuclear hazard or pollution, are generally excluded from
WorldMark's insurance coverage. Should an uninsured loss or loss in excess of
insured limits occur, WorldMark has the option to either (i) remove such units
from the Vacation Credit system, which would result in a proportional dilution
of vacation time available for the Vacation Credits which have been sold, or
(ii) pay the related costs of replacement. Although WorldMark's board of
directors may impose a limited amount of special assessments to pay for capital
improvements or major repairs, there can be no assurance that WorldMark would be
able to increase assessments to provide sufficient funds to pay for all possible
capital improvements and major repairs of the units at the WorldMark Resorts.

     In such event, the Company may need to advance funds to WorldMark in order
to maintain the quality of the WorldMark Resorts or WorldMark may be required to
defer certain improvements or repairs. In addition, the Company may advance
funds to WorldMark if WorldMark does not have sufficient funds to pay its
obligations in a timely manner. See "Business -- Insurance; Legal Proceedings."

EFFECTIVE VOTING CONTROL BY MAJORITY SHAREHOLDER

     JELD-WEN owns approximately 80% of the outstanding shares of the Company's
common stock. This concentration of ownership gives JELD-WEN control of the
election of directors and the management and affairs of the Company and
sufficient voting power to determine the outcome of all matters submitted to the

                                       13
<PAGE>   14

shareholders for approval, including mergers, consolidations and the sale of
all, or substantially all, of the Company's assets.

ITEM 2. PROPERTIES

     The Company owns its corporate headquarters in Redmond, Washington. In the
ordinary course of business, the Company purchases property for development and
deeds said property to WorldMark upon completion of the project. See
"Business -- WorldMark".

ITEM 3. LEGAL PROCEEDINGS

     The Company is not aware of any material legal proceedings pending against
it. The Company may be subject to claims and legal proceedings from time to time
in the ordinary course of business.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

     There were no matters submitted to a vote of the Company's equity holders
during the fourth quarter of 1999.

                                       14
<PAGE>   15

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

     The Company's common stock is quoted on the Nasdaq National Market under
the symbol "TWRI". The following table sets forth for the periods indicated, the
high and low sales price for Common Stock, as quoted on the Nasdaq National
Market:

<TABLE>
<CAPTION>
                                                              HIGH      LOW
                                                              ----      ---
<S>                                                           <C>       <C>
YEAR ENDED DECEMBER 31, 1999:
First quarter...............................................   19 1/4   11 3/4
Second quarter..............................................   24 1/4   15
Third quarter...............................................   28 1/2   19 7/8
Fourth quarter..............................................   26 1/4   17 1/2
YEAR ENDED DECEMBER 31, 1998:
First quarter...............................................   23 3/8   18
Second quarter..............................................   19 3/4   12 1/8
Third quarter...............................................   14        7 3/4
Fourth quarter..............................................   15 3/8    4 7/8
</TABLE>

     On February 28, 2000, there were approximately 47 holders of record of the
Company's common stock and approximately 1,539 beneficial shareholders.

     The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate paying cash dividends on its Common Stock. The
Company currently intends to retain future earnings to finance its operations
and fund the growth of the business. Any payment of future dividends will be at
the discretion of the Board of Directors of the Company and will depend on,
among other things, the Company's earnings, financial condition, contractual
restrictions in respect of the payment of dividends and other factors the Board
of Directors deems relevant.

                                       15
<PAGE>   16

ITEM 6. SELECTED FINANCIAL DATA

     The selected data presented below under the captions "Statement of
Operations Data" and "Balance Sheet Data" are derived from the audited financial
statements of Trendwest Resorts, Inc. and subsidiaries. The information set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the combined and
consolidated financial statements for the Company and the notes thereto which
are contained elsewhere herein. The information presented below under the
captions "Operating Data" and "Selected Quarterly Financial Data" is unaudited.

<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                                  -------------------------------------------------------------------
                                     1999          1998          1997          1996          1995
                                  -----------   -----------   -----------   -----------   -----------
                                      (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S>                               <C>           <C>           <C>           <C>           <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
  Vacation Credit and Fractional
     Interest sales, net........  $   234,665   $   170,817   $   128,835   $   100,040   $    77,783
  Finance income................       15,243        13,790        11,989         7,143         5,368
  Gains on sales of notes
     receivable.................       16,265        10,959         6,582         5,673         3,222
  Resort management services....        3,710         2,328         2,032         1,501         1,579
  Other.........................        4,593         3,063         2,149         2,552         1,226
                                  -----------   -----------   -----------   -----------   -----------
          Total revenues........      274,476       200,957       151,587       116,909        89,178
                                  -----------   -----------   -----------   -----------   -----------
Costs and operating expenses:
  Vacation Credit and Fractional
     Interest cost of sales.....       68,611        48,059        34,569        27,400        20,484
  Resort management services....        1,656         1,399         1,108           859         1,283
  Sales and marketing...........      104,952        83,347        59,448        47,810        36,374
  General and administrative....       25,234        17,180        13,449        10,904         8,391
  Provision for doubtful
     accounts and recourse
     liability..................       16,450        11,865         9,077         7,467         6,522
Interest........................          442           353         1,739         2,445         2,380
                                  -----------   -----------   -----------   -----------   -----------
          Total costs and
            operating
            expenses............      217,345       162,203       119,390        96,885        75,434
                                  -----------   -----------   -----------   -----------   -----------
Income before income taxes......       57,131        38,754        32,197        20,024        13,744
  Income tax expense............       22,258        14,723        11,588         7,348         4,979
                                  -----------   -----------   -----------   -----------   -----------
Net income......................  $    34,873   $    24,031   $    20,609   $    12,676   $     8,765
                                  ===========   ===========   ===========   ===========   ===========
Net income per share of common
  stock:
  Basic.........................  $      2.04   $      1.38   $      1.32   $      0.88   $      0.61
  Diluted.......................  $      2.03   $      1.38   $      1.32   $      0.88   $      0.61
Shares used in computing net
  income per share of common
  stock(1):
  Basic.........................   17,129,900    17,412,818    15,596,419    14,417,116    14,387,169
  Diluted.......................   17,176,954    17,416,691    15,596,419    14,417,116    14,387,169
OPERATING DATA:
Number of WorldMark Resorts (at
  end of period)................           31            24            22            19            16
Number of units (at end of
  period).......................        1,635         1,272           928           746           499
Number of Vacation Credits sold
  (in thousands)................      165,829       131,058        99,911        82,270        65,308
Average price per Vacation
  Credit sold...................  $      1.34   $      1.28   $      1.27   $      1.24   $      1.21
Average cost per Vacation Credit
  sold..........................  $      0.37   $      0.37   $      0.35   $      0.33   $      0.31
Number of Owners (at end of
  period).......................       87,432        67,982        51,778        38,997        27,965
Average purchase price for new
  Owners........................  $     8,855   $     8,477   $     8,507   $     8,432   $     8,325
</TABLE>

                                       16
<PAGE>   17

<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                                  -------------------------------------------------------------------
                                     1999          1998          1997          1996          1995
                                  -----------   -----------   -----------   -----------   -----------
                                      (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S>                               <C>           <C>           <C>           <C>           <C>
BALANCE SHEET DATA:
Cash, including restricted
  cash..........................  $     4,747   $     2,360   $     1,289   $       802   $       516
Total assets....................      209,963       198,498       151,750        89,330        71,289
Indebtedness(2).................        3,900        35,688         1,947        22,371        24,826
Shareholders' equity............      173,715       141,262       122,125        49,744        36,753
</TABLE>

---------------
(1) Includes the 5,193,693 shares issued to JELD-WEN in connection with the
    Consolidation Transactions for all periods presented.

(2) Indebtedness is comprised of notes payable to JELD-WEN and others.

SELECTED QUARTERLY FINANCIAL DATA

<TABLE>
<CAPTION>
                                                               1999 QUARTERS ENDED
                                                --------------------------------------------------
                                                MARCH 31    JUNE 30    SEPTEMBER 30    DECEMBER 31
                                                --------    -------    ------------    -----------
<S>                                             <C>         <C>        <C>             <C>
Total revenue.................................  $59,905     $73,295      $71,994         $69,282
Total costs and operating expenses............   46,408      57,850       57,422          55,665
Net income....................................    8,144       9,510        8,864           8,355
Net income per common share:
  Basic.......................................  $   .47     $   .55      $   .52         $   .49
  Diluted.....................................  $   .47     $   .55      $   .52         $   .49
</TABLE>

<TABLE>
<CAPTION>
                                                               1998 QUARTERS ENDED
                                                --------------------------------------------------
                                                MARCH 31    JUNE 30    SEPTEMBER 30    DECEMBER 31
                                                --------    -------    ------------    -----------
<S>                                             <C>         <C>        <C>             <C>
Total revenue.................................  $42,828     $47,993      $53,193         $56,944
Total costs and operating expenses............   33,645      39,715       43,801          45,043
Net income....................................    5,864       5,164        5,884           7,119
Net income per Common Share Basic.............  $   .33     $   .29      $   .34         $   .41
  Diluted.....................................  $   .33     $   .29      $   .34         $   .41
</TABLE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

     The statements below and other statements herein contain forward looking
information which include future financing transactions, acquisition of
properties, and the Company's future prospects and other forecasts and
statements of expectations. Actual results may differ materially from those
expressed in any forward-looking statement made by the Company, due among other
things, to the Company's ability to develop or acquire additional resort
properties, find acceptable debt or equity capital to fund such development, as
well as other risk factors as outlined in the "Risk Factors" section of this
Form 10-K.

OVERVIEW

     Trendwest markets, sells and finances timeshare ownership interests in the
form of Vacation Credits and Fractional Interests and acquires, develops and
manages the WorldMark Resorts. The Company derives revenue primarily from the
sale of Vacation Credits and Fractional Interests, from the financing of
Vacation Credits and Fractional Interests and from management fees generated
from its management agreement with WorldMark.

     Vacation Credit, Fractional Interests and Upgrade Sales are recognized on
the accrual basis after the Company has received an executed sales contract and
a minimum 10% down payment, and the rescission period (generally three to
fourteen days) has passed. In instances where the Company finances an Upgrade
Sale and the customer does not make an additional cash down payment of at least
10% of the Upgrade Sale, the Company uses the installment method to recognize
revenue. Under the installment method, gross profit on such Upgrade Sale is
deferred and thereafter recognized in relation to each principal payment
received.
                                       17
<PAGE>   18

Revenue is fully recognized on the Upgrade Sale when the principal collected
related to the Upgrade Sale totals 10% of the amount of the Upgrade sale. In
1999, 72% of Upgrade Sales had the additional 10% cash down payment, as compared
to 74% in 1998.

     The Company acquires or develops additional resort units for WorldMark and
contributes those units to WorldMark free of monetary encumbrances, thereby
creating additional Vacation Credits for sale by the Company. The Company also
acquires or develops resort units for Fractional Interest sales. These units are
not contributed to WorldMark. The Company assigns each WorldMark Resort unit a
specific number of Vacation Credits based on its vacation use value relative to
existing WorldMark Resort units. Acquisition and construction costs associated
with the resort units are recorded as inventory. Vacation Credit and Fractional
Interest cost of sales are allocated as sales are recognized.

     Financing is provided by Trendwest at an interest rate of 13.9% or 14.9%
per annum for a term of up to seven years for Vacation Credits and an interest
rate of up to 11.9% per annum for a term of up to ten years for Fractional
Interest sales. The Company routinely sells Notes Receivable to financial
institutions and other investors to generate liquidity to acquire or develop new
resort units and for working capital. The Company recognizes a gain on the sale
of Notes Receivable at the time of sale equal to the excess of the proceeds
received (cash plus residual interest in Notes Receivable sold) over the
allocated carrying value of the Notes Receivable sold. Residual interest in
Notes Receivable sold represents the present value of the estimated net future
cash flows of the payment streams, resulting from the sale of Notes Receivable,
and is carried at fair value with the changes in fair value included in finance
income.

RESULTS OF OPERATIONS

     The following discussion of the results of operations relates to entities
comprising the Company on a combined historical basis.

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                              -----------------------
                                                              1999     1998     1997
                                                              -----    -----    -----
<S>                                                           <C>      <C>      <C>
AS A PERCENTAGE OF TOTAL REVENUES:
  Vacation Credit and Fractional Interest sales, net........   85.5%    85.0%    85.0%
  Finance income............................................    5.5      6.9      7.9
  Gains on sales of notes receivable........................    5.9      5.5      4.3
  Resort management services................................    1.3      1.1      1.3
  Other.....................................................    1.8      1.5      1.5
                                                              -----    -----    -----
                                                              100.0%   100.0%   100.0%
                                                              =====    =====    =====
AS A PERCENTAGE OF VACATION CREDIT AND FRACTIONAL INTEREST
  SALES, NET:
  Vacation Credit and Fractional Interest cost of sales.....   29.2%    28.2%    26.8%
  Sales and marketing.......................................   44.7     48.8     46.1
  Provision for doubtful accounts and recourse liability....    7.0      7.0      7.0
AS A PERCENT OF RESORT MANAGEMENT REVENUES:
  Cost of resort management services........................   45.9%    60.9%    54.5%
AS A PERCENTAGE OF TOTAL REVENUES:
  General and administrative................................    9.2%     8.6%     8.9%
  Total costs and operating expenses........................   79.2     80.7     78.8
</TABLE>

  Comparison of the year ended December 31, 1999 to the year ended December 31,
1998

     For the year ended December 31, 1999 the Company achieved total revenues of
$274.5 million compared to $201.0 million for the year ended December 31, 1998,
an increase of 36.6%. The principal reasons for the overall improvement was
Vacation Credit sales increasing to $221.4 million for the year ended December
31, 1999 from $170.8 million for the year ended December 31, 1998, Fractional
Interest Sales of $13.3 million and additional gains on sales of Notes
Receivable. The Fractional Interest sales program commenced pre-selling of

                                       18
<PAGE>   19

Fractional Interests at the Depoe Bay resort on the Oregon Coast in October
1998. The Company exercised its purchase option in April of 1999 and began
recognizing revenue from the pre-sales at that time and competed the sale of all
377 interests by October, 1999. The increase in Vacation Credit sales was
primarily the result of an increase in Vacation credits sold to 165.8 million
for the year ended December 31, 1999 from 131.1 million for the year ended
December 31, 1998, a 26.5% increase. The increase in Vacation Credits sold was
largely attributable to the maturation of seven sales offices opened in 1998,
opening four new sales offices during 1999, continued strong improvement at more
mature sales offices and increased Upgrade sales. The following table summarizes
the sales offices opened during 1999:

<TABLE>
<CAPTION>
                     LOCATION                           OPENED        ON/OFF SITE
                     --------                           ------        -----------
<S>                                                 <C>               <C>
Bear Lake, UT.....................................    July, 1999        on-site
Vistoso, AZ.......................................   August, 1999       on-site
Anchorage, AK.....................................  September, 1999    off-site
Boise, ID.........................................  November, 1999     off-site
</TABLE>

     Revenues from Upgrade Sales increased 22.7% to $30.3 million for the year
ended December 31, 1999 from $24.7 million for the year ended December 31, 1998
due to the continued growth of resorts, the Owners' continued satisfaction with
the WorldMark product and effective sales efforts. The average price per
Vacation Credit sold increased to $1.34 for the year ended December 31, 1999
from $1.28 for the year ended December 31, 1998, reflecting the increase in the
selling price of vacation credits effective June 28, 1999.

     Finance income increased 10.1% to $15.2 million for the year ended December
31, 1999 from $13.8 million for the year ended December 31, 1998. Gains on sales
of Notes Receivable increased 48.2% to $16.3 million for the year ended December
31, 1999 from $11.0 million for the year ended December 31, 1998. This reflects
a similar increase in the principal balance of Notes Receivable sold in 1999, up
49.4% to $156.3 in 1999 from $104.6 million in 1998. In August 1999, the Company
completed a $160 million asset backed securitization to fix interest rates on a
significant portion of the Notes Receivable portfolio. The securitization
reduced the Company's interest rate risk in the future, if interest rates were
to increase. Both gains on sales of Notes Receivable and finance income were
negatively impacted during the year because of rising interest rates reducing
the net interest spread.

     Vacation Credit and Fractional Interest cost of sales increased to $68.6
million for the year ended December 31, 1999 from $48.1 million for the year
ended December 31, 1998, an increase of 42.6%. As a percentage of Vacation
Credit and Fractional Interest sales, Vacation Credit and Fractional Interest
cost of sales increased to 29.2% for the year ended December 31, 1999 from 28.2%
for the year ended December 31, 1998. This increase is due to Fractional
interest sales which have a higher product cost offset by lower sales and
marketing costs.

     Sales and marketing costs increased 26.1% to $105.0 million for the year
ended December 31, 1999 from $83.3 million for the year ended December 31, 1998.
As a percentage of Vacation Credit and Fractional Interest sales, sales and
marketing costs decreased to 44.7% for the year ended December 31, 1999 from
48.8% for the year ended December 31, 1998. This decrease is attributable to
several factors. First, Fractional Interest sales have lower sales and marketing
costs which are offset by higher product cost. Second, the seven sales offices
opened in 1998 continue to season and all have higher sales closing percentages
in 1999 which reduces marketing costs as a percentage of sales. Finally, the
Company's more mature sales offices continued to perform strongly in terms of
sales closing percentages.

     General and administrative expenses increased 46.5% to $25.2 million for
the year ended December 31, 1999 from $17.2 million for the year ended December
31, 1998. As a percentage of total revenues, general and administrative expenses
increased to 9.2% for the year ended December 31, 1999 from 8.6% for the year
ended December 31, 1998. This increase is the result of increases in the
infrastructure, both at the Corporate and Regional levels, to support the
continued growth of the Company; increased expenditures in Information Systems
to remediate the Year 2000 issue and start-up costs for the Midwest, Las Vegas
and South Pacific regions.

                                       19
<PAGE>   20

     Provision for doubtful accounts and recourse liability increased 38.7% to
$16.5 million for the year ended December 31, 1999 from $11.9 million for the
year ended December 31, 1998. As a percentage of Vacation Credit and Fractional
Interest sales, the provision remained comparable at 7.0% for the two periods.

  Comparison of the year ended December 31, 1998 to the year ended December 31,
1997

     For the year ended December 31, 1998 the Company achieved total revenues of
$201.0 million compared to $151.6 million for the year ended December 31, 1997,
an increase of 32.6%. The principal reason for the overall improvement was
Vacation Credit sales increasing to $170.8 million for the year ended December
31, 1998 from $128.8 million for the year ended December 31, 1997, a 32.6%
increase. The increase in Vacation Credit sales was primarily the result of an
increase in Vacation credits sold to 131.1 million for the year ended December
31, 1998 from 99.9 million for the year ended December 31, 1997, a 31.2%
increase. The increase in Vacation Credits sold was largely attributable to
opening seven new sales offices during 1998. The following table summarizes the
sales offices opened during the year:

<TABLE>
<CAPTION>
                     LOCATION                           OPENED        ON/OFF SITE
                     --------                           ------        -----------
<S>                                                 <C>               <C>
Burlingame, CA....................................    March, 1998      off-site
Scottsdale, AZ....................................     May, 1998       off-site
Wolf Creek, UT....................................    June, 1998        on-site
San Diego, CA.....................................    June, 1998       off-site
Angels Camp, CA...................................  September, 1998     on-site
Salt Lake City, UT................................  September, 1998    off-site
Big Bear, CA......................................  September, 1998     on-site
</TABLE>

     Additionally, the maturation of the Costa Mesa and Woodland Hills sales
offices, opened in February and October 1997, and increased Upgrade sales also
contributed to the increase in Vacation Credit sales. Revenues from Upgrade
Sales increased 24.1% to $24.7 million for the year ended December 31, 1998 from
$19.9 million for the year ended December 31, 1997. The number of Vacation
Credits sold as Upgrades increased by approximately 28.9% in the year ended
December 31, 1998 compared to the year ended December 31, 1997 due to the
continued growth of resorts and effective sales efforts. The average price per
Vacation Credit sold increased to $1.28 for the year ended December 31, 1998
from $1.27 for the year ended December 31, 1997, reflecting the increase in the
selling price of vacation credits effective June 29, 1998. The percentage
increase in the average selling price of Vacation Credits was less than the
percentage increase in the selling price of Vacation Credits because of the
recognition of sales made prior to the price increase.

     Finance income increased 15.0% to $13.8 million for the year ended December
31, 1998 from $12.0 million for the year ended December 31, 1997, due to
increased carrying balances of Notes Receivable. Gains on sales of Notes
Receivable increased 66.7% to $11.0 million for the year ended December 31, 1998
from $6.6 million for the year ended December 31, 1997. This is due to increased
sales of Notes Receivable in the fourth quarter of 1998 to generate cash and the
asset backed securitization consummated during the first quarter of 1998. The
securitization in the first quarter of 1998 resulted in recording gains of $3.1
million for Notes Receivable sold and reduced the Company's interest rate risk
in the future, if interest rates were to increase, on $130.4 million of sold
notes receivable.

     Vacation Credit cost of sales increased to $48.1 million for the year ended
December 31, 1998 from $34.6 million for the year ended December 31, 1997, an
increase of 39.0%. As a percentage of Vacation Credit sales, Vacation Credit
cost of sales increased to 28.2% for the year ended December 31, 1998 from 26.8%
for the year ended December 31, 1997. This increase is the result of the Clear
Lake and Angels Camp resorts in California which came on line in the third
quarter. Clear Lake experienced construction delays and cost overruns due to
inclement weather and the Angels Camp resort had a product cost higher than the
historical average. In addition, higher carrying balances of inventory resulted
in increased developer dues expense paid to WorldMark, the Club.

     Sales and marketing costs increased 40.2% to $83.3 million for the year
ended December 31, 1998 from $59.4 million in the year ended December 31, 1997.
As a percentage of Vacation Credit sales, sales and

                                       20
<PAGE>   21

marketing costs increased to 48.8% for the year ended December 31, 1998 from
46.1% for the year ended December 31, 1997. Sales and marketing costs for the
year ended December 31, 1998, as compared to the same period last year, were
impacted by four new off site and three on site sales offices opened during the
year as compared to two off site and one on site sales office last year. The
Scottsdale, San Diego, Wolf Creek and Salt Lake sales offices experienced lower
closing percentages, which initially occur in a new sales office less than one
year old, resulting in higher marketing costs as a percentage of Vacation Credit
sales. The payment of minimum compensation amounts to sales representatives
during this initial period resulted in higher commission costs as a percentage
of Vacation Credit sales. Effective July 6, 1998 management initiated changes to
the sales commission program for New and Upgrade Sales and raised performance
targets for additional bonuses which has resulted in an overall decrease in
sales and marketing costs, for the second half of the year, when expressed as a
percentage of Vacation Credit sales.

     General and administrative expenses increased 28.4% to $17.2 million for
the year ended December 31, 1998 from $13.4 million for the year ended December
31, 1997 primarily reflecting the increased sales growth. As a percentage of
total revenues, general and administrative expenses decreased slightly to 8.6%
for the year ended December 31, 1997 from 8.9% for the year ended December 31,
1997, due primarily to the higher gains on sales of notes receivable. The
Company believes that general and administrative expenses as a percentage of
total revenues would have increased slightly for the year ended December 31,
1998 absent the increase in gains on sales of notes receivable during the year.

     Interest expense decreased to $.3 million for 1998 from $1.7 million for
1997, a decrease of 82.4% due primarily to the reduction in the average
borrowings from the Parent and proceeds from the sale of Notes Receivable in
1998. In addition, the Company capitalized interest of $704,000 and $637,000 for
the year ended December 31, 1998 and 1997 respectively.

     Provision for doubtful accounts and recourse liability increased 30.8% to
$11.9 million for the year ended December 31, 1998 from $9.1 million for the
year ended December 31, 1997. As a percentage of Vacation Credit sales, the
provision remained comparable at 7.0% for the two periods compared.

                        LIQUIDITY AND CAPITAL RESOURCES

     The Company generates cash from operations from down payments on sales of
Vacation Credits and Fractional Interests which are financed, cash sales of
Vacation Credits and Fractional Interests, management fees, principal and
interest on Notes Receivable, proceeds from sales of Notes Receivable and
borrowings on the $30.0 million unsecured line of credit. The Company also
generates cash on the interest differential between the interest charged on the
Notes Receivable and the interest paid on Notes Receivable sold.

     During the year ended December 31 1999, cash provided by operating
activities was $39.6 million. Cash flows from operating activities resulted
primarily from the sale and repayment of Notes Receivable of $207.5 million and
net income of $34.9 million. Cash used in operating activities was principally
due to issuance of Notes Receivable of $204.5 million to finance the purchase of
Vacation Credits and Fractional Interests, purchases of Notes Receivable of
$14.2 million and an increase in inventory of $5.2 million.

     Net cash used in investing activities for the year ended December 31, 1999,
was $.6 million. Cash used in investing activities consisted of the completion
of the new corporate headquarters and purchases of additional furniture,
fixtures and data processing equipment to support the growth of the Company.
Cash provided by investing activities was primarily from the sale of the former
corporate headquarters building in Bellevue, Washington for $4.4 million.

     Net cash used in financing activities for the year ended December 31 1999
was $37.3 million. Cash used in financing activities consisted primarily of
repayment on net borrowings under the bank line of credit of $26.1 million, a
decrease in due to Parent of $5.7 million, an increase in receivable from Parent
of $3.1 million and repurchases of the Company's common stock on the open market
of $2.8 million.

     The Company continually needs to acquire and develop additional resort
units for WorldMark in order to provide additional Vacation Credits for sale by
the Company and to provide a greater variety of resort

                                       21
<PAGE>   22

locations for Owners. The continued growth of the Company and increase in the
owner base allows for the development of larger resorts which provides certain
economies of scale to the Company and to WorldMark from an operating cost
standpoint. The permitting process for larger resorts can be lengthy at times
and necessitates the need to acquire land as much as 18 to 24 months before a
resort is completed. The Company's investment in inventory remained comparable
at $45.6 and $42.3 million at December 31, 1999 and 1998, respectively.

     At December 31, 1999, there were 39.7 million Vacation Credits available
for sale. With the completion of current projects in progress, the acquisition
of new resorts and the expansion of existing resorts, the Company believes it
will have an adequate supply of credits available to meet its planned growth
through the early part of the year 2002. Since all Vacation Credits have the
same use rights and the same listed selling price, the Company does not
experience a buildup of inventory of less desirable resort units or interval
dates which are difficult to sell.

     Since completed units at various resort properties are acquired or
developed in advance and a significant portion of the purchase price of Vacation
Credits is financed by the Company, the Company continually needs funds to
acquire and develop property, to carry Notes Receivable contracts and to provide
working capital. The Company has historically secured additional funds through
the sale of Notes Receivable through the Finance Subsidiaries, borrowings on the
$30.0 million line of credit and loans from the Parent. See "Risk Factors --
Dependence on Acquisitions of Additional Resort Units for Growth; Need for
Additional Capital."

FINANCE SUBSIDIARIES

     TW Holdings, Inc. ("TW") was organized in 1993 to purchase Notes Receivable
at face value plus accrued interest. TW transfers these Notes Receivable to a
group of banks led by Bank of America NT&SA (the "Bank Group") pursuant to a
receivables transfer agreement. On June 17, 1999, the Company chose not to renew
the revolving portion of the $98 million Receivable Transfer Agreement from the
Bank Group. In conjunction with the private placement of Notes Receivable in
August 1999, the sold Notes Receivable were acquired by TRI Funding III, the
credit facility was retired and the corporation was dissolved.

     Subsequent financing of Notes Receivable has been accomplished by the use
of a $75 million Receivables Warehouse facility from Prudential Securities
Credit Corporation ("Prudential") through TW Holdings II ("TW II"). As of
December 31, 1999, total Notes Receivable of $40.0 million were outstanding and
transferred through TW II. TW II's credit agreement is subject to annual
renewals with the present commitment expiring on April 13, 2000. In the event of
non-renewal of the commitment, the Company would not be able to transfer
additional Notes Receivable through TW II.

     In 1996, the Company sold through Trendwest Funding I, certain Notes
Receivable to a limited liability corporation (LLC) in exchange for cash, a
subordinated note payable from the LLC and a residual interest in the excess
cash flows of the LLC. The LLC issued $70.0 million of senior notes, series
1996-1 to private institutional investors. The notes were rated "A' by Fitch
IBCA, Inc., and were issued at a fixed rate of 7.42%.

     In March 1998, the Company formed a wholly-owned special purpose company,
Trendwest Funding II, Inc. At the same time, the Company sold certain Notes
Receivable to TRI Funding II for cash, a subordinated note payable from TRI
Funding II and a residual interest in the excess cash flows of TRI Funding II.
TRI Funding II issued $130.4 million in two classes of senior and subordinated
notes to institutional investors. The 1998-1, Class A notes were issued for
$125.0 million and the 1998-1, Class B notes were issued for $5.4 million. The
Class A notes and Class B notes were rated "A" and "BBB' by Fitch IBCA, Inc.,
and were issued at fixed rates of 6.88% and 7.98%, respectively.

     In August 1999, the Company formed TRI Funding III, Inc. (TRI Funding III),
a special purpose finance company. At the same time, the Company sold certain
Notes Receivable to TRI Funding III, for cash, a subordinated note payable from
TRI Funding III and a residual interest in the excess cash flows of TRI Funding
III. TRI Funding III issued six classes of fixed-rate notes for a ten-year term
purchased by institutional investors. Duff & Phelps Credit Rating Agency and
Fitch IBCA, Inc rated the Class A, B, and C Notes, with Fitch IBCA rating the
Class D Notes. The Notes consisted of three time-tranched Class A Notes,

                                       22
<PAGE>   23

$104.4 million rated "AAA", Class B Notes, $18.2 million rated "AA", Class C
Notes, $19.9 million rated "A", and Class D Notes, $17.4 million rated "BBB".
The notes were issued at a weighted average interest rate of 7.49%.

     In January 2000, the Company formed TW Holdings III, Inc. ("TW III"), a
wholly-owned special purpose finance Company. At the same time, the Company
entered into a 364 day $75.0 million Receivables Warehouse Facility ("Facility")
funded by a commercial paper conduit with Banc One Capital Markets ("Banc One").
The Facility has an interest rate based on the commercial paper rate plus 50
basis points.

     The Company has limited involvement with derivative financial instruments
and uses them only to manage well-defined interest rate risks. They are not used
for trading purposes. The Company enters into forward interest rate swap
agreements, interest rate cap agreements and forward exchange contracts to hedge
the effects of fluctuations in interest rates and foreign currency exchange
rates related to anticipated sales of Notes Receivable and purchases of resort
properties, respectively. These transactions meet the requirements for hedge
accounting, including designation to a specific transaction and high
correlation.

     The Company has a $30.0 million unsecured revolving credit agreement
(Credit Agreement) with a group of banks. The credit agreement provides for
borrowings at the reference rate as announced by Bank of America, NT&SA or at
LIBOR plus 100 basis points and a commitment fee to the banks of 30 basis points
per annum on the total unused amount of the commitment. Availability under the
line of credit is subject to a borrowing base which is a percentage of
unencumbered Notes Receivable and inventory, including property under
development. Under the terms of the Credit Agreement, the Company is required to
maintain certain interest coverage ratios and capitalization ratios and also
imposes limitations on certain liens and carrying amounts of inventory. The
Credit Agreement matures on February 12, 2001. Borrowings outstanding at
December 31, 1999 and 1998 were $3,900 and $30,000 respectively, at weighted
average interest rates of 8.50% and 6.64%, respectively.

     The Company has a $10 million open line of credit with the Parent which
bears interest at prime plus 1% (9.50% at December 31, 1999) per annum and is
payable on demand. As of December 31, 1999 and 1998 outstanding borrowings under
this agreement were $0 and $5,688, respectively. The Company periodically lends
excess funds to the Parent at the prime rate minus 2% (currently 6.50%).
Outstanding lendings under this agreement were $3,058 and $0 at December 31,
1999 and 1998, respectively.

     Through the end of 2001, the Company anticipates spending approximately
$156.0 million for acquisitions and development of new resort properties and for
expansion and development activities at the existing WorldMark Resorts. The
Company plans to fund these expenditures from the net proceeds of further sales
or securitizations of Notes Receivable and a $30 million revolving credit
facility. The Company believes that the above credit facilities, together with
cash generated from financing transactions and the $10 million line of credit
with Parent should be sufficient to meet the Company's working capital and
capital expenditure needs through 2001. At December 31, 1999, the Company has
outstanding purchase commitments of $75.8 million related to properties under
development.

     In the future, the Company may negotiate additional credit facilities,
issue corporate debt or equity securities. Any debt incurred or issued by the
Company may be secured or unsecured, at a fixed or variable interest rate, and
may be subject to such additional terms as management deems appropriate.

RECENT ACCOUNTING PRONOUNCEMENTS

     In April, 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants (AICPA) issued Statement of
Position (SOP) 98-5, Reporting on the Costs of Start-Up Activities. This SOP was
effective on January 1, 1999, and has not impacted the Company's financial
position or results of operations.

     In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. This Statement, as amended, is effective as of the
beginning of the first quarter of the fiscal year beginning after June 15, 2000.

                                       23
<PAGE>   24

The Company does not anticipate a material impact on its financial position or
results of operations from the future adoption of this standard.

     In December, 1999, The Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition", to be effective as of
the first quarter of 2000. The Company does not anticipate that compliance with
SAB No. 101 will result in any material change to the Company's revenue
recognition policies.

YEAR 2000

     We have completed our Year 2000 preparedness activities and, to date, have
not experienced any material disruption due to the onset of the Year 2000. The
Company has not received any notification from key suppliers or regulators of
incidence of Year 2000 disruptions. We cannot assure that we will not experience
disruptions in the future as a consequence of the Year 2000 issue, however, we
do not expect such disruptions, if any, to be material.

     The Company has incurred approximately $1.0 million to date to modify or
replace software in order to remediate the Year 2000 issue.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company is exposed to interest rate changes primarily as a result of
its financing of timeshare purchases, the sale and securitization of notes
receivable and borrowing under revolving lines of credit. The Company's interest
rate risk management objective is to limit the impact of interest rate changes
on earnings and cash flows and to reduce overall borrowing costs. To achieve its
objectives, the Company borrows funds, sells or securitizes Notes Receivable
primarily at fixed rates and may enter into derivative financial instruments
such as interest rate swaps, caps and treasury locks in order to mitigate its
interest rate risk on a related financial instrument. The Company is also
subject to foreign currency exchange rate risk when developing resort properties
denominated in a foreign currency. As the Company expands its operations
worldwide, there will be additional exposure to foreign currency exchange risk.
The Company does not maintain a trading account for any class of financial
instrument, it does not purchase high risk derivative instruments and it is not
directly subject to commodity price risk.

                                       24
<PAGE>   25

     The tables below provide information as of December 31, 1999 and 1998,
about the Company's financial instruments that are sensitive to changes in
interest rates. The table presents estimated principal cash flows and related
weighted average interest rates by expected maturity dates. The actual cash
flows may differ from these amounts due to prepayments, sales and defaults of
notes receivable.

<TABLE>
<CAPTION>
                                                    BY EXPECTED MATURITY
                                                  YEAR ENDED DECEMBER 31,
                                       ----------------------------------------------    AFTER                  FAIR
                                        2000      2001      2002      2003      2004      2004     TOTAL       VALUE
                                       ------    ------    ------    ------    ------    ------    ------    ----------
<S>                                    <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
1999:
Cash:
  Amounts Maturing...................   1,760        --        --        --        --        --     1,760       1,760
  Weighted average interest rate.....      --        --        --        --        --        --        --          --
Restricted cash:
  Amounts Maturing...................   2,987        --        --        --        --        --     2,987       2,987
  Weighted average interest rate.....      --        --        --        --        --        --        --          --
Notes receivable(1):
  Amounts Maturing...................  10,363    11,504    12,568    13,127    13,267    24,943    85,772      85,772
  Weighted average interest rate.....   14.10%    14.10%    14.10%    14.10%    14.10%    14.10%    14.10%      14.10%
Residual interest in Notes Receivable
  sold:
  Fixed rate(2):
    Amounts Maturing.................   9,675     8,027     6,037     4,220     2,498     2,039    32,496      32,496
    Weighted average interest rate...    7.07%     7.07%     7.07%     7.07%     7.07%     7.07%     7.07%       7.07%
  Variable rate(3):
    Amounts Maturing.................     994       920       745       563       372       175     3,769       3,769
    Weighted average interest rate...    7.28%     7.28%     7.28%     7.28%     7.28%     7.28%     7.28%       7.28%
Due from Parent:
  Amounts Maturing...................   3,058        --        --        --        --        --     3,058       3,058
  Weighted average interest rate.....    6.50%       --        --        --        --        --      6.50%       6.50%
Recourse liability on notes sold:
  Amounts Maturing...................   4,092     3,432     2,601     1,834     1,101       849    13,908      13,908
  Weighted average interest rate.....      --        --        --        --        --        --        --          --
Borrowings under bank line of credit:
  Amount Maturing....................   3,900        --        --        --        --        --     3,900       3,900
  Weighted average interest rate.....    8.50%       --        --        --        --        --      8.50%       8.50%
</TABLE>

---------------
(1) Excludes deferred gross profit.

(2) Fixed interest rates represent the differential between the contract
    interest rate on Notes Receivable sold and the interest rate paid to
    purchasers of the Notes Receivable.

(3) Variable interest rates represent the differential between the contract
    interest rate on Notes Receivable sold and the required yield (LIBOR plus
    100 basis points).

                                       25
<PAGE>   26

<TABLE>
<CAPTION>
                                                       BY EXPECTED MATURITY
                                                     YEAR ENDED DECEMBER 31,
                                          ----------------------------------------------    AFTER                FAIR
                                           1999      2000      2001      2002      2003      2003     TOTAL     VALUE
                                          ------    ------    ------    ------    ------    ------    ------    ------
<S>                                       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
1998:
Cash:
  Amounts Maturing......................       9        --        --        --        --        --         9         9
  Weighted Average interest rate........      --        --        --        --        --        --
Restricted cash:
  Amounts Maturing......................   2,351        --        --        --        --        --     2,351     2,351
  Weighted Average interest rate........      --        --        --        --        --        --
Notes receivable(1):
  Amounts Maturing......................  11,137    12,474    13,821    14,978    15,523    26,604    94,538    94,538
  Weighted Average interest rate........    14.1%     14.1%     14.1%     14.1%     14.1%     14.1%
Residual interest in notes receivable
  sold:
  Fixed rate(2):
    Amounts Maturing....................   5,307     4,175     2,819     1,802       776        --    14,879    14,879
    Weighted Average interest rate......    7.07%     7.07%     7.07%     7.07%     7.07%     7.07%
  Variable rate(3):
    Amounts Maturing....................   2,491     2,129     1,737     1,308     1,139        --     8,804     8,804
    Weighted Average interest rate......    7.91%     7.91%     7.91%     7.91%     7.91%     7.91%
Due to Parent:
  Amounts Maturing......................   5,688        --        --        --        --        --     5,688     5,688
  Weighted Average interest rate........    8.75%       --        --        --        --        --
Recourse liability on notes sold:
  Amounts Maturing......................   2,823     2,282     1,649     1,126       693        --     8,572     8,572
  Weighted Average interest rate........      --        --        --        --        --        --
Borrowings under bank line of credit:
  Amount Maturing.......................  30,000        --        --        --        --        --    30,000    30,000
  Weighted Average interest rate........    6.64%       --        --        --        --        --
</TABLE>

---------------
(1) Excludes deferred gross profit.

(2) Fixed interest rates represent the differential between the contract
    interest rate on Notes Receivable sold and the interest rate paid to
    purchasers of the Notes Receivable.

(3) Variable interest rates represent the differential between the contract
    interest rate on Notes Receivable sold and the required yield (LIBOR plus
    112.5 basis points).

                                       26
<PAGE>   27

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     See the information set forth on Index to Financial Statements appearing on
page 28 of this report on Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

     None

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information required by this Item will be set forth under "Directors
and Executive Officers" and "Proxy Statement -- Compliance with Section 16(a)
Under the Securities Exchange Act of 1934" in the Company's Proxy Statement and
reference is expressly made thereto for specific information incorporated herein
by reference.

ITEM 11. EXECUTIVE COMPENSATION

     The information required by this Item will be set forth under "Executive
Compensation" in the Company's Proxy Statement and reference is expressly made
thereto for the specific information incorporated herein by the aforesaid
reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this Item will be set forth under "Proxy
Statement -- Share Ownership of Directors and Executive Officers," and "Other
information -- Certain Shareholders" in the Company's Proxy Statement and
reference is expressly made thereto for the specific information incorporated
herein by the aforesaid reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this item will be set forth under "Proxy
Statement -- Certain Relationships and Related Transactions" in the Company's
Proxy Statement and reference is expressly made thereto for the specific
information incorporated herein by the aforesaid reference.

                                       27
<PAGE>   28

                   TRENDWEST RESORTS, INC., AND SUBSIDIARIES

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Independent Auditors' Report................................   29
Consolidated Balance Sheets.................................   30
Combined and Consolidated Statements of Income..............   31
Combined and Consolidated Statements of Shareholders'
  Equity....................................................   32
Combined and Consolidated Statements of Cash Flows..........   33
Notes to Combined and Consolidated Financial Statements.....   34
</TABLE>

                                       28
<PAGE>   29

                          INDEPENDENT AUDITORS' REPORT

The Shareholders
Trendwest Resorts, Inc.:

     We have audited the accompanying consolidated balance sheets of Trendwest
Resorts, Inc., and subsidiaries as of December 31, 1999 and 1998, and the
related combined and consolidated statements of income, shareholders' equity and
cash flows for each of the years in the three-year period ended December 31,
1999. These combined and consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined and consolidated financial statements based on our
audits.

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

     In our opinion, the combined and consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
Trendwest Resorts, Inc., and subsidiaries as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1999, in conformity with generally
accepted accounting principles.

                                          KPMG LLP

Seattle, Washington
February 1, 2000

                                       29
<PAGE>   30

                            TRENDWEST RESORTS, INC.,
                                AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                              --------------------
                                                                1999        1998
                                                              --------    --------
<S>                                                           <C>         <C>
Assets:
  Cash......................................................  $  1,760    $      9
  Restricted cash...........................................     2,987       2,351
  Notes Receivable, net of allowance for doubtful accounts,
     sales returns and deferred gross profit................    84,802      93,361
  Accrued interest and other receivables....................     8,506      11,399
  Residual interest in Notes Receivable sold................    36,265      23,683
  Receivable from Parent....................................     3,058          --
  Inventories...............................................    45,601      42,309
  Property and equipment, net...............................    24,327      20,343
  Deferred income taxes.....................................        --         702
  Other assets..............................................     2,657       4,341
                                                              --------    --------
          Total assets......................................  $209,963     198,498
                                                              ========    ========

                       LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
  Accounts payable..........................................  $  1,900    $  1,436
  Accrued liabilities.......................................    12,405       6,645
  Accrued construction in progress..........................       790       1,064
  Borrowing under bank line of credit.......................     3,900      30,000
  Due to Parent.............................................        --       5,688
  Allowance for recourse liability and deferred gross profit
     on Notes Receivable sold...............................    17,211      11,250
  Deferred income taxes.....................................        42          --
  Income taxes payable......................................        --       1,153
                                                              --------    --------
          Total liabilities.................................    36,248      57,236
Shareholders' equity:
  Preferred stock, no par value. Authorized 10,000,000
     shares; no shares issued or outstanding................        --          --
  Common stock, no par value. Authorized 90,000,000 shares;
     issued and outstanding 17,041,078 and 17,158,766 shares
     at December 31, 1999 and 1998, respectively............    59,428      61,848
  Retained earnings.........................................   114,287      79,414
                                                              --------    --------
          Total shareholders' equity........................   173,715     141,262
Commitments and contingencies
                                                              --------    --------
          Total liabilities and shareholders' equity........  $209,963    $198,498
                                                              ========    ========
</TABLE>

 See accompanying notes to the combined and consolidated financial statements.
                                       30
<PAGE>   31

                            TRENDWEST RESORTS, INC.,
                                AND SUBSIDIARIES

                 COMBINED AND CONSOLIDATED STATEMENTS OF INCOME
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                      -----------------------------------------
                                                         1999           1998           1997
                                                      -----------    -----------    -----------
<S>                                                   <C>            <C>            <C>
Revenues:
  Vacation Credit and Fractional Interest sales,
     net............................................  $   234,665    $   170,817    $   128,835
  Finance income....................................       15,243         13,790         11,989
  Gains on sales of Notes Receivable................       16,265         10,959          6,582
  Resort management services........................        3,710          2,328          2,032
  Other.............................................        4,593          3,063          2,149
                                                      -----------    -----------    -----------
          Total revenues............................      274,476        200,957        151,587
                                                      -----------    -----------    -----------
Costs and operating expenses:
  Vacation Credit and Fractional Interest cost of
     sales..........................................       68,611         48,059         34,569
  Resort management services........................        1,656          1,399          1,108
  Sales and marketing...............................      104,952         83,347         59,448
  General and administrative........................       25,234         17,180         13,449
  Provision for doubtful accounts and recourse
     liability......................................       16,450         11,865          9,077
  Interest..........................................          442            353          1,739
                                                      -----------    -----------    -----------
          Total costs and operating expenses........      217,345        162,203        119,390
                                                      -----------    -----------    -----------
Income before income taxes..........................       57,131         38,754         32,197
Income tax expense..................................       22,258         14,723         11,588
                                                      -----------    -----------    -----------
          Net income................................  $    34,873    $    24,031    $    20,609
                                                      ===========    ===========    ===========
Basic net income per common share...................  $      2.04    $      1.38    $      1.32
Diluted net income per common share.................  $      2.03    $      1.38    $      1.32
Weighted average shares of common stock and dilutive
  potential common stock outstanding:
Basic...............................................   17,129,900     17,412,818     15,596,419
Diluted.............................................   17,176,954     17,416,691     15,596,419
</TABLE>

 See accompanying notes to the combined and consolidated financial statements.
                                       31
<PAGE>   32

                            TRENDWEST RESORTS, INC.,
                                AND SUBSIDIARIES

          COMBINED AND CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                             CLASS A              CLASS B
                                           COMMON STOCK         COMMON STOCK                    TOTAL
                                       --------------------   ----------------   RETAINED   SHAREHOLDERS'
                                         SHARES     AMOUNT    SHARES   AMOUNT    EARNINGS      EQUITY
                                       ----------   -------   ------   -------   --------   -------------
<S>                                    <C>          <C>       <C>      <C>       <C>        <C>
BALANCE AT DECEMBER 31, 1996.........   9,224,623   $ 6,470     100    $ 8,500   $ 34,774     $ 49,744
  Consolidation transactions
     (5,193,693 shares of Trendwest
     common stock issued in exchange
     for all of the outstanding
     shares of TW Holdings and
     Trendwest Funding I)............   5,192,493     8,500    (100)    (8,500)        --           --
  Issuance of common stock, net of
     issuance costs of $5,401........   3,176,250    51,772      --         --         --       51,772
  Net income.........................          --        --      --         --     20,609       20,609
                                       ----------   -------    ----    -------   --------     --------
  BALANCE AT DECEMBER 31, 1997.......  17,593,366    66,742      --         --     55,383      122,125
  Repurchase of common stock.........    (434,600)   (4,894)     --         --         --       (4,894)
  Net income.........................          --        --      --         --     24,031       24,031
                                       ----------   -------    ----    -------   --------     --------
  BALANCE AT DECEMBER 31, 1998.......  17,158,766    61,848      --         --     79,414      141,262
  Repurchase of common stock.........    (135,072)   (2,780)     --         --         --       (2,780)
  Issuance of common stock under the
     Employee Stock Purchase Plan....      17,384       360      --         --         --          360
  Net income.........................          --        --      --         --     34,873       34,873
                                       ----------   -------    ----    -------   --------     --------
  BALANCE AT DECEMBER 31, 1999.......  17,041,078   $59,428      --    $    --   $114,287     $173,715
                                       ==========   =======    ====    =======   ========     ========
</TABLE>

 See accompanying notes to the combined and consolidated financial statements.
                                       32
<PAGE>   33

                            TRENDWEST RESORTS, INC.,
                                AND SUBSIDIARIES

               COMBINED AND CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31,
                                                              -----------------------------------
                                                                1999         1998         1997
                                                              ---------    ---------    ---------
<S>                                                           <C>          <C>          <C>
Cash flows from operating activities:
  Net income................................................  $  34,873    $  24,031    $  20,609
  Adjustments to reconcile net income to net cash provided
    by (used in) operating activities:
    Depreciation and amortization...........................      1,758        1,079          681
    Gain on sale of property and equipment..................       (869)          --           --
    Amortization of residual interest in Notes Receivable
      sold..................................................     10,931        6,877        4,089
    Provision for doubtful accounts, sales returns and
      recourse liability....................................     21,407       15,435       11,755
    Recoveries of Notes Receivable charged off..............        260          179          132
    Residual interest in Notes Receivable sold..............    (21,019)     (11,949)      (6,729)
    Unrealized loss (gain) on residual interest in Notes
      Receivable sold.......................................      1,139         (779)      (1,044)
    Contract servicing liability arising from sale of Notes
      Receivable............................................      2,847           --           --
    Amortization of contract servicing liability............       (321)          --           --
    Change in deferred gross profit.........................        419       (1,301)        (684)
    Deferred income tax expense.............................        744          222        1,436
    Issuance of Notes Receivable............................   (204,474)    (148,720)    (112,170)
    Proceeds from sale of Notes Receivable..................    156,303      104,573       42,292
    Proceeds from repayment of Notes Receivable.............     51,198       33,831       28,781
    Purchase of Notes Receivable from related parties.......       (650)     (17,397)     (12,888)
    Purchase of Notes Receivable............................    (13,576)      (6,990)      (3,683)
    Changes in certain assets and liabilities:
      Restricted cash.......................................       (636)      (1,132)        (510)
      Inventories...........................................     (5,159)       2,225      (28,287)
      Accounts payable and accrued liabilities..............      3,424       (6,141)      10,060
      Income taxes payable to Parent........................         --       (2,755)         846
      Income taxes payable..................................     (1,153)         273          880
      Other.................................................      2,133       (6,236)      (2,044)
                                                              ---------    ---------    ---------
         Net cash provided by (used in) operating
           activities.......................................     39,579      (14,675)     (46,478)
                                                              ---------    ---------    ---------
Cash flows used in investing activities:
  Purchase of property and equipment........................     (4,974)     (14,233)      (1,696)
  Proceeds from sale of property and equipment..............      4,412           --           --
                                                              ---------    ---------    ---------
         Net cash used in investing activities..............       (562)     (14,223)      (1,696)
                                                              ---------    ---------    ---------
Cash flows from financing activities:
  Proceeds from notes payable...............................         --           --       16,803
  Payments on notes payable.................................         --           --       (1,055)
  Net (repayments) borrowings under bank line of credit and
    other...................................................    (26,100)      30,000           --
  Increase (decrease) in Due to Parent......................     (5,688)       3,741      (19,369)
  Increase in Receivable from Parent........................     (3,058)          --
  Proceeds from issuance of common stock....................        360           --       51,772
  Repurchase of common stock................................     (2,780)      (4,894)          --
                                                              ---------    ---------    ---------
         Net cash (used in) provided by financing
           activities.......................................    (37,266)      28,847       48,151
                                                              ---------    ---------    ---------
         Net increase (decrease) in cash....................      1,751          (61)         (23)
Cash at beginning of year...................................          9           70           93
                                                              ---------    ---------    ---------
Cash at end of year.........................................  $   1,760    $       9    $      70
                                                              =========    =========    =========
Supplemental disclosures of cash flow information -- cash
  paid during the period for:
  Interest (excluding capitalized amounts of $1,188, $704
    and $637, respectively).................................  $     179    $     864    $   1,951
  Income taxes..............................................     22,542       16,983        8,010
Supplemental schedule of noncash investing and financing
  activities:
  Reduction of notes payable through transfer of Notes
    Receivable..............................................         --           --       16,803
  Issuance of Notes Receivable in exchange for other assets
    sold....................................................         --           --          489
</TABLE>

 See accompanying notes to the combined and consolidated financial statements.
                                       33
<PAGE>   34

                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

            NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998 AND 1997
                         (DOLLAR AMOUNTS IN THOUSANDS)

(1) DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

DESCRIPTION OF BUSINESS

     Trendwest Resorts, Inc., and subsidiaries (Company) generate revenues from
the sale and financing of Vacation Credits in WorldMark, The Club (WorldMark)
and Fractional Interests in resort condominium units. Vacation Credits entitle
the owner to use a fully furnished vacation resort unit in WorldMark based on
the number of Vacation Credits purchased. Vacation Credits are created through
the transfer to WorldMark of resort units developed or purchased by the Company.
The Company also manages resort properties under a management agreement with
WorldMark. WorldMark is a separate entity which owns the transferred properties
for the benefit of Vacation Credit owners (Members or Owners). Fractional
Interest sales are deeded intervals in condominium units and are not transferred
to WorldMark.

     The Company sells Vacation Credits and Fractional Interests to individuals
principally in the Western United States. Sales to new owners are typically
financed by the Company after requiring a minimum 10% down payment. Sales to
existing Vacation Credit owners (Upgrades) are typically financed by the Company
and require down payments to the extent that the owner's equity interest in
Vacation Credits owned, including the Upgrade, is less than 10%. All note
balances are secured by the Vacation Credits or Fractional Interests sold.

BASIS OF PRESENTATION

     For periods prior to June 30, 1997, the financial statements are presented
on a combined basis and include the accounts of Trendwest Resorts, Inc., TW
Holdings, Inc. (TW Holdings) and Trendwest Funding I, Inc. (Trendwest Funding
I). The financial statements of these three entities have been combined as they
were entities under the common control of JELD-WEN, inc. (Parent).

     Trendwest is a majority owned subsidiary of the Parent and prior to June
30, 1997, TW Holdings and Trendwest Funding I were wholly-owned subsidiaries of
the Parent. Effective June 30, 1997, the Parent transferred to Trendwest all of
the outstanding common stock of TW Holdings and Trendwest Funding I in exchange
for 5,193,693 shares of Trendwest common stock (Consolidation Transactions)
resulting in TW Holdings and Trendwest Funding I becoming wholly-owned
subsidiaries of Trendwest. The financial statements for periods beginning June
30, 1997 are presented on a consolidated basis and include the accounts of
Trendwest, TW Holdings and Trendwest Funding I. Trendwest Funding II, a wholly
owned subsidiary, is included in the financial statements from March 12, 1998
(inception). TW Holdings II, a wholly owned subsidiary, is included from April,
1999 (inception); TRI Funding III, Inc., a wholly-owned subsidiary, is included
from August, 1999 (inception); and Trendwest South Pacific, a wholly-owned
subsidiary, is included from October 1999 (inception).

     The Consolidation Transactions are considered a reorganization of entities
under common control and have been accounted for in a manner similar to a
pooling of interests. The assets and liabilities of the combining entities
continue to be recorded at their historical cost basis and the results of
operations continue to include the same components in consolidation as were
included in combination.

     All intercompany balances and transactions have been eliminated in
combination and consolidation.

CAPITAL TRANSACTIONS AND PUBLIC OFFERING

     On August 15, 1997, the Company consummated the offering of 3,176,250
shares of the Company's common stock at $18 per share resulting in net proceeds
of $51,772, after deducting the related issuance costs.

                                       34
<PAGE>   35
                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

      NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1999, 1998 AND 1997
                         (DOLLAR AMOUNTS IN THOUSANDS)

     In March, 1999 and July, 1998, the Board of Directors authorized the
Company to repurchase up to 500,000 and 436,000 shares, respectively, of its
common stock on the open market or in privately negotiated transactions based on
market conditions. During the years ended December 31, 1999 and 1998, the
Company repurchased 135,072 and 434,600 shares, respectively.

BASIC AND DILUTED NET INCOME PER COMMON SHARE

     Basic and diluted net income per common share has been computed based on
the number of shares of Trendwest common stock outstanding and assumes the
5,193,693 shares issued to the Parent in connection with the Consolidation
Transactions have been outstanding for all periods presented.

     The following presents the reconciliation of weighted average shares used
for basic and diluted net income per share:

<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                                                 --------------------------------------
                                                    1999          1998          1997
                                                 ----------    ----------    ----------
<S>                                              <C>           <C>           <C>
BASIC
Weighted average shares -- Trendwest...........  17,129,900    17,412,818    10,402,726
Effect of consolidation transactions...........          --            --     5,193,693
                                                 ----------    ----------    ----------
Basic weighted average shares outstanding......  17,129,900    17,412,818    15,596,419
DILUTED
Effect of dilutive securities..................      47,054         3,873            --
                                                 ----------    ----------    ----------
Diluted weighted average shares outstanding....  17,176,954    17,416,691    15,596,419
                                                 ==========    ==========    ==========
</TABLE>

     Net income available to common shareholders for basic and diluted net
income per share was $34,873, $24,031 and $20,609 for the years ended December
31, 1999, 1998 and 1997, respectively.

     At December 31, 1999, 1998 and 1997, there were options to purchase
598,000, 491,500 and 490,000 shares of common stock outstanding, respectively,
which were antidilutive and therefore not included in the computation of diluted
net income per share.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

RESTRICTED CASH

     Restricted cash consists primarily of deposits received on sales of
Vacation Credits and Fractional Interests that are held in trust or escrow until
the applicable statutory rescission period of three to fourteen calendar days
has expired and the related customer Note Receivable has been recorded; it also
consists of amounts received prior to the attainment of the 10% down payment
required to recognize the sale.

ALLOWANCE FOR DOUBTFUL ACCOUNTS AND RECOURSE LIABILITY

     The Company provides for estimated losses related to uncollectible Notes
Receivable and Notes Receivable sold with limited recourse. The Company's
recourse for Notes Receivable sold is limited to the retained and residual
interest in Notes Receivable sold. As of December 31, 1999 and 1998, total
retained interest in Notes Receivable sold of $36,782 and $37,063, respectively,
was included in Notes Receivable in the accompanying consolidated balance sheets
relating to Notes Receivable sold of $288,950 and $200,840, respectively.
Although it is not required to do so, the Company's historical practice has been
to repurchase defaulted sold Notes Receivable up to certain limits, generally
10% to 17% of the face amount of the original

                                       35
<PAGE>   36
                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

      NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1999, 1998 AND 1997
                         (DOLLAR AMOUNTS IN THOUSANDS)

balance of Notes Receivable sold. The provision for credit losses is charged to
income in amounts sufficient to maintain the allowance and the recourse
liability at levels considered adequate to cover losses resulting from
liquidation of Notes Receivable and Notes Receivable sold.

     The Company estimates its allowance for doubtful accounts and recourse
liability by analysis of bad debts by each sales site by year of Notes
Receivable origination and are net of anticipated cost recoveries of the
underlying Vacation Credits and Fractional Interests. The Company uses this
historical analysis in conjunction with other factors such as local economic
conditions and industry trends. The Company also utilizes experience factors of
more mature sales sites in establishing the allowance for bad debts at new sales
offices. Management believes that all such allowances and estimated liabilities
are adequate; however, such amounts are based on estimates and there is no
assurance that the actual amounts incurred will not be more or less than the
amount recorded.

     The Company charges off Notes Receivable when deemed to be uncollectible.
Interest income previously accrued and unpaid is reversed. Vacation Credits
recovered are recorded at the weighted average cost of credits at the time of
recovery. Fractional Interests recovered are recorded at historical cost at the
time of the recovery. All collection costs are expensed as incurred.

INVENTORIES

     Inventories consist of Vacation Credits and construction in progress as
follows:

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                           ------------------
                                                            1999       1998
                                                           -------    -------
<S>                                                        <C>        <C>
Vacation Credits.........................................  $13,247    $11,342
Construction in progress.................................   32,354     30,967
                                                           -------    -------
          Total inventories..............................  $45,601    $42,309
                                                           =======    =======
</TABLE>

     Vacation Credits represent the costs of unsold ownership interests in
WorldMark. Resort properties are completed and ownership is transferred by the
Company to WorldMark in return for the right to sell Vacation Credits based on
the number of credits available for the properties. Credits available are
determined using a formula based on the number of user days available as well as
the relative value of each property. Vacation Credits are carried at the lower
of cost, based on the moving weighted average of property cost per Vacation
Credit established, or net realizable value.

     Construction in progress is valued at the lower of cost or net realizable
value. Interest, taxes and other carrying costs incurred during the construction
period are capitalized. The amount of interest capitalized during the years
ended December 31, 1999, 1998 and 1997 amounted to $1,188, $552 and $637,
respectively.

REVENUE RECOGNITION

  (i) Vacation Credits

     Substantially all Vacation Credits sold by the Company generate installment
Notes Receivable secured by an interest in the related Vacation Credits. These
Notes Receivable are payable in monthly installments, including interest, with
maturities up to seven years. Vacation Credit sales are included in revenues
when at least a 10% down payment requirement has been met and any rescission
period has expired.

     Vacation Credit cost of sales and direct selling expenses related to a
Vacation Credit sale are recorded at the time the sale is recognized. Vacation
Credit costs include the cost of land, improvements to the property,

                                       36
<PAGE>   37
                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

      NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1999, 1998 AND 1997
                         (DOLLAR AMOUNTS IN THOUSANDS)

including costs of amenities constructed for the use and benefit of the Vacation
Credit owners, and other direct acquisition costs. Direct selling expenses are
recorded as sales and marketing expenses.

     The Company also finances sales of Upgrades which often result in the
cancellation of any existing note receivable and the issuance of a new
seven-year note secured by an interest in all Vacation Credits owned. No
additional down payment is required by the Company as long as the owner's equity
interest in the original Vacation Credits is equal to 10% of the value of all
Vacation Credits, including those from the Upgrade sale, and the customer is not
delinquent in his payments on his existing note receivable. When the Company
finances an Upgrade sale and the customer does not make an additional down
payment of at least 10% of the Upgrade sale amount, the Company uses the
installment method to recognize revenue whereby profit is recognized as a
portion of each principal payment is received on the Upgrade. Revenue is fully
recognized on the Upgrade sale when the cash collected relating to the Upgrade
sale totals 10% of the Upgrade sale. Cash collected relating to a financed
Upgrade sale is measured as the sum of any additional down payment received at
the time of the Upgrade sale and the principal repayment of the new note
receivable which is allocable to the Upgrade sale. Principal repayments are
allocated to the Upgrade sale component of the new note receivable and the
pre-Upgrade sale component of the new note receivable based on the ratio of such
components at the time of the Upgrade sale.

  (ii) Fractional Interests

     Fractional Interest sales are included in revenues when at least a 10% down
payment requirement has been met and any rescission period has expired.

     Fractional Interest cost of sales and direct selling expenses related to a
Fractional Interest sale are recorded at the time the sale is recognized.
Fractional Interest costs include the cost of land, improvements to the
property, including costs of amenities constructed and other direct acquisition
costs. Direct selling expenses are recorded as sales and marketing expenses.

  (iii) Sales of Notes Receivable

     Gains on sales of Notes Receivable represent the present value of the
differential between contractual interest rates charged to borrowers on Notes
Receivable sold by the Company and the interest rates to be received by the
purchasers of such Notes Receivable, after considering the effects of estimated
prepayments and the costs of servicing, net of transaction costs. The Company
recognizes such gains on sales of Notes Receivable on the settlement date. Gains
on the sale of a portion of Notes Receivable are based on the relative fair
market value of the note receivable portions sold and retained.

     The Company discounts cash flows on its Notes Receivable sold at a rate
which it believes a purchaser would require as a rate of return. The Company
develops its assumptions based on experience with its own portfolio, available
market data and ongoing consultation with its investment bankers (see note 13).

     Income from the differential retained is recorded in finance income using
the interest method. In addition, finance income includes interest income on
Notes Receivable retained by the Company. The residual interest in Notes
Receivable sold is classified as a trading security in accordance with SFAS No.
115, Accounting for Certain Investments in Debt or Equity Securities, and is
carried at market value with changes in the fair market value (see note 13) of
the residual interest in Notes Receivable sold recognized as finance income.

                                       37
<PAGE>   38
                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

      NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1999, 1998 AND 1997
                         (DOLLAR AMOUNTS IN THOUSANDS)

PROPERTY AND EQUIPMENT

     Property and equipment are recorded at cost and depreciated or amortized
using the straight-line method over the following assets' estimated useful
lives:

<TABLE>
<S>                                                           <C>
Building and improvements...................................  20 to 45 years
Equipment, furniture and fixtures...........................   3 to 12 years
Leasehold improvements......................................    2 to 5 years
</TABLE>

ADVERTISING

     Advertising costs, included in sales and marketing expenses in the
accompanying combined statements of income, are expensed as incurred and
amounted to $7,337, $5,655 and $4,204 for the years ended December 31, 1999,
1998 and 1997, respectively.

INCOME TAXES

     Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

     The Company was included in the Federal consolidated tax return of the
Parent prior to August 15, 1997. The Parent allocated the combined current and
deferred tax expense to the Company as if the Company had filed on a stand-alone
basis.

     Subsequent to August 15, 1997, the Company files its Federal and State
consolidated tax returns on a stand-alone basis.

STOCK-BASED COMPENSATION

     The Company accounts for stock option plans for employees in accordance
with the provisions of Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations. As such,
compensation expense related to employee stock options is recorded if, on the
date of grant, the fair value of the underlying stock exceeds the exercise
price. The Company applies the disclosure-only requirements of SFAS No. 123,
Accounting for Stock-Based Compensation, which allows entities to continue to
apply the provisions of APB Opinion No. 25 for transactions with employees, and
to provide pro forma results of operations disclosures for employee stock option
grants as if the fair-value-based method of accounting in SFAS No. 123 had been
applied to those transactions.

USE OF ESTIMATES

     Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period to
prepare these financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates and
assumptions.

                                       38
<PAGE>   39
                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

      NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1999, 1998 AND 1997
                         (DOLLAR AMOUNTS IN THOUSANDS)

DERIVATIVE FINANCIAL INSTRUMENTS

     The Company has limited involvement with derivative financial instruments
and uses them only to manage well-defined interest and foreign currency rate
risks. They are not used for trading purposes.

     The Company enters into forward interest rate swap agreements, interest
rate cap agreements and forward exchange contracts to hedge the effects of
fluctuations in interest rates and foreign currency rates related to anticipated
sales of Notes Receivables and purchases of resort properties, respectively.
These transactions meet the requirements for hedge accounting, including
designation to a specific transaction and high correlation. Gains and losses on
these agreements are deferred and recognized upon completion of the sale of
Notes Receivable or the purchase of the resort property and included in the
basis of the related asset.

EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS

     In April, 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants (AICPA) issued Statement of
Position (SOP) 98-5, Reporting on the Costs of Start-Up Activities. This SOP was
effective on January 1, 1999, and has not impacted the Company's financial
position or results of operations.

     In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. This Statement, as amended, is effective as of the
beginning of the first quarter of the fiscal year beginning after June 15, 2000.
The Company does not anticipate a material impact on its financial position or
results of operations from the future adoption of this standard.

     In December, 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition", to be effective as of
the first quarter of 2000. The Company does not anticipate that compliance with
SAB No. 101 will result in any material change to the Company's revenue
recognition policies.

(3) NOTES RECEIVABLE

     The Company provides financing to the purchasers of Vacation Credits and
Fractional Interests. The notes resulting from sales of Vacation Credits bear
interest at 13.9% or 14.9%, depending on the method of payment, and are written
with initial terms of up to 84 months. Notes resulting from the sale of
Fractional Interests bear interest rates of up to 11.9% for a term of up to 120
months. Once a 10% down payment has been received, the Company has no obligation
under the notes to refund monies or provide further services to the Owners in
the event membership is terminated for nonpayment of the notes.

     Maturities of Notes Receivable at December 31, 1999 are as follows:

<TABLE>
<S>                                                         <C>
2000......................................................  $ 12,197
2001......................................................    13,540
2002......................................................    14,792
2003......................................................    15,450
2004......................................................    15,615
Thereafter................................................    29,357
                                                            --------
                                                            $100,951
                                                            ========
</TABLE>

                                       39
<PAGE>   40
                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

      NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1999, 1998 AND 1997
                         (DOLLAR AMOUNTS IN THOUSANDS)

     The following table summarizes the Company's total Notes Receivable
portfolio at December 31:

<TABLE>
<CAPTION>
                                                                1999         1998
                                                              ---------    ---------
<S>                                                           <C>          <C>
Total Notes Receivable......................................  $ 389,901    $ 307,740
Less Notes Receivable sold..................................   (288,950)    (200,840)
                                                              ---------    ---------
Gross on balance sheet Notes Receivable.....................    100,951      106,900
                                                              =========    =========
Unencumbered Notes Receivable...............................     64,169       69,837
Retained interest in Notes Receivable sold..................     36,782       37,063
                                                              ---------    ---------
Gross on balance sheet Notes Receivable.....................    100,951      106,900
Less:
  Deferred gross profit.....................................       (970)      (1,176)
  Allowance for doubtful accounts and sales returns.........    (15,179)     (12,363)
                                                              ---------    ---------
Notes Receivable, net.......................................  $  84,802    $  93,361
                                                              =========    =========
</TABLE>

     Customers over 60 days past due on monthly payments are considered
delinquent. Delinquent Notes Receivable represent 1.91% and 1.97% of Notes
Receivable at December 31, 1999 and 1998, respectively.

     The activity in the allowance for doubtful accounts, recourse liability and
sales returns is as follows for the years ended December 31:

<TABLE>
<CAPTION>
                                                         1999       1998       1997
                                                       --------    -------    -------
<S>                                                    <C>         <C>        <C>
Balances at beginning of period......................  $ 20,935    $15,240    $11,241
Provision for doubtful accounts, sales returns and
  recourse liability.................................    21,407     15,435     11,755
Notes Receivable charged-off and sales returns net of
  Vacation Credits recovered.........................   (13,515)    (9,919)    (7,888)
Recoveries...........................................       260        179        132
                                                       --------    -------    -------
Balances at end of period............................  $ 29,087    $20,935    $15,240
                                                       ========    =======    =======
Allowance for doubtful accounts and sales returns....  $ 15,179    $12,363    $ 9,935
Recourse liability on Notes Receivable sold..........    13,908      8,572      5,305
                                                       --------    -------    -------
                                                       $ 29,087    $20,935    $15,240
                                                       ========    =======    =======
</TABLE>

(4) SALES OF NOTES RECEIVABLE

TW HOLDINGS

     The Company sold through TW Holdings, an 80% interest in certain Notes
Receivable to outside investors primarily through an agreement, as amended on
June 18, 1998, expiring June 17, 1999 with Bank of America and other purchasers
(Bank Group).

     On June 17, 1999, the Company chose not to renew the revolving portion of
the $98 million Receivable Transfer Agreement with the Bank Group. In
conjunction with the private placement of Notes Receivable in August 1999, the
sold Notes Receivable were acquired by TRI Funding III, the credit facility was
retired and the corporation was dissolved.

     Total Notes Receivable sold and outstanding under this agreement amounted
to $0 and $61,000 at December 31, 1999 and 1998, respectively. The Company's
retained interest included in Notes Receivable

                                       40
<PAGE>   41
                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

      NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1999, 1998 AND 1997
                         (DOLLAR AMOUNTS IN THOUSANDS)

under this agreement in the accompanying consolidated balance sheets amounted to
$0 and $15,250 at December 31, 1999 and 1998, respectively.

     Subsequent to January 1, 1997 and prior to the Consolidation Transactions,
the Company's transfer of Notes Receivable under the agreement did not qualify
for sales treatment under SFAS No. 125 and were treated as secured borrowings.

     In conjunction with the Consolidation Transactions, the bylaws and articles
of incorporation of TW Holdings were amended such that the transfer of Notes
Receivable from Trendwest to TW Holdings met the sales recognition criteria of
SFAS No. 125 resulting in the transferred Notes Receivable no longer being
assets of Trendwest. At June 30, 1997, Notes Receivable previously transferred
and treated as secured borrowings aggregating $16.8 million were accounted for
as sales of Notes Receivable.

TW HOLDINGS II

     On April 15, 1999, the Company formed TW Holdings II and simultaneously
entered into a $75 million 364 day Receivables Purchase Agreement (Agreement)
with Prudential Securities Credit Corporation (Prudential). The Agreement has a
90% advance rate and is priced at LIBOR plus 100 basis points. The Agreement is
subject to annual renewals with the current commitment expiring on April 13,
2000. The 10% retained interest is recorded as Notes Receivable whereas the
residual interest in the excess cash flows of Notes Receivable sold is
classified as residual interest in Notes Receivable sold and is measured at fair
value.

     Total Notes Receivable sold and outstanding under this Agreement amounted
to $40,000 and $0 at December 31, 1999 and 1998, respectively.

     Prudential has limited recourse to the Company's retained interest in Notes
Receivable sold under certain default provisions related primarily to
representations and warranties that do not relate to credit defaults by the
underlying obligors. The Company's retained interest included in Notes
Receivable in the accompanying balance sheets amounted to $7,822 and $0 at
December 31, 1999 and 1998, respectively.

TRENDWEST FUNDING I

     In 1996, the Company sold through Trendwest Funding I, certain Notes
Receivable to a limited liability corporation (LLC) in exchange for cash, a
subordinated note payable from the LLC and a residual interest in the excess
cash flows of the LLC. The subordinated note payable from the LLC represents the
Company's retained interest in Notes Receivable which provide collateral to
holders of notes issued by the LLC (the LLC noteholders) and is classified as
Notes Receivable in the accompanying balance sheet. The residual interest in the
excess cash flows of the LLC is classified as residual interest in Notes
Receivable sold and is measured at fair value.

     The LLC noteholders and the LLC outside investor have recourse limited to
the Company's retained interest in Notes Receivable sold under certain default
provisions related primarily to the delinquency status of the Notes Receivable
sold. The Company's retained interest is included in Notes Receivable in the
accompanying balance sheets, and amounted to approximately $4,386 and $8,146 at
December 31, 1999 and 1998, respectively.

     The LLC is controlled and 99% owned by an independent third party who has
made a substantial capital investment and has substantial risks and rewards of
the assets of the LLC.

                                       41
<PAGE>   42
                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

      NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1999, 1998 AND 1997
                         (DOLLAR AMOUNTS IN THOUSANDS)

TRENDWEST FUNDING II

     In 1998, the Company sold through Trendwest Funding II certain Notes
Receivable to a special purpose entity (Entity) wholly-owned by Trendwest
Funding II (TFI II) for cash, subordinated notes payable from the Entity and a
residual interest in the excess cash flows of the Entity. TFI II issued two
classes of senior and subordinated notes to institutional investors. The
subordinated notes payable from the Entity represent the Company's retained
interest in Notes Receivable which provides collateral to the holders of the
notes issued by the Entity and is classified as Notes Receivable in the
accompanying balance sheets. The residual interest in the excess cash flows of
the Entity is classified as residual interest in Notes Receivable sold and is
measured at fair value.

     The Company's retained interest is included in Notes Receivable in the
accompanying balance sheets, and amounted to approximately $10,139 and $13,667
at December 31, 1999 and 1998, respectively.

TRI FUNDING III

     In August 1999, the Company sold certain Notes Receivable to TRI Funding
III, Inc. (TRI Funding III), for cash, a subordinated note payable from TRI
Funding III and a residual interest in the excess cash flows of TRI Funding III.
TRI Funding III issued six classes of senior notes to institutional investors.
The subordinated note payable from TRI Funding III represents the Company's
retained interest in Notes Receivable which provides collateral to the holders
of the notes issued by the entity and is classified as Notes Receivable on the
accompanying balance sheets. The residual interest in the excess cash flows is
classified as residual interest in Notes Receivable sold and is measured at fair
value.

     The Company's retained interest is included in Notes Receivable in the
accompanying balance sheets, and amounted to approximately $14,435 and $0 at
December 31, 1999 and 1998, respectively.

(5) PROPERTY AND EQUIPMENT

     Property and equipment, net, consists primarily of the following at
December 31:

<TABLE>
<CAPTION>
                                                               1999      1998
                                                              -------   -------
<S>                                                           <C>       <C>
Land........................................................  $ 2,379   $   877
Building and improvements...................................   15,846     3,612
Equipment, furniture and fixtures...........................    6,873     5,628
Leasehold improvements......................................    2,397     1,986
Construction in Progress....................................       78    11,120
                                                              -------   -------
                                                               27,573    23,223
Less accumulated depreciation and amortization..............    3,246     2,880
                                                              -------   -------
                                                              $24,327   $20,343
                                                              =======   =======
</TABLE>

     Construction in progress at December 31, 1999 and 1998 includes capitalized
interest of $0 and $152, respectively.

                                       42
<PAGE>   43
                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

      NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1999, 1998 AND 1997
                         (DOLLAR AMOUNTS IN THOUSANDS)

(6) DEFERRED GROSS PROFIT

     The Company accounts for certain Upgrade sales on the installment method
prior to satisfaction of minimum down payment requirements. Information for
those transactions follows for the years ended December 31:

<TABLE>
<CAPTION>
                                                           1999      1998       1997
                                                          ------    -------    ------
<S>                                                       <C>       <C>        <C>
Gross sales value.......................................  $7,227    $ 6,496    $9,023
                                                          ======    =======    ======
Gross profit deferred...................................  $3,597    $ 3,043    $4,277
Gross profit recognized.................................   3,178      4,344     4,961
                                                          ------    -------    ------
Net gross profit deferred (recognized) during period....  $  419    $(1,301)   $ (684)
                                                          ======    =======    ======
</TABLE>

     Notes Receivable is presented net of deferred gross profit in the
accompanying balance sheets. Such deferred amounts aggregated $970 and $1,176 at
December 31, 1999 and 1998, respectively.

     Deferred gross profit related to Notes Receivable sold is combined with
allowance for recourse liability on Notes Receivable sold in the accompanying
balance sheets. Such deferred amounts aggregated $3,303 and $2,678 at December
31, 1999 and 1998, respectively.

(7) CREDIT FACILITY

     The Company has a $30,000 unsecured revolving credit agreement (Credit
Agreement) with a group of banks. The credit agreement provides for borrowings
at the reference rate as announced by Bank of America, NT&SA or at LIBOR plus
100 basis points and a commitment fee to the banks of 30 basis points per annum
on the total unused amount of the commitment. Availability under the line of
credit is subject to a borrowing base which is a percentage of unencumbered
Notes Receivable and inventory, including property under development. Under the
terms of the Credit Agreement, the Company is required to maintain certain
interest coverage ratios and capitalization ratios; the Credit Agreement also
imposes limitations on certain liens and carrying amounts of inventory. The
Credit Agreement matures on February 12, 2001. Borrowings outstanding at
December 31, 1999 and 1998 were $3,900 and $30,000 respectively, at weighted
average interest rates of 8.50% and 6.64%, respectively.

(8) INCOME TAXES

     The provision for income taxes consist of the following for the years ended
December 31:

<TABLE>
<CAPTION>
                                                         1999       1998       1997
                                                        -------    -------    -------
<S>                                                     <C>        <C>        <C>
Federal:
  Current.............................................  $18,988    $12,731    $ 9,173
  Deferred............................................      299        247      1,749
                                                        -------    -------    -------
                                                         19,287     12,978     10,922
                                                        -------    -------    -------
State:
  Current.............................................    2,526      1,770        980
  Deferred............................................      445        (25)      (314)
                                                        -------    -------    -------
                                                          2,971      1,745        666
                                                        -------    -------    -------
          Total.......................................  $22,258    $14,723    $11,588
                                                        =======    =======    =======
</TABLE>

                                       43
<PAGE>   44
                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

      NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1999, 1998 AND 1997
                         (DOLLAR AMOUNTS IN THOUSANDS)

     The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below at December 31:

<TABLE>
<CAPTION>
                                                               1999       1998
                                                              -------    -------
<S>                                                           <C>        <C>
Deferred tax assets:
  Allowance for credit losses...............................  $ 9,853    $ 6,492
  Deferred gross profit.....................................    1,616      1,478
  Retained interest in Notes Receivable sold................    1,310      1,844
  Contract Servicing liability arising from Notes Receivable
     sold...................................................      962         --
  Other.....................................................      694        296
                                                              -------    -------
          Total deferred tax assets.........................   14,435     10,110
                                                              -------    -------
Deferred tax liability:
  Residual interest in Notes Receivable sold................   12,829      8,289
  Other assets..............................................       32        112
  Property and equipment....................................      840        418
  Other.....................................................      776        589
                                                              -------    -------
          Total deferred tax liability......................   14,477      9,408
                                                              -------    -------
          Total deferred (liability) asset, net.............  $   (42)   $   702
                                                              =======    =======
</TABLE>

     In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, tax previously paid, projected
future taxable income, and tax planning strategies in making this assessment.

     Based upon the level of historical taxable income and projections for
future taxable income over the periods which the deferred tax assets are
deductible, management believes it is more likely than not that the Company will
realize the benefits of these deferred tax assets.

     Income tax expense differed from the amounts computed by applying the U.S.
Federal income tax rate of 35% to pretax income as a result of the following for
the years ended December 31:

<TABLE>
<CAPTION>
                                                              1999    1998    1997
                                                              ----    ----    ----
<S>                                                           <C>     <C>     <C>
Income tax at Federal statutory rate........................  35.0%   35.0%   35.0%
State tax, net of Federal benefit...........................   3.4     2.9     1.3
Other.......................................................   0.6      .1     (.3)
                                                              ----    ----    ----
                                                              39.0%   38.0%   36.0%
                                                              ====    ====    ====
</TABLE>

     As the Company continues to expand sales operations and development
activities into new tax jurisdictions, both domestic and international, it
becomes subject to new tax rules and tax authorities. Often tax law and taxation
criteria require interpretation with regards to the Company's timeshare
business, and while it is management's intent to investigate and comply with all
applicable tax laws, no assurance can be provided that taxing authorities in
such jurisdictions will agree with the Company's assessment of the appropriate
filing requirements and liability determinations.

                                       44
<PAGE>   45
                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

      NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1999, 1998 AND 1997
                         (DOLLAR AMOUNTS IN THOUSANDS)

(9) 401(k) PLANS

     Prior to August 15, 1997, the Company participated in the Parent 401(k)
plan. Company contributions, which are invested in Parent common stock, were at
the discretion of the Board of Directors of the Parent and totaled $1,124 for
the period from January 1, 1997 to August 15, 1997.

     On August 15, 1997, the Company ceased participation in the Parent 401(k)
plan and sponsored a new plan (Trendwest plan) covering all Trendwest employees.
Company contributions totaled $2,708, $2,402 and $765 for the years ended
December 31, 1999 and 1998, and the period from August 15, 1997 to December 31,
1997, respectively.

(10) EMPLOYEE STOCK PURCHASE PLAN

     In July, 1999, the Shareholders of the Company approved the 1999 Employee
Stock Purchase Plan (Plan). The Plan allows employees to purchase up to $2,500
of the Company's common stock at a 15% discount from the market price on the
last business day of a quarter. There is no lookback provision for determining
market value. Under the Plan, the Company issued 17,384 shares of common stock
for the year ended December 31, 1999.

(11) FOREIGN EXCHANGE CONTRACT

     In October 1999, the Company entered into a forward exchange contract,
accounted for as a hedge, to receive $6,638 CDN at a rate of $1.4752 CDN/US on
February 15, 2000.

     The Company is exposed to credit losses in the event of nonperformance by
the counterparties to its foreign exchange contracts. The Company does not
obtain collateral to support financial instruments but monitors the credit
standing of the counterparties.

(12) STOCK OPTION PLAN

     In 1997, the Board of Directors approved the adoption of an incentive stock
option plan providing for the award of incentive stock options to employees of
the Company at the discretion of the Board of Directors. Under the plan, on the
date of grant, the exercise price of the option must be at least equal to the
market value of common stock for shares issued. The plan provides for grants up
to 5% of the Company's outstanding shares (852,054 at December 31, 1999). Stock
options vest ratably over five years and expire three years after becoming fully
vested.

                                       45
<PAGE>   46
                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

      NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1999, 1998 AND 1997
                         (DOLLAR AMOUNTS IN THOUSANDS)

     The following table summarizes stock option activity:

<TABLE>
<CAPTION>
                                                            NUMBER OF    WEIGHTED AVERAGE
                                                             SHARES       EXERCISE PRICE
                                                            ---------    ----------------
<S>                                                         <C>          <C>
Options granted...........................................   492,000          $26.88
Expired or canceled.......................................    (2,000)          26.88
                                                             -------          ------
BALANCE AT DECEMBER 31, 1997..............................   490,000          $26.88
Options granted...........................................   122,500           12.02
Expired or canceled.......................................    (7,500)          26.88
                                                             -------          ------
BALANCE AT DECEMBER 31, 1998..............................   605,000          $23.87
Options granted...........................................   155,000           21.26
Expired or canceled.......................................   (43,500)          23.67
                                                             -------          ------
BALANCE AT DECEMBER 31, 1999..............................   716,500          $23.32
                                                             =======          ======
</TABLE>

     The following table summarizes information about stock options outstanding
under the Company's stock option plan at December 31, 1999:

<TABLE>
<CAPTION>
                                 OPTIONS OUTSTANDING                      OPTIONS EXERCISABLE
                  -------------------------------------------------   ----------------------------
                                WEIGHTED-AVERAGE                                      WEIGHTED-
                                   REMAINING          WEIGHTED-                        AVERAGE
   RANGE OF         NUMBER      CONTRACTUAL LIFE   AVERAGE EXERCISE     NUMBER      EXERCISE PRICE
EXERCISE PRICES   OUTSTANDING      (IN YEARS)      PRICE PER SHARE    EXERCISABLE     PER SHARE
---------------   -----------   ----------------   ----------------   -----------   --------------
<S>               <C>           <C>                <C>                <C>           <C>
$11.38 - $13.00..   109,500           6.88              $11.41           20,900         $11.38
$20.19 - $23.00..   155,000           7.74               21.44            1,800          20.19
$23.19 - $26.88..   452,000           5.82               26.84          179,200          26.88
---------------     -------           ----              ------          -------         ------
$11.38 - $26.88..   716,500           6.40              $23.32          201,900         $25.21
</TABLE>

     At December 31, 1999 and 1998, exercisable options of 201,900 and 96,500,
respectfully, were outstanding at weighted average exercise prices of $25.21 and
$26.88, respectively. There were no exercisable options outstanding at December
31, 1997.

     The Company applies APB Opinion No. 25 in accounting for its plan and,
accordingly, no compensation cost has been recognized for its stock options in
the accompanying financial statements as the options had no intrinsic value at
the grant date. Had the Company determined compensation cost based on the fair
value of the options at the grant date, the Company's net income would have been
reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31,
                                                        -----------------------------
                                                         1999       1998       1997
                                                        -------    -------    -------
<S>                                                     <C>        <C>        <C>
Net income, as reported...............................  $34,873    $24,031    $20,609
Net income, pro forma.................................   33,511     22,748     20,377
Basic EPS, as reported................................     2.04       1.38       1.32
Diluted EPS, as reported..............................     2.03       1.38       1.32
Basic EPS, pro forma..................................     1.96       1.31       1.31
Diluted EPS, pro forma................................     1.95       1.31       1.31
</TABLE>

                                       46
<PAGE>   47
                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

      NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1999, 1998 AND 1997
                         (DOLLAR AMOUNTS IN THOUSANDS)

     The fair value of the options granted is estimated on the date of grant
using the Black-Scholes method with the following weighted average assumptions
used:

<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31,
                                                          -----------------------------
                                                           1999       1998       1997
                                                          -------    -------    -------
<S>                                                       <C>        <C>        <C>
Annual dividend yield...................................     0.0%       0.0%          0.0%
Volatility..............................................    54.3%      58.2%         45.0%
Risk free interest rate.................................     5.8%       4.5%          6.4%
Expected life...........................................  6 years    6 years    6 years
</TABLE>

     The weighted average grant date fair value per share of options granted
during the years ended December 31, 1999, 1998 and 1997 were $12.31, $6.15 and
$12.94, respectively.

(13) FAIR VALUES OF FINANCIAL INSTRUMENTS

     SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet. The fair values of financial
instruments are based on estimates using present value or other valuation
techniques in cases where quoted market prices are not available. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate settlement of the
instrument. SFAS No. 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value of
the Company.

     Estimated fair values, carrying values and various methods and assumptions
used in valuing the Company's financial instruments are set forth below at
December 31:

<TABLE>
<CAPTION>
                                                                    1999                    1998
                                                            ---------------------   ---------------------
                                                            CARRYING   ESTIMATED    CARRYING   ESTIMATED
                                                             VALUE     FAIR VALUE    VALUE     FAIR VALUE
                                                            --------   ----------   --------   ----------
<S>                                                         <C>        <C>          <C>        <C>
Financial assets:
  Cash(a).................................................  $ 1,760     $ 1,760     $     9     $     9
  Restricted cash(a)......................................    2,987       2,987       2,351       2,351
  Notes Receivable(a).....................................   85,772      85,772      94,537      94,537
  Residual interest in Notes Receivable sold(b)...........   36,265      36,265      23,683      23,683
  Due from Parent(c)......................................    3,058       3,058          --          --
Financial liabilities:
  Due to Parent(c)........................................       --          --       5,688       5,688
  Borrowing under bank line of credit(c)..................    3,900       3,900      30,000      30,000
  Recourse liability on notes sold(a).....................   13,908      13,908       8,572       8,572
</TABLE>

---------------
(a) The carrying value, prior to consideration of deferred gross profit in the
    case of Notes Receivable, is considered to be a reasonable estimate of fair
    value.

                                       47
<PAGE>   48
                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

      NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1999, 1998 AND 1997
                         (DOLLAR AMOUNTS IN THOUSANDS)

(b) Fair value is determined using estimated discounted future cash flows taking
    into consideration anticipated prepayment rates. The Company utilizes the
    following assumptions in determining the fair value of its residual interest
    in Notes Receivable sold at December 31:

<TABLE>
<CAPTION>
                                              1999            1998
                                          ------------    ------------
<S>                                       <C>             <C>
Discount rate...........................     12.25%          12.25%
Annual prepayment rate..................  7.2% to 9.0%    6.0% to 7.2%
</TABLE>

(c) The carrying value reported approximates fair value due to the variable
    interest rates charged on the borrowings.

     Because no market exists for a portion of the financial instruments, fair
value estimates may be based on judgments regarding future instruments and other
factors. These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.

     The fair value of the Company's forward exchange contract was $92 at
December 31, 1999, representing the difference between the currency trading
value and the strike price of the forward exchange at that date.

(14) RELATED PARTY TRANSACTIONS

NOTES RECEIVABLE

     The Company, on an ongoing basis, acquires from and sells Notes Receivable
to related parties at face value with full recourse. A summary of these
transactions follows for the years ended December 31:

<TABLE>
<CAPTION>
                                                              1999     1998       1997
                                                              ----    -------    ------
<S>                                                           <C>     <C>        <C>
Sale of Notes Receivable:
  Members of the Board of Directors of the Parent...........  $ --    $   928    $  917
  I&I Holdings, a subsidiary of the Parent..................    --          7        55
Purchases of Notes Receivable:
  Eagle Crest Partners, Ltd., a subsidiary of the Parent....   473      2,709     7,134
  Running Y Resorts, Ltd., a subsidiary of the Parent.......   177      2,537     3,218
  Parent foundation.........................................    --         --     2,536
  I&I Holdings, a subsidiary of the Parent..................    --        843        --
  Members of the Board of Directors of the Parent...........    --     11,308        --
</TABLE>

     With respect to Notes Receivable sold to members of the Board of Directors
of the Parent and I&I Holdings, the Company serviced such receivables without
compensation.

     The outstanding balance of Notes Receivable sold to related parties
amounted to $0 at December 31, 1999 and 1998.

WORLDMARK

  (i) Management Contract

     The Company manages the resort properties transferred to WorldMark under
the terms of a management agreement which is subject to annual approval by the
Members. Under the terms of the management agreement, the Company receives a
management fee equal to the lesser of 15% of WorldMark's budgeted expenditures
or the full net profit of WorldMark and is reimbursed for certain expenses. In
addition, the

                                       48
<PAGE>   49
                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

      NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1999, 1998 AND 1997
                         (DOLLAR AMOUNTS IN THOUSANDS)

Company is responsible for paying annual dues on Vacation Credits which it owns
prior to their sale to customers and reimburses WorldMark for delinquent dues on
canceled memberships. A summary of these transactions for the years ended
December 31 follows:

<TABLE>
<CAPTION>
                                                           1999       1998      1997
                                                          -------    ------    ------
<S>                                                       <C>        <C>       <C>
WorldMark:
  Management fee income.................................  $ 2,972    $1,707    $1,488
  Dues expense incurred by Trendwest....................    1,376     1,107       793
  Delinquent dues expense incurred by Trendwest.........      727       500       389
  Reimbursed salaries...................................   10,417     7,145     5,448
  Other reimbursed expenses.............................      763       779       612
</TABLE>

  (ii) Financial Information (Unaudited)

     A summary of financial information for WorldMark as of and for the years
ended December 31, 1999 and 1998 is as follows:

<TABLE>
<CAPTION>
                                                                1999        1998
                                                              --------    --------
<S>                                                           <C>         <C>
Cash and investment securities..............................  $ 13,762    $ 10,154
Member dues receivable......................................    15,977      12,607
Other assets................................................     2,618       2,336
                                                              --------    --------
          Total assets......................................    32,357      25,097
                                                              --------    --------
Deferred revenue............................................    18,158      13,647
Other liabilities...........................................     2,020       3,187
                                                              --------    --------
          Total liabilities.................................    20,178      16,834
                                                              --------    --------
          Net assets........................................  $ 12,179    $  8,263
                                                              ========    ========
Annual member assessments...................................  $ 28,213    $ 20,978
                                                              ========    ========
Excess of revenues over expenses............................  $  3,915    $  2,957
                                                              ========    ========
Condominiums owned, at Developers' unamortized historical
  cost......................................................  $236,885    $181,196
                                                              ========    ========
</TABLE>

     WorldMark maintains a reserve for replacement costs of depreciable assets.
Such reserves at December 31, 1999 and 1998, were $12.2 million and $8.3
million, respectively.

PARENT AND OTHER RELATED PARTIES

     The Company has an open revolving credit line with its Parent to meet
operating needs and invest excess funds. The credit line is $10 million and is
payable on demand. It bears interest at the prime rate plus 1% per annum (9.50%
and 8.75% at December 31, 1999 and 1998, respectively). Outstanding borrowings
under this credit agreement were $0 and $5,688 at December 31, 1999 and 1998,
respectively. The Company periodically lends excess funds to the Parent at the
prime rate minus 2% (currently 6.50%). Outstanding lendings under this agreement
were $3,058 and $0 at December 31, 1999 and 1998, respectively.

     The Company also reimburses the Parent for administrative services received
and its share of insurance expenses. Also, through June 30, 1997 the Parent was
named as the master servicer under the terms of certain sales of Notes
Receivable and received a servicing fee of 1.75% per annum of the sold
receivables to service the receivable. The Parent subcontracted the servicing to
Trendwest for a servicing fee of 1.25% per annum of

                                       49
<PAGE>   50
                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

      NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1999, 1998 AND 1997
                         (DOLLAR AMOUNTS IN THOUSANDS)

the sold receivable balance. Trendwest also received a servicing fee from TRI
Funding Company I, LLC of 1.75% per annum of the sold receivables' balance and
subsequent to June 30, 1997 is the named master servicer under the terms of
certain sales of Notes Receivable. Trendwest, in turn, subcontracts components
of the servicing to a third-party servicer. A summary of these transactions
follows for the years ended December 31:

<TABLE>
<CAPTION>
                                                            1999      1998      1997
                                                           ------    ------    ------
<S>                                                        <C>       <C>       <C>
Parent:
  Interest income........................................  $   31    $  141    $  159
  Interest expense.......................................     129        26     1,945
  Insurance expense......................................   3,927     2,624     1,865
  Servicing fee expense, net.............................      --        --       240
TRI Funding Company I, LLC:
  Servicing fee income...................................      --        --     1,157
</TABLE>

     The Company is developing a resort in central Washington known as
MountainStar in conjunction with its Parent. The Parent owns the land and the
Company is acting as the developer. On behalf of its Parent, the Company has
incurred costs of approximately $10,898 and $5,869 in 1999 and 1998,
respectively, related to the project. All costs incurred to date will be
reimbursed by the Parent.

     In 1998, the Company purchased 25 condominium units at a cost of $3,462
from Running Y Resorts.

(15) COMMITMENTS AND CONTINGENCIES

PURCHASE COMMITMENTS

     The Company routinely enters into purchase agreements with various parties
to acquire and build resort properties. At December 31, 1999, the Company has
outstanding purchase commitments of $75,845 related to properties under
development.

LITIGATION

     The Company is involved in various claims and lawsuits arising in the
ordinary course of business. Management believes the outcome of these matters
will not have a material adverse effect on the Company's financial position,
results of operations or liquidity.

LEASE COMMITMENTS

          The Company has various operating lease agreements, primarily for
     sales offices. These obligations generally have remaining noncancelable
     terms of five years or less. Future minimum lease payments are as follows
     for the years ending December 31:

<TABLE>
<S>                                                           <C>
2000........................................................  $3,938
2001........................................................   3,327
2002........................................................   2,206
2003........................................................     876
2004........................................................     367
Thereafter..................................................      70
</TABLE>

                                       50
<PAGE>   51
                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

      NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1999, 1998 AND 1997
                         (DOLLAR AMOUNTS IN THOUSANDS)

     Rental expense amounted to $4,225, $3,262 and $2,018 for the years ended
December 31, 1999, 1998 and 1997, respectively.

(16) SEGMENT REPORTING

     The Company has two reportable segments; sales and financing. The sales
segment markets and sells Vacation Credits and Fractional Interests. The finance
segment is primarily responsible for servicing and collecting Notes Receivable
originated in conjunction with the financing of sales of Vacation Credits and
Fractional interest Sales. The finance segment does not include TW Holdings, TW
Holdings II, Trendwest Funding I, Trendwest Funding II or Trendwest Funding III.
Management has chosen to evaluate the business based on sales and marketing
activities as these are the primary drivers of the business.

     The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on profits or losses from sales and marketing activities on a
pre-tax basis. Intersegment revenues are recorded at market rates as if the
transactions occurred with third parties. Assets are not reported by segment.

     The following tables summarize the segment activity of the Company:

<TABLE>
<CAPTION>
                                                                                         SEGMENT
                                                            SALES     FINANCE   OTHER     TOTAL
                                                           --------   -------   ------   --------
<S>                                                        <C>        <C>       <C>      <C>
YEAR ENDED DECEMBER 31, 1999:
External revenue.........................................  $234,665   $ 4,463   $3,710   $243,838
Interest revenue -- net..................................        --     5,552       --      5,552
Interest revenue -- intersegment.........................        --     3,839       --      3,839
Intersegment revenue.....................................        --     1,605       --      1,605
                                                           --------   -------   ------   --------
  Segment revenue........................................  $234,665   $15,459   $3,710   $253,834
Segment profit...........................................  $ 40,035   $10,890   $2,054   $ 52,979
SIGNIFICANT NON-CASH ITEMS:
Provision for doubtful accounts, sales returns and
  recourse liability.....................................  $ 21,407        --       --   $ 21,407
Gain on sale of property and equipment...................        --   $   869       --   $    869
</TABLE>

<TABLE>
<CAPTION>
                                                                                         SEGMENT
                                                            SALES     FINANCE   OTHER     TOTAL
                                                           --------   -------   ------   --------
<S>                                                        <C>        <C>       <C>      <C>
YEAR ENDED DECEMBER 31, 1998:
External revenue.........................................  $170,817   $ 2,985   $2,329   $176,131
Interest revenue -- net..................................        --     4,132       --      4,132
Interest revenue -- intersegment.........................        --     2,870       --      2,870
Intersegment revenue.....................................        --       976       --        976
  Segment revenue........................................  $170,817   $10,963   $2,329   $184,109
                                                           --------   -------   ------   --------
Segment profit...........................................  $ 25,205   $ 7,651   $  929   $ 33,785
SIGNIFICANT NON-CASH ITEMS:
Provision for doubtful accounts, sales returns and
  recourse liability.....................................  $ 15,435        --       --   $ 15,435
</TABLE>

                                       51
<PAGE>   52
                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

      NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 1999, 1998 AND 1997
                         (DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                          SEGMENT
                                                             SALES     FINANCE   OTHER     TOTAL
                                                            --------   -------   ------   --------
<S>                                                         <C>        <C>       <C>      <C>
YEAR ENDED DECEMBER 31, 1997:
External revenue..........................................  $128,835   $1,769    $2,032   $132,636
Interest revenue -- net...................................        --    3,563        --      3,563
Interest revenue -- intersegment..........................        --      681        --        681
Intersegment revenue......................................        --      960        --        960
                                                            --------   ------    ------   --------
  Segment revenue.........................................  $128,835   $6,973    $2,032   $137,840
Segment profit............................................  $ 23,779   $4,412    $  924   $ 29,115
SIGNIFICANT NON-CASH ITEMS:
Provision for doubtful accounts, sales returns and
  recourse liability......................................  $ 11,755       --        --   $ 11,755
</TABLE>

     The following table provides a reconciliation of segment revenues and
profits to the consolidated amounts:

<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,
                                                         ------------------------------
                                                           1999       1998       1997
                                                         --------   --------   --------
<S>                                                      <C>        <C>        <C>
Segment revenue........................................  $253,834   $184,109   $137,840
Interest expense reported net of interest income.......       442        353      1,739
Elimination of intersegment revenue....................    (5,444)    (3,846)    (1,641)
Finance subsidiaries revenue...........................    25,644     20,341     13,649
                                                         --------   --------   --------
     CONSOLIDATED REVENUE..............................  $274,476   $200,957   $151,587
                                                         ========   ========   ========
Segment profit.........................................  $ 52,979   $ 33,785   $ 29,115
Corporate overhead not included in segment reporting...   (15,091)   (11,463)    (8,699)
Finance subsidiaries profit............................    19,243     16,432     11,781
                                                         --------   --------   --------
  CONSOLIDATED PRE-TAX INCOME..........................  $ 57,131   $ 38,754   $ 32,197
                                                         ========   ========   ========
</TABLE>

     All of the Company's revenue from external customers is derived from sales
within the United States.

(17) SUBSEQUENT EVENT

     On January 4, 2000, the Company created a wholly-owned special purpose
finance company, TW Holdings III, Inc. At the same time, the Company entered
into a 364-day $75 million commercial paper-backed Receivables Warehouse
facility (Facility) with Banc One Capital Markets. The Facility has an interest
rate based on the commercial paper rate plus 50 basis points.

                                       52
<PAGE>   53

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

     (a). The following documents are filed as part of this report:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                           DESCRIPTION
-------                          -----------
<C>      <S>
 3.1     Amended and Restated Articles of Incorporation of the
         Registrant, dated July 2, 1997.(1)
 3.2     Amended and Restated Bylaws of the Registrant.(1)
10.1     Management Agreement (Fourth Amended) between the Registrant
         and WorldMark, the Club ("WorldMark"), dated September 30,
         1994.(1)
10.2     Software Support and Maintenance Agreement between the
         Registrant and Sage Systems, Inc. ("Sage"), dated
                             , 1994.(1)
10.3     Service Agreement between the Registrant and Sage, dated
         January 1, 1996.(1)
10.4     Software Transfer Agreement between the Registrant, Sage and
         James McBride, Sr., dated August, 1994.(1)
10.5     Escrow Agreement between the Registrant, Club Esprit
         (predecessor to WorldMark) and Sage, dated as of October 25,
         1990.(1)
10.6     Form of WorldMark Retail Installment Contract Vacation Owner
         Agreement.(1)
10.7     Indenture among the Registrant, TRI Funding Company I,
         L.L.C. and LaSalle National Bank, dated as of March 1,
         1996.(1)
10.8     Servicing Agreement among the Registrant, TRI Funding
         Company I, L.L.C., Sage and LaSalle National Bank, dated as
         of March 1, 1996.(1)
10.9     Purchase and Sale Agreement among the Registrant, Trendwest
         Funding I, Inc., TWH Funding I, Inc. and TRI Funding Company
         I, L.L.C., dated March 1, 1996.(1)
10.10    Nonexclusive Limited Assignment among the Registrant, Eagle
         Crest Partners, Ltd. and WorldMark, dated September 20,
         1996.(1)
10.11    Nonexclusive Limited Assignment among the Registrant,
         Running Y, Inc. and WorldMark dated September 20, 1996.(1)
10.13    Articles of Incorporation of WorldMark, the Club, dated
         December 10, 1992.(1)
10.14    Bylaws of WorldMark, dated December 2, 1994.(1)
10.15    Form of Employment Agreement between William F. Peare and
         the Registrant.(1)
10.16    Form of Employment Agreement between Jeffery P. Sites and
         the Registrant.(1)
10.17    Trendwest Resorts, Inc. 1997 Employee Stock Option Plan.(1)
10.18    Indenture among the Registrant, TRI Funding II, Inc. and
         LaSalle National Bank, dated as of March 1, 1998.(3)
10.19    Series 1998-1 Supplement Dated as of March 1, 1998 to
         Indenture Dated as of March 1, 1998 among the Registrant,
         Trendwest Funding II, Inc. and LaSalle National Bank.(3)
10.20    Servicing Agreement among the Registrant, TRI Funding II,
         Inc., Sage Systems, Inc. and LaSalle National Bank, dated as
         of March 1,1998.(3)
10.21    Purchase and Sale Agreement between the Registrant,
         Trendwest Funding II, Inc. and TRI Funding II, Inc.(3)
10.22    Receivables purchase agreement among the Registrant, TRI
         Funding Company I, L.L.C., TW Holdings Inc. and Trendwest
         Funding II, Inc., Dated as of March 1, 1998.(3)
10.23    Credit Agreement among the Registrant, Bank of America
         National Trust and Savings Association as Agent, and Other
         Financial Institutions Party Hereto, Dated as of February
         12, 1998.(3)
10.24    Amendment Number Two Dated June 18, 1998 to the Second
         Amended and Restated Receivables Transfer Agreement between
         the Registrant, Seafirst Bank and other purchasers, TW
         Holdings, and Bank of America Dated June 18, 1998.(3)
10.25    Purchase Agreement among Registrant, Roderick C. Wendt, and
         Richard L. Wendt, dated September 22, 1998.(3)
10.26    Purchase Agreement among Registrant, Roderick C. Wendt, and
         Richard L. Wendt, dated October 13, 1998.(3)
</TABLE>

                                       53
<PAGE>   54

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                           DESCRIPTION
-------                          -----------
<C>      <S>
10.27    Amendment to Non Exclusive Limited Assignment agreement
         among Registrant and Eagle Crest, Inc. dated September 20,
         1998.
10.28    Receivable Sale Agreement between Registrant and TW Holdings
         II Dated as of April 15, 1999.(4)
10.29    Credit Agreement between Registrant, TW Holdings II as
         Borrower and Prudential Securities Credit Corporation as
         lender dated as of April 15, 1999.(4)
10.30    Trust Indenture between Registrant, TW Holdings II, Sages
         Systems, Inc., and LaSalle National Bank Dated as of April
         15, 1999.(4)
10.31    Receivables Purchase Agreement among Registrant, TRI Funding
         II, Inc., TRI Funding Company I, LLC, TW Holdings, Inc., TW
         Holdings II, Inc., and TRI Funding III, Inc., dated as of
         August 1, 1999.(4)
10.32    Indenture among Registrant, TRI Funding III, Inc. and
         Norwest Bank Minnesota, National Association Dated as of
         August 1, 1999.(4)
10.33    Servicing Agreement among Registrant, TRI Funding III, Inc.
         and Norwest Bank Minnesota, National Association Dated as of
         August 1, 1999.(4)
10.34    Purchase Agreement Between TRI Funding III, Inc., and
         Prudential Securities Incorporated Dated August 18, 1999.(4)
11.1     Statement re Computation of Earnings per Share -- See note 1
         of "Notes to Combined and Consolidated financial
         Statements."
13.1     Annual Report to Shareholders.(2)
21.1     List of all Subsidiaries of the Registrant.(1)
23.1     Consent of KPMG LLP.
24.1     Power of Attorney from officers and directors (contained on
         signature page).
27.1     Financial Data Schedule (one year).
</TABLE>

---------------
(1) Incorporated by reference to the Company's Registration Statement on Form
    S-1 (File No. 333-26861).

(2) Incorporated by reference to the Company's Annual Report to Shareholders.

(3) Incorporated by reference to the Company's 1998 quarterly filings on Form
    10-Q (File No. 333-26861).

(4) Incorporated by reference to the Company's 1999 quarterly filings on Form
    10-Q (File No. 333-26861).

     (b) Reports on Form 8-K

     No reports on Form 8-K were filed by the Company during the year ended
December 31, 1999.

                                       54
<PAGE>   55

                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, Trendwest Resorts, Inc. has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Redmond,
State of Washington, on March 29, 2000.

                                          TRENDWEST RESORTS, INC.

                                          By:     /s/ JEFFERY P. SITES
                                            ------------------------------------
                                                      Jeffery P. Sites
                                                  Executive Vice President

<TABLE>
<C>                                                    <C>                              <S>
                /s/ WILLIAM F. PEARE                      Executive Vice President,     March 29, 2000
-----------------------------------------------------      Chief Executive Officer
                  William F. Peare                              and Director
                                                        (Principal Executive Officer)

                /s/ JEFFERY P. SITES                      Executive Vice President,     March 29, 2000
-----------------------------------------------------      Chief Operating Officer
                  Jeffery P. Sites                              and Director

                /s/ GARY A. FLORENCE                    Vice President, Treasurer and   March 29, 2000
-----------------------------------------------------      Chief Financial Officer
                  Gary A. Florence                      (Principal Financial Officer)

                 /s/ JEROL E. ANDRES                              Director              March 29, 2000
-----------------------------------------------------
                   Jerol E. Andres

                /s/ HARRY L. DEMOREST                             Director              March 29, 2000
-----------------------------------------------------
                  Harry L. Demorest

               /s/ MICHAEL P. HOLLERN                             Director              March 29, 2000
-----------------------------------------------------
                 Michael P. Hollern

              /s/ DOUGLAS P. KINTZINGER                           Director              March 29, 2000
-----------------------------------------------------
                Douglas P. Kintzinger

                 /s/ LINDA M. TUBBS                               Director              March 29, 2000
-----------------------------------------------------
                   Linda M. Tubbs

                /s/ RODERICK C. WENDT                             Director              March 29, 2000
-----------------------------------------------------
                  Roderick C. Wendt
</TABLE>

                                       55