<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, 2000
                                       OR
      [ ]   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                (IRS EMPLOYER IDENTIFICATION NO.)
               ORGANIZATION)
             9805 WILLOWS ROAD
                REDMOND, WA                                        98052
  (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                       (ZIP CODE)
</TABLE>

                                 (425) 498-2500
              (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)

     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.  [ ]

     The number of shares of common stock outstanding on March 15, 2001, was
25,236,747 shares (adjusted for 3-2 stock split declared February 21, 2001, and
effective March 15, 2001).

     Aggregate market price of shares held by non-affiliates at March 15, 2001,
was $75,529,823, consisting of 3,513,015 shares (stock split adjusted).

                      DOCUMENTS INCORPORATED BY REFERENCE:

     Portions of the Company's Proxy Statement for the 2001 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) and WorldMark South Pacific
Club (WorldMark South Pacific) (collectively "The Clubs"). WorldMark is a
non-profit mutual benefit corporation organized by Trendwest in 1989 to provide
an innovative, flexible vacation ownership system. WorldMark South Pacific is a
registered managed investment scheme regulated by the Australian Securities and
Investments Commission ("ASIC"). The Company presently sells Vacation Ownership
interests in the United States, Fiji, and Australia, primarily through off-site
sales offices. Fractional Interests are sold on-site at the Depoe Bay resort in
Oregon.

     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. Trendwest
South Pacific was the first company licensed under the new timeshare regulations
in Australia. Sales in the South Pacific commenced in Fiji in March 2000 and in
Australia in June of 2000. The sales terms in the South Pacific are similar to
the terms in the United States. Resorts in the South Pacific are owned and
operated through WorldMark South Pacific.

     Trendwest sells Vacation Ownership Interests in the form of Vacation
Credits, which are created by the transfer to The Clubs 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 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 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 The Clubs. 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. Because of the success of the Fractional
sales program at Depoe Bay, the Company constructed a second phase of Depoe Bay.
The second phase will have 390 13th share Fractional interests. The Company
anticipates taking delivery of the property and will begin recognizing revenue
from sales in the first quarter of 2001. The Company will continue to develop
Fractional ownership programs at strategic locations with high demand as a
complement to its Vacation Credit product.

     The Company sells vacation credits at thirty-five sales offices, twenty-two
of which are located off-site in metropolitan areas. The other sales offices are
located on-site at thirteen of The Clubs' resorts.

CORPORATE BACKGROUND

     The Company commenced its timeshare business as a wholly-owned subsidiary
of JELD-WEN, inc. ("Parent" or "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,
                                        2
<PAGE>   3

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 five subsidiaries (the "Finance
Subsidiaries") and through a corporate revolving credit facility. The Company
has transactions with other JELD-WEN subsidiaries and related parties. See note
14 "Related Party Transactions" in the notes to the 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.

RECENT DEVELOPMENTS

     The Company is developing a master-planned resort in central Washington
known as MountainStar. Prior to June of 2000 the Parent owned the land and the
Company was acting as the developer. In June of 2000, the Company acquired the
MountainStar development from its Parent. The purchase price was $47.6 million,
consisting of $25.0 million in cash, a $17.7 million note payable to Parent and
the settlement by the Company of a $4.9 million intercompany receivable from
Parent. The excess of the purchase price over Parent's historical cost was
treated as a non-cash reduction to retained earnings due to the accounting
requirement to use historical cost on such a transfer from a controlling
shareholder. The Company recorded the asset at Parent's historical cost of $44.3
million; the excess $3.3 million of the purchase price over this amount reduced
retained earnings. The cash payment was funded primarily through the Company's
existing credit facilities.

     The conceptual master plan for the MountainStar development includes at
least two 18-hole golf courses, hotel and conference facilities, a spa and
fitness center, vacation homes and vacation condominiums. In October of 2000,
the Kittitas County Commissioners approved the MountainStar development's land
use application. The entitlement process for the resort is still ongoing, as the
development of the master planned resort is still subject to the transfer of
water rights and plat approval. Effective with the approval vote, the Company
began taking refundable reservation deposits on single-family vacation lots for
the first phase of the planned development. At December 31, 2000, the Company's
investment in the MountainStar resort included in the accompanying balance sheet
totaled $56.5 million.

     On January 2, 2001, the Company terminated its relationship with Sage
Systems, the sub-servicer of the Company's Notes Receivable. The Company now
performs the servicing functions internally except for the lockbox, custodial,
and statement mailing functions.

     On February 21, 2001, the Board of Directors declared a 3 for 2 stock split
for shareholders of record on March 15, 2001, payable on March 29, 2001. Shares
outstanding and earnings per share figures contained in this Form 10-K and in
the consolidated financial statements contained herein have been adjusted to
reflect the stock split as if it were effective for all periods presented.

THE CLUBS

  (i) WorldMark, The Club

     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 111,497 Owners at December 31, 2000. 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

                                        3
<PAGE>   4

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 900
Vacation Credits per night off-season and 1,750 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 $325 for the first 6,000
Vacation Credits owned, plus approximately $76 for each additional increment of
2,000 -- 3,000 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 $1,008,000, $1,376,000 and $1,107,000 in 2000,
1999, and 1998, 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.

     WorldMark has programs whereby an Owner can use his or her Vacation Credits
toward other vacation options such as package tours and cruises. WorldMark
provides the owner with the package in exchange for the owner's Vacation Credits
plus cash, if necessary. The vacation Credits are deposited into a pool of
Credits. The pool of credits are available for one-time for a fee of $.08 per
credit by the Company or other owners. In 2000, the Company purchased $1,282,000
of these one-time use Vacation Credits from WorldMark for marketing programs.

  (ii) WorldMark South Pacific Club

     WorldMark South Pacific is a unit trust and is a registered managed
investment scheme formed in 2000 by Trendwest South Pacific. There are 887
Owners in WorldMark South Pacific as of December 31, 2000. Owners receive the
right to use all resort units and the right to vote with respect to certain
major matters. The number of votes that each Owner has is based on the number of
Vacation Credits owned. Trendwest South Pacific limited is the manager
(Responsible Entity) of WorldMark South Pacific.

     The resorts are owned by WorldMark South Pacific free and clear of all
monetary encumbrances. The title to the resort properties are held in trust for
the benefit of the Owners by an independent custodian, Permanent Trustee
Australia Limited. WorldMark South Pacific maintains a replacement reserve for
its 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.

                                        4
<PAGE>   5

     The operation of WorldMark South Pacific is similar to the US operations.
South Pacific Owners may also purchase bonus time. The Clubs have reciprocal
exchange privileges for their respective Owners. The credit values in WorldMark
South Pacific are consistent with WorldMark.

     WorldMark South Pacific collects maintenance dues from Owners based on the
number of Vacation Credits owned. Currently, the annual dues are $200 for the
first 6,000 Vacation Credits owned, plus approximately $46 for each additional
increment of 2,000 -- 3,000 Vacation Credits owned. These dues are intended to
cover operating costs, including condominium association dues at the resorts.
Trendwest South Pacific pays the dues on all unsold Vacation Credits. Such
payments totaled $279,000 in 2000.

     WorldMark South Pacific is governed by the Responsible Entity. Certain
matters require the approval of a majority of the voting power of the Owners
represented (excluding Trendwest South Pacific) to take certain actions,
including (i) incurrence of capital expenditures or special assessments
exceeding 5% of WorldMark South Pacific's budgeted gross expenses during any
fiscal year and (ii) special assessments selling property of WorldMark South
Pacific during any fiscal year with an aggregate fair market value in excess of
5% of WorldMark South Pacific's budgeted gross expenses for such year.

                                        5
<PAGE>   6

                                  THE RESORTS

     The following table sets forth certain information as of December 31, 2000,
regarding each existing resort, planned expansion at existing resorts through
2001, and planned new resorts through 2002:

<TABLE>
<CAPTION>
                                                                 EXISTING
                                                                  UNITS
                                                     DATE           IN       PLANNED    TOTAL UNITS
  EXISTING RESORTS            LOCATION          CONTRIBUTED(A)   SERVICE    EXPANSION   ANTICIPATED   RCI RATING(B)
  ----------------            --------          --------------   --------   ---------   -----------   -------------
<S>                    <C>                      <C>              <C>        <C>         <C>           <C>
ARIZONA
  Pinetop              Pinetop/Lakeside         August 1999          60          --           60       Gold Crown
  Vistoso              Tucson                   December 1999       110          --          110       Gold Crown
AUSTRALIA
  Gold Beach(c)        Caloundra, QLD           June 2000             9          --            9          (d)
  Calypso Plaza(c)     Coolangatta, QLD         April 2000           10          --           10          (d)
  Trinity Links(c)     Cairns, QLD              August 2000          12          --           12          (d)
BRITISH COLUMBIA
  Sundance             Whistler                 February 1992        25          --           25       Gold Crown
  Cascade Lodge        Whistler                 September 1999       42          --           42       Gold Crown
  The Canadian         Vancouver                April 2000           42          --           42       Gold Crown
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          57          114       Gold Crown
  Clear Lake           Nice                     July 1998            88          --           88       Gold Crown
  Angels Camp          Angels Camp              September 1998      100          11          111       Gold Crown
  Marina               Monterey Bay             November 1999        33          --           33       Gold Crown
COLORADO
  Steamboat Springs    Steamboat Springs        December 2000        29          --           29       Gold Crown
FIJI
  Denarau Island(e)    Denarau Island           December 1999        76          --           76       Gold Crown
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
IDAHO
  Coeur D'Alene        Coeur D'Alene            September 2000       40          --           40          (f)
MEXICO
  Coral Baja           San Jose del Cabo        November 1994       136          --          136       Gold Crown
  Rosarita Beach       La Paloma                August 2000          37          --           37          (f)
MISSOURI
  Lake of the Ozarks   Ozarks                   December 2000        42          28           70          (f)
NEVADA
  Lake Tahoe           Stateline                January 1991         50          --           50       R.I.D.
  Las Vegas            Las Vegas                December 1996        42          --           42       Gold Crown
  Reno                 Reno                     November 2000        63          --           63          (f)
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(g)       --           13       Gold Crown
  Depoe Bay            Depoe Bay                April 1999           54          56          110       Gold Crown
</TABLE>

                                        6
<PAGE>   7

<TABLE>
<CAPTION>
                                                                 EXISTING
                                                                  UNITS
                                                     DATE           IN       PLANNED    TOTAL UNITS
  EXISTING RESORTS            LOCATION          CONTRIBUTED(A)   SERVICE    EXPANSION   ANTICIPATED   RCI RATING(B)
  ----------------            --------          --------------   --------   ---------   -----------   -------------
<S>                    <C>                      <C>              <C>        <C>         <C>           <C>
UTAH
  Wolf Creek           Eden                     June 1998            71(h)       --           71       Gold Crown
  Harbor Village       Bear Lake                January 1999         26          --           26       Gold Crown
  St. George           St. George               December 2000        20          39           59          (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         46          --           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
</TABLE>

<TABLE>
<CAPTION>
                                                                 EXISTING
                                                                  UNITS
                                                   EXPECTED         IN       PLANNED    TOTAL UNITS
   PLANNED RESORTS            LOCATION            COMPLETION     SERVICE    EXPANSION   ANTICIPATED
   ---------------            --------            ----------     --------   ---------   -----------
<S>                    <C>                      <C>              <C>        <C>         <C>           <C>
  Branson              Branson, MO              January 2001         --          80           80
  Horizon              Port Stephens, New       February 2001        --          10           10
                       South Wales, Australia
  Bison Town           Bison Town, AZ           March 2001           --          41           41
  Kihei                Maui, HI                 August 2001          --         199          199
  Oceanside            Oceanside, CA            October 2001         --         139          139
  Las Vegas            Las Vegas, NV            February 2002        --         209          209
  Solvang              Solvang, CA              July 2002            --          75           75
  South Lake Tahoe     Lake Tahoe, NV           September 2002       --          51           51
  Victoria             Victoria, B.C.           October 2002         --          91           91
                                                                  -----       -----        -----
         Total                                                    2,093       1,086        3,179
                                                                  =====       =====        =====
</TABLE>

---------------
(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
    USA or WorldMark South Pacific. 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. As of December, 2000 approximately 13% of
    the resorts reviewed by RCI received a Gold Crown rating, the highest rating
    awarded by RCI, and approximately 20% of the resorts reviewed by RCI
    received an R.I.D. rating, the second-highest rating awarded by RCI.

(c) These units are deeded to WorldMark South Pacific Club.

(d) The units in WorldMark South Pacific participate in the exchange network
    with Interval International and are not rated by RCI.

(e) 66 units were deeded to WorldMark and 10 units deeded to WorldMark South
    Pacific.

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

(g) 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.

(h) 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.

SALES AND MARKETING

     The Company's sales of Vacation Credits primarily occur at twenty-two
off-site sales offices located in metropolitan areas in seven regions, including
the South Pacific. The remainder of the Company's sales of

                                        7
<PAGE>   8

Vacation Credits occur at thirteen on-site sales offices. Fractional Interest
sales activity occurred on-site at the Depoe Bay resort in Depoe Bay, Oregon. In
2000, 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 The Clubs' 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 representatives to discuss
the new Owner's reasons for joining and to review the rights and obligations of
Owners. The purpose of 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 2000 and 1999, the
Company had a rescission rate of 16.2% and 16.3% 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 46 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 28.7% and
27.6% of the Company's net Vacation Credit sales in 2000 and 1999, respectively.

                                        8
<PAGE>   9

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 2000, the
average new Owner purchased approximately 6,622 Vacation Credits for a purchase
price of approximately $9,193 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 $8,114. During 2000, the aggregate amount
of Notes Receivable generated in connection with the sale of Vacation Credits to
new Owners was approximately $221.0 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, 2000, an aggregate of $502.8 million of Notes Receivable
were outstanding, of which approximately $95.6 million with a weighted average
interest rate of 14.1% per annum had been retained by the Company. The balance
of approximately $407.2 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 -- Corporate Finance",
"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, 2000, approximately $11.5 million,
or 2.29% of the Company's total receivables portfolio of $502.8 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 30 days of 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
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, excluding sales reversals, at December 31,
2000 and 1999 were $38.9 million and $28.4 million, respectively, representing
approximately 7.7% and 7.3%, 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 sales offices with expected 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, 2000 and
1999, 2.29%

                                        9
<PAGE>   10

and 1.91%, respectively, of the Company's total receivables portfolio of $502.8
million and $389.9 million, respectively, were more than 60 days past due (with
reservation privileges suspended).

LOAN SERVICING

     Sage Systems, Inc. ("Sage"), a licensed escrow company, has been the
servicer of 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 Trustees 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 -- Corporate
Finance"). Effective January 2, 2001, the Company terminated its relationship
with Sage and began performing the note servicing function in-house. In
conjunction with terminating Sage, the Company outsourced the lockbox function
to KeyBank, National Association and engaged Wells Fargo Minnesota, National
Association, ("Wells Fargo") as the Collection Account Agent over the lockbox
and as custodian of the receivables documents. The Company, as servicer, is
responsible for the maintenance of the Accounts Receivable file, all billing and
collection activities, including daily disbursements of collected funds to the
Trustees of the various securitizations. In addition, the Company handles
billing inquiries and all other personal interaction with the Owners.

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 the title to the property in The Clubs 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 The Clubs. 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.
Title to the properties in WorldMark South Pacific is held by a third party
custodian for the benefit of the Owners. This preserves the title against future
encumbrance and protects the Owners usage rights.

     The Company transfers, or arranges for the seller of the property to
transfer, title to the property to The Clubs in return for Vacation Credits. The
Company maintains the exclusive right to sell Vacation Credits against the
deeded properties. The Clubs are contractually prohibited 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, 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, 2000, WorldMark had a reserve for replacement costs of
approximately $16.0 million for all depreciable assets (e.g., furniture,
appliances, carpeting, roofs and decks) of the WorldMark resorts. At December
31, 2000, WorldMark South Pacific had a reserve for replacement costs of
approximately $49,000. In those WorldMark resorts where The Clubs own only a
small percentage of the units in a complex and

                                        10
<PAGE>   11

belongs to an independent homeowners' association, the dues paid to such
association by The Clubs 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. There were no
sales of Fractional Interests in 2000.

PARTICIPATION IN VACATION INTERVAL EXCHANGE NETWORKS

     The Company believes that the sale of its Vacation Ownership products is
made more attractive by the Company's participation in the vacation interval
exchange networks operated by Resort Condominiums International, LLC (RCI) and
Interval International (II). U.S. Vacation Credit Owners participate in RCI;
Fractional Interest Owners and South Pacific Owners participate in II.

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, 2000, Trendwest had 1,845 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.

     The Company maintains several employee benefits such as a 401(k) plan, an
Employee Stock Purchase Plan which allows employees to purchase company stock
through a payroll deduction, with certain provisions, at a discount and
incentive stock options for certain employees.

                                  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 The Clubs 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 resort, the Company causes the units to be conveyed directly to The
Clubs free
                                        11
<PAGE>   12

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 The Clubs. 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, 2000, the Company
had purchase agreements, developments in progress or plans to obtain additional
resort units by the end of 2002. 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 -- Corporate Finance".

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 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.

RISKS ASSOCIATED WITH DEVELOPING MOUNTAINSTAR

     The Company is developing approximately 7,400 acres in Kittitas County
located approximately 80 miles east of Seattle, Washington. The Company plans to
develop the property as two separate projects: the MountainStar Master Planned
Resort (MPR) and the City of Cle Elum Urban Growth Area (UGA).

     Plans for the 6,300 acre MPR include at least two golf courses, numerous
recreational amenities and 4,650 dwelling units including two lodges,
condominiums, cabins and vacation homes. The MPR land use plan has been approved
by Kittitas County. The land use plan, as expected, has been appealed. The
Company is also working on several strategies to provide adequate water to
develop the proposed projects. There can be no assurance that these strategies
will be successful. If the Company is unable to achieve its objectives with

                                        12
<PAGE>   13

regards to water rights or if the land use plan is overturned on appeal, the
actual development of the MPR could be materially different than outlined above.

     The 1,100 acre UGA is planned as a mixed use development including a
primary home community, condominiums, an office park, a golf course and
apartment units. The City of Cle Elum is scheduled to release the Draft
Environmental Impact Statement in Spring, 2001. The entitlement process for the
UGA is independent from the entitlement process for the MPR. If the Company is
not successful in obtaining the desired entitlements for the UGA, the final
development of the property could be materially different than outlined above.

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 presently 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 CONCENTRATIONS

     The Company presently sells Vacation Credits in Alaska, Arizona,
California, Idaho, Missouri, Nevada, Oregon, Utah, Washington, Fiji, and
Australia, primarily to residents of those areas. The Company intends to
continue to sell Vacation Credits and Fractional Interests in these areas and to
increase the number of its sales offices. Since most 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 the locations of The Clubs' resorts are not
viewed 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, 2000, an aggregate of $502.8
million of Notes Receivable were outstanding, of which approximately $95.6
million had been retained by the Company. The remaining balance of approximately
$407.2 million of Notes Receivable had been sold by the Company prior to that
date. The Company retains limited recourse liability for Notes
                                        13
<PAGE>   14

Receivable sold. This recourse is limited to the retained and residual interests
in Notes Receivable sold. As of December 31, 2000 and 1999, total retained
interest in Notes Receivable sold of $57,674 and $36,782, respectively, was
included in Notes Receivable in the accompanying consolidated balance sheets
relating to Notes Receivable sold of $407,215 and $288,950, 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, 2000, approximately $11.5 million,
or 2.29% of the Company's total receivables portfolio of $502.8 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 its
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 -- Corporate Finance."

FOREIGN EXCHANGE RISK

     The Company is subject to foreign currency exchange rate risk when
developing resort properties denominated in a foreign currency and on 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 changes in foreign currency exchange rates could therefore have a
material adverse effect on the Company's business, results of operations and
financial condition.

     From time to time, 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.
There were no forward swap agreements outstanding at December 31, 2000.

                                        14
<PAGE>   15

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 has
registered its product under Australian regulations and is currently engaged in
sales operations there. Unlike the United States, Australian law requires a
vacation ownership interest to be sold as a security.

     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. The top five
leaders in the Vacation Ownership industry, excluding the Company, include
Marriott Vacation Club International, Fairfield Communities, Westgate Resorts,
and Starwood Vacation Ownership, and Silverleaf Resorts.

     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 Clubs' 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,
Missouri, Nevada, 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 Vacation Interval Ownership industry through the Federal
Trade Commission Act, which prohibits unfair or deceptive acts or 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.

                                        15
<PAGE>   16

     Foreign Regulation. The sale of interval ownership programs in Australia is
regulated as a security by the Australian Securities and Investment Commission
("ASIC"). Trendwest South Pacific is required to provide a prospectus to
potential buyers. This prospectus must be updated at least annually.

     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 The Clubs', the Company has not received a
Phase I environmental report for every 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
Clubs' resorts that could have a material adverse effect on the Company's
business, results of operations and financial condition.

NATURAL DISASTERS; UNINSURED LOSS

     The Clubs maintain property insurance and liability insurance for the units
at the 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 the
insurance coverage. Should an uninsured loss or loss in excess of insured limits
occur, The Clubs have 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 or
the Responsible Entity, in the case of WorldMark South Pacific, may impose a
limited amount of special assessments to pay for capital improvements or major
repairs, there can be no assurance that The Clubs 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 resorts.

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

EFFECTIVE VOTING CONTROL BY MAJORITY SHAREHOLDER

     JELD-WEN owns approximately 82% 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
shareholders for approval, including mergers, consolidations and the sale of
all, or substantially all, of the Company's assets.

                                        16
<PAGE>   17

ITEM 2. PROPERTIES

     The Company owns its corporate headquarters in Redmond, Washington, and
leases office space at various locations for sales offices, regional
administration and marketing purposes. The Company also owns some condominiums
at WorldMark properties that are used for sales and marketing purposes. The
Company believes that these facilities along with additional leased office space
will be sufficient to meet the Company's needs for the foreseeable future.

     In the ordinary course of business, the Company purchases property for
development and deeds said property to The Club(s) 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 2000.

                                        17
<PAGE>   18

                                    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, 2000
First quarter...............................................  17.00    12.67
Second quarter..............................................  17.75    10.63
Third quarter...............................................  14.00    10.67
Fourth quarter..............................................  19.00    10.08
YEAR ENDED DECEMBER 31, 1999
First quarter...............................................  12.83     7.83
Second quarter..............................................  16.17    10.00
Third quarter...............................................  19.00    13.25
Fourth quarter..............................................  17.75    11.67
</TABLE>

     On March 9, 2001, there were approximately 46 holders of record of the
Company's common stock and approximately 1,745 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.

     On February 21, 2001, the Board of Directors declared a 3 for 2 stock split
for shareholders of record on March 15, 2001, payable on March 29, 2001. In
accordance with generally accepted accounted principles, all share data and
earnings per share figures contained in this Form 10-K have been adjusted to
reflect the stock split as if it were effective for all periods presented.

                                        18
<PAGE>   19

ITEM 6. SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND OPERATING 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 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 derived from unaudited data.
Share data and earnings per share figures for all periods presented have been
adjusted to reflect the 3 for 2 stock split declared by the Board of Directors
on February 21, 2001.

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                                    -----------------------------------------------------------------
                                       2000          1999         1998          1997          1996
                                    -----------   ----------   -----------   -----------   ----------
<S>                                 <C>           <C>          <C>           <C>           <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
  Vacation Credit and Fractional
     Interest sales, net..........  $   293,130   $  234,315   $   170,817   $   128,835   $  100,040
  Finance income..................       15,562       15,243        13,790        11,989        7,143
  Gains on sales of notes
     receivable...................       18,903       16,265        10,959         6,582        5,673
  Resort management services......        4,763        3,710         2,328         2,032        1,501
  Other...........................        5,280        4,593         3,063         2,149        2,552
                                    -----------   ----------   -----------   -----------   ----------
          Total revenues..........      337,638      274,126       200,957       151,587      116,909
                                    -----------   ----------   -----------   -----------   ----------
Costs and operating expenses:
  Vacation Credit and Fractional
     Interest cost of sales.......       74,714       68,611        48,059        34,569       27,400
  Resort management services......        1,759        1,656         1,399         1,108          859
  Sales and marketing.............      137,752      104,952        83,347        59,448       47,810
  General and administrative......       31,686       25,234        17,180        13,449       10,904
  Provision for doubtful accounts
     and recourse liability.......       21,148       16,100        11,865         9,077        7,467
Interest..........................          479          442           353         1,739        2,445
                                    -----------   ----------   -----------   -----------   ----------
          Total costs and
            operating expenses....      267,538      216,995       162,203       119,390       96,885
                                    -----------   ----------   -----------   -----------   ----------
Income before income taxes........       70,100       57,131        38,754        32,197       20,024
  Income tax expense..............       27,241       22,258        14,723        11,588        7,348
                                    -----------   ----------   -----------   -----------   ----------
Net income........................  $    42,859   $   34,873   $    24,031   $    20,609   $   12,676
                                    ===========   ==========   ===========   ===========   ==========
Net income per share of common
  stock:
  Basic...........................  $      1.69   $     1.36   $       .92   $       .88   $     0.59
  Diluted.........................  $      1.68   $     1.35   $       .92   $       .88   $     0.59
Shares used in computing net
  income per share of common
  stock:
  Basic...........................   25,372,062   25,694,850    26,119,227    23,394,629   21,625,674
  Diluted.........................   25,454,527   25,765,431    26,125,037    23,394,629   21,625,674
OPERATING DATA:
Number of Resorts (at end of
  period).........................           41           31            24            22           19
Number of units (at end of
  period).........................        2,093        1,635         1,272           928          746
Number of Vacation Credits sold
  (in thousands)..................      215,115      165,829       131,058        99,911       82,270
Average price per Vacation Credit
  sold............................  $      1.36   $     1.34   $      1.28   $      1.27   $     1.24
Average cost per Vacation Credit
  sold............................  $      0.35   $     0.37   $      0.37   $      0.35   $     0.33
Number of Owners (at end of
  period).........................      112,384       87,432        67,982        51,778       38,997
Average purchase price for new
  Owners..........................  $     9,193   $    8,855   $     8,477   $     8,507   $    8,432
</TABLE>

                                        19
<PAGE>   20

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                                    -----------------------------------------------------------------
                                       2000          1999         1998          1997          1996
                                    -----------   ----------   -----------   -----------   ----------
<S>                                 <C>           <C>          <C>           <C>           <C>
BALANCE SHEET DATA:
Cash, including restricted cash...  $     7,605   $    4,747   $     2,360   $     1,289   $      802
Total assets......................      347,005      209,963       198,498       151,750       89,330
Indebtedness to JELD-WEN..........       18,150           --         5,688         1,947       21,316
Other indebtedness................       60,137        3,900        30,000            --        1,055
Shareholders' equity..............      207,443      173,715       141,262       122,125       49,744
</TABLE>

SELECTED QUARTERLY FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                2000 QUARTERS ENDED
                                                 --------------------------------------------------
                                                 MARCH 31    JUNE 30    SEPTEMBER 30    DECEMBER 31
                                                 --------    -------    ------------    -----------
<S>                                              <C>         <C>        <C>             <C>
Total revenue..................................  $73,544     82,198        94,977         86,919
Total costs and operating expenses.............   57,494     64,057        76,127         69,861
Net income.....................................    9,670     10,952        11,550         10,687
Net income per Common Share
  Basic........................................  $   .38        .43           .46            .42
  Diluted......................................  $   .38        .43           .45            .42
</TABLE>

<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.......................................  $   .32     $   .37      $   .35         $   .33
  Diluted.....................................  $   .32     $   .37      $   .34         $   .32
</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

     The Company markets, sells and finances timeshare ownership interests in
the form of Vacation Credits and Fractional Interests and acquires, develops and
manages the WorldMark and WorldMark South Pacific 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 The Clubs.

     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. Until both of these conditions are met, the customer
has no membership rights in The Clubs. 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. Revenue is

                                        20
<PAGE>   21

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 2000, 76.1% of
Upgrade Sales had the additional 10% cash down payment, as compared to 72% in
1999.

     The Company acquires or develops additional resort units for The Clubs and
contributes those units to The Clubs 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 The Clubs. The Company assigns each resort unit a specific
number of Vacation Credits based on its vacation use value relative to existing
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.

     The Company is currently working through the final entitlement process on
the MountainStar project and is capitalizing all direct costs and interest
incurred relating to the development. The Company does not anticipate generating
revenue from the project during 2001.

RESULTS OF OPERATIONS

  Comparison of the year ended December 31, 2000, to the year ended December 31,
1999

     For the year ended December 31, 2000, the Company achieved total revenues
of $337.6 million compared to $274.1 million for the year ended December 31,
1999, an increase of 23.2%. The principal reasons for the overall improvement
was Vacation Credit sales increasing 32.6% to $293.1 million for the year ended
December 31, 2000, from $221.0 million for the year ended December 31, 1999, and
additional gains on sales of Notes Receivable. Total revenue in 2000 and 1999
included Fractional Interest Sales of $0 and $13.3 million, respectively. The
increase in Vacation Credit sales was primarily the result of an increase in
Vacation credits sold to 215.1 million for the year ended December 31, 2000,
from 165.8 million for the year ended December 31, 1999, a 29.7% increase. The
increase in Vacation Credits sold was largely attributable to the maturation of
four sales offices opened in 1999, the opening of eleven new sales offices
during 2000, continued

                                        21
<PAGE>   22

strong improvement at more mature sales offices, and considerably increased
Upgrade sales. The following table summarizes the sales offices opened during
2000:

<TABLE>
<CAPTION>
                     LOCATION                           OPENED      ON/OFF SITE
                     --------                           ------      -----------
<S>                                                 <C>             <C>
Oceanside, CA.....................................  January, 2000    Off-site
Pinetop, AZ.......................................  February, 2000    On-site
Fiji*.............................................    March 2000      On-site
Novato, CA........................................     May 2000      Off-site
Las Vegas, NV.....................................    May, 2000      Off-site
St. Louis, MO.....................................    May, 2000      Off-site
St. George, UT....................................    June, 2000      On-site
Brisbane 1, QLD*..................................    June, 2000     Off-site
Brisbane 2, QLD*..................................  October, 2000    Off-site
Reno, NV..........................................  November, 2000    On-site
Fairbanks, AK.....................................  December, 2000   Off-site
</TABLE>

---------------
* Trendwest South Pacific sales offices

     Revenues from Upgrade Sales increased 43.6% to $43.5 million for the year
ended December 31, 2000, from $30.3 million for the year ended December 31, 1999
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 $1.36 for the year ended December 31, 2000,
from $1.34 for the year ended December 31, 1999, reflecting the increase in the
selling price of Vacation Credits for new sales effective July 1, 2000, and in
the selling price of Upgrade Vacation Credits effective September 1, 2000.

     Finance income increased 2.6% to $15.6 million for the year ended December
31, 2000, from $15.2 million for the year ended December 31, 1999. Finance
income increased at a smaller rate compared to prior years because of the lower
average on-balance sheet receivables balances resulting from increased sales of
Notes Receivable. In addition, after an analysis of the discount rates used in
calculating the residual interest in notes receivable sold, the Company
increased the discount rate from 12.25% to 13.50%. This resulted in a negative
mark-to-market adjustment on the residual interest and a corresponding charge to
finance income.

     Gains on sales of Notes Receivable increased 16.0% to $18.9 million for the
year ended December 31, 2000, from $16.3 million for the year ended December 31,
1999. This reflects a similar increase in the principal balance of Notes
Receivable sold in 2000, up 35.5% to $211.8 in 2000 from $156.3 million in 1999.
In November 2000, the Company completed a $163.0 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.

     Vacation Credit and Fractional Interest cost of sales increased to $74.7
million for the year ended December 31, 2000, from $68.6 million for the year
ended December 31, 1999, an increase of 8.9%. As a percentage of Vacation Credit
and Fractional Interest sales, Vacation Credit and Fractional Interest cost of
sales decreased to 25.5% for the year ended December 31, 2000, from 29.3% for
the year ended December 31, 1999. This decrease is due to the higher product
cost of the Fractional interest sales recognized in 1999, as well as
below-average product cost for the Fiji and Vistoso projects completed in 2000.

     Sales and marketing costs increased 31.2% to $137.8 million for the year
ended December 31, 2000, from $105.0 million for the year ended December 31,
1999. As a percentage of Vacation Credit and Fractional Interest sales, sales
and marketing costs increased to 47.0% for the year ended December 31, 2000,
from 44.8% for the year ended December 31, 1999. This increase is attributable
to two factors. First, the Fractional Interest sales in 1999 had lower sales and
marketing costs which are offset by higher product cost. Second, the start-up
costs for the eleven sales offices opened in 2000 were all absorbed during the
year, and these sales offices have a lower closing rate during their start-up
phase than our seasoned offices, which increases marketing costs as a percentage
of sales. The sales closing percentages of these offices showed improvement

                                        22
<PAGE>   23

throughout the year, and these offices are expected to be strong revenue
contributors in the first quarter of 2001.

     General and administrative expenses increased 25.8% to $31.7 million for
the year ended December 31, 2000, from $25.2 million for the year ended December
31, 1999. As a percentage of total revenues, general and administrative expenses
increased to 9.4% for the year ended December 31, 2000, from 9.2% for the year
ended December 31, 1999. 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 and fully expensing start-up costs for the new
regions and sales offices opened during the year.

     Provision for doubtful accounts and recourse liability increased 31.1% to
$21.1 million for the year ended December 31, 2000, from $16.1 million for the
year ended December 31, 1999. As a percentage of Vacation Credit and Fractional
Interest sales, the provision increased to 7.2% versus 6.9% in 1999. This
increase was the result of a higher mix of sales in newer sales offices with
expected default rates higher than the Company's historical experience.

  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 $274.1 million compared to $201.0 million for the year ended December 31,
1998, an increase of 36.4%. The principal reasons for the overall improvement
was Vacation Credit sales increasing to $221.0 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
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

                                        23
<PAGE>   24

percentage of Vacation Credit and Fractional Interest sales, Vacation Credit and
Fractional Interest cost of sales increased to 29.3% 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 44.8% 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.

     Provision for doubtful accounts and recourse liability increased 38.7% to
$16.1 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 6.9% and 7.0% in 1999 and
1998, respectively.

                        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 its $60.0 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, 2000, net cash used in operating
activities was $47.9 million. Cash flows from operating activities resulted
primarily from the sale and repayment of Notes Receivable of $269.7 million and
net income of $42.9 million. Cash used in operating activities was principally
due to issuance of Notes Receivable of $261.0 million to finance the purchase of
Vacation Credits, purchases of Notes Receivable of $22.2 million, the
acquisition and continuing development of the MountainStar development of $37.2
million, and an increase in inventory of $60.4 million due to additional
construction in progress to meet increasing sales demand. Inventory levels in
1999 were unusually low, requiring additional expenditures in 2000.

     Cash used in investing activities for the year ended December 31, 2000, was
$6.6 million. Cash used in investing activities was the result of purchases of
furniture, fixtures and data equipment to support the Company's expansion to
support the growth of the Company.

     Net cash provided by financing activities for the year ended December 31,
2000, was $53.4 million. Cash provided by financing activities was principally
the result of increased borrowings under the Company's Bank line of credit and
other of $48.4 million, the issuance of a mortgage payable secured by the
Company's corporate headquarters of $11.7 million, and issuance of common stock
of $0.6 million. Cash used in financing activities was principally the result of
a $1.4 million decrease in due to Parent and $5.9 million to repurchase common
stock.

                                        24
<PAGE>   25

     The Company continually needs to acquire and develop additional resort
units for The Clubs in order to provide additional Vacation Credits for sale by
the Company and to provide a greater variety of resort 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 The Clubs 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 36 months before a resort is completed. The
Company's investment in inventory increased 128.5% to $104.2 million at December
31, 2000, from $45.6 million at December 31, 1999. At December 31, 2000, there
were 14 resort projects in various stages of development, including resorts
larger in scale than historical experience. Inventory levels in 1999 were too
low to sustain future growth, requiring additional investments in more resort
development projects in 2000, as well as in standing inventory.

     At December 31, 2000, there were 51.5 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
$85 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."

CORPORATE FINANCE

OVERVIEW

     The Company generates cash for resort development activities and general
operating purposes from the sale of Notes Receivable. Notes Receivable are sold
to short-term warehouse facilities monthly. These sales are done at variable
interest rates (currently commercial paper rates plus 60 basis points). The
warehouse facility is used to accumulate an efficient size of contracts
(generally $125 million to $175 million) for a private placement. Once an
adequate size is reached, a private placement of the Notes Receivable previously
sold is undertaken. The proceeds from the private placement are used to pay down
the warehouse facility and fix interest rates at the time of the placement so
that the Company is match funded on that portion of the Receivables portfolio.

     The Company uses its bank line of credit to fill cash needs in between
sales of Notes Receivable to the warehouse facility. In addition, a mortgage on
the Company's corporate headquarters allowed the Company to fix interest rates
on core borrowings of $11.7 million.

  (i) Warehouse Facilities

     TW Holdings II, Inc. (TW II) was organized in April 1999 to purchase Notes
Receivable. TW II entered into a $75 million, 364-day Receivables Purchase
Agreement (Agreement). In November, 2000, the Company chose to terminate the
revolving commitment. In conjunction with the private placement completed in
November 2000, the sold Notes Receivable were acquired by TRI Funding IV and the
credit facility was retired. The corporation will be dissolved in 2001.

     TW Holdings III, Inc. (TW III), a wholly-owned special purpose finance
Company, was formed in January 2000. At the same time, the Company entered into
a 364-day, $75.0 million Receivables Warehouse Facility ("Facility") funded by a
commercial paper conduit. On August 9, 2000, the Company amended its agreement
to increase the Facility to $150 million. As of December 31, 2000, total Notes
Receivable of $47.4 million were outstanding and transferred through TW III. TW
III's credit agreement is subject to

                                        25
<PAGE>   26

annual renewals with the present commitment expiring on January 15, 2002. In the
event of non-renewal of the commitment, the Company would not be able to sell
additional Notes Receivable to TW III.

  (ii) Private Placements

     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 (TRI Funding II). 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, $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 November 2000, the Company formed TRI Funding IV, Inc. (TRI Funding IV),
a special purpose finance company. At the same time, the Company sold certain
Notes Receivable to TRI Funding IV for cash, a subordinated note payable from
TRI Funding IV and a residual interest in the excess cash flows of TRI Funding
IV. TRI Funding IV issued four classes of fixed-rate notes for a ten-year term
purchased by institutional investors. Moody's Investor Service, Inc. and Fitch,
Inc. rated the Class A, B, and C Notes. The Notes consisted of two time-tranched
Class A Notes, $98.5 million rated "Aaa" by Moody's and "AAA" by Fitch, Class B
Notes, $39.4 million rated "A2" by Moody's and "AA-" by Fitch, and Class C
Notes, $25.1 million rated "Baa3" by Moody's and "BBB+" by Fitch. The notes were
issued at a weighted average interest rate of 7.76%.

     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.

  (iii) Revolving Credit Facilities and Other

     During 2000, the Company entered into a three-year, $60 million unsecured
revolving credit agreement (Agreement) with a group of banks. The Agreement also
allowed for borrowings in Australian dollars up to a maximum of $15 million US
dollar equivalent. The Agreement provided for borrowings at either a reference
rate or at LIBOR rates plus the applicable margin for the level of borrowings
outstanding. The Agreement also required a quarterly commitment fee of 0.25% to
0.35% based on the usage level of the total commitment. Available borrowings
under the Agreement are subject to a borrowing base which is a percentage of
Notes Receivable and inventory, including property under development. The
Agreement replaced the previous $30 million unsecured revolving credit
agreement. Borrowings outstanding under the new agreement at December 31, 2000,
were $48.4 million at a weighted average interest rate of 8.48%. Borrowings
outstanding at December 31, 1999, under the previous agreement were $3.9 million
at a weighted average interest rate of 8.50%.

                                        26
<PAGE>   27

Subsequent to year end, the Company amended the Agreement and increased the
revolving credit limit to $85 million, increased the Australian dollar limit to
a $25 million US dollar equivalent, increased the quarterly commitment fee to
0.30% to 0.50% and provided a first mortgage on the MountainStar property.

     On November 21, 2000, the Company closed a mortgage payable for $11.7
million. The mortgage is secured by the Company's corporate headquarters
building located in Redmond, Washington. A special-purpose, bankruptcy-remote
entity, 9805 Willows Road LLC, was formed upon the closing of the mortgage to
own the building and operate as landlord to the Company. The mortgage amortizes
over a 30-year period and carries an interest rate of 8.29%. Monthly principal
and interest payments are due beginning in December 2000, with a balloon
principal payment due upon maturity of the loan in December 2010. The
outstanding principal balance at December 31, 2000, related to this loan was
$11.7 million.

     The Company has a $10 million open line of credit with the Parent which
bears interest at prime plus 1% (10.50% at December 31, 2000) per annum and is
payable on demand. As of December 31, 2000 and 1999 outstanding borrowings under
this agreement were $0.4 million and $0, respectively. The Company periodically
lends excess funds to the Parent at the prime rate minus 2% (7.50% at December
31, 2000). Outstanding lendings under this agreement were $0 and $3.1 million at
December 31, 2000 and 1999, respectively.

     Through the end of 2002, the Company anticipates spending approximately
$171 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 the $85 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 2002. At December 31, 2000, the Company has
outstanding purchase commitments and surety bonds of $62.7 million and $5.4
million, respectively, 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 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 for the Company
beginning January 1, 2001. The Company does not anticipate a material impact on
its financial position or results of operations from the adoption of this
standard.

     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition", which was required to
be adopted by the Company no later than the fourth quarter of 2000. Compliance
with SAB No. 101 has not resulted in any material change to the Company's
revenue recognition policies.

     In September 2000, the FASB issued SFAS No. 140, which replaces SFAS No.
125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities and rescinds SFAS No. 127, Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125. SFAS 140 revises
SFAS 125's standards for accounting for securitizations and other transfers of
financial assets and collateral and requires certain disclosures, but it carries
over most of the SFAS 125's provisions without reconsideration. SFAS 140 is
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after March 31, 2001 and for recognition and
reclassification of collateral and for disclosures relating to securitization
transactions and collateral for fiscal years ending after December 15, 2000. The
Company has adopted the new disclosures required under SFAS 140 as of December
31, 2000. SFAS 140 is to be applied

                                        27
<PAGE>   28

prospectively with certain exceptions. SFAS 140 is not expected to have a
material impact on the Company's consolidated results of operations or financial
position.

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 functional currency of the Company's Australian operations is the
Australian dollar. The Australian operations are funded through the $85 million
credit facility which has a US dollar equivalent of $25 million denominated in
Australian dollars. The Company is also subject to foreign currency exchange
rate risk when developing resort properties denominated in a foreign currency.
As the Company continues expanding its operations worldwide, there will be
additional exposure to foreign currency exchange rate 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.

                                        28
<PAGE>   29

     The tables below provide information as of December 31, 2000 and 1999,
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
                                           2001      2002      2003      2004      2005      2005     TOTAL     VALUE
                                          ------    ------    ------    ------    ------    ------    ------    ------
<S>                                       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
2000:
Cash:
  Amounts Maturing......................     404        --        --        --        --        --       404       404
  Weighted Average interest rate........      --        --        --        --        --        --        --        --
Restricted cash:
  Amounts Maturing......................   7,201        --        --        --        --        --     7,201     7,201
  Weighted Average interest rate........      --        --        --        --        --        --        --        --
Notes receivable(1):
  Amounts Maturing......................  10,561    11,582    12,087    12,198    11,965    19,144    77,537    77,537
  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....................  12,603    11,670     8,942     6,269     3,634     2,437    45,258    45,258
    Weighted Average interest rate......    6.54%     6.54%     6.54%     6.54%     6.54%     6.54%     6.54%     6.54%
  Variable rate(3):
    Amounts Maturing....................   1,619     1,532     1,283     1,097       678       576     6,785     6,785
    Weighted Average interest rate......    6.80%     6.80%     6.80%     6.80%     6.80%     6.80%     6.80%     6.80%
Due to Parent:
  Amounts Maturing......................     419        --        --        --        --        --       419       419
  Weighted Average interest rate........   10.50%       --        --        --        --        --     10.50%    10.50%
Recourse liability on notes sold:
  Amounts Maturing......................   5,962     5,652     4,378     3,154     1,846     1,290    22,282    22,282
  Weighted Average interest rate........      --        --        --        --        --        --        --        --
Note payable to Parent:
  Amounts Maturing......................   4,433     8,865     4,433        --        --        --    17,731    17,731
  Weighted Average interest rate........    9.00%     9.00%     9.00%       --        --        --      9.00%     9.00%
Mortgage payable:
  Amounts Maturing......................      78        85        93        98       109    11,237    11,696    11,696
  Weighted Average interest rate........    8.29%     8.29%     8.29%     8.29%     8.29%     8.29%     8.29%     8.29%
Borrowings under bank line of credit:
  Amount Maturing.......................  48,441        --        --        --        --        --    48,441    48,441
  Weighted Average interest rate........    8.48%       --        --        --        --        --      8.48%     8.48%
</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.

                                        29
<PAGE>   30

<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.

                                        30
<PAGE>   31

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     See the information set forth on Index to Financial Statements appearing on
page F-1 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.

                                        31
<PAGE>   32

                                    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>
 10.1     Receivables Purchase Agreement Among Trendwest Resorts, Inc.
          and TW Holdings II, Inc. and TW Holdings III, Inc. and TRI
          Funding IV, Inc. Dated as of November 1, 2000.
 10.2     Servicing Agreement Among TRI Funding IV, Inc. and Trendwest
          Resorts, Inc. and Wells Fargo Bank Minnesota, National
          Association Dated as of November 1, 2000.
 10.3     Indenture Among TRI Funding IV, Inc. And Trendwest Resorts,
          Inc. and Wells Fargo Bank Minnesota, National Association
          Dated as of November 1, 2000.
 11.1     Statement re Computation of Earnings per Share -- See note 1
          of "Notes to Consolidated Financial Statements."
 13.1     Annual Report to Shareholders.(1)
 21.1     List of all Subsidiaries of the Registrant.(2)
 23.1     Consent of KPMG LLP.
 24.1     Power of Attorney from officers and directors (contained on
          signature page).
</TABLE>

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

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

     (b) Reports on Form 8-K

     FORM 8-K dated June 12, 2000 on Item 2: Acquisition or Disposition of
Assets, relating to agreement with majority shareholder JELD-WEN to acquire the
JELD-WEN property located in Upper Kittitas County in Washington State (site of
future MountainStar resort).

     FORM 8-K dated February 27, 2001 on Item 5: Other Events -- Stock Split.
The Company announced a three for two stock split for shareholders of record on
March 15, 2001.

                                        32
<PAGE>   33

                                   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 30, 2001.

                                          TRENDWEST RESORTS, INC.

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

<TABLE>
<C>                                                    <C>                              <S>

                /s/ WILLIAM F. PEARE                     President, Chief Executive     March 30, 2001
-----------------------------------------------------              Officer
                  William F. Peare                              and Director
                                                        (Principal Executive Officer)

                /s/ JEFFERY P. SITES                   Executive Vice President, Chief  March 30, 2001
-----------------------------------------------------  Operating Officer and Director
                  Jeffery P. Sites

                /s/ TIMOTHY P. O'NEIL                     Vice President, Treasurer     March 30, 2001
-----------------------------------------------------    and Chief Financial Officer
                  Timothy P. O'Neil                     (Principal Financial Officer)

                 /s/ JEROL E. ANDRES                              Director              March 30, 2001
-----------------------------------------------------
                   Jerol E. Andres

                /s/ HARRY L. DEMOREST                             Director              March 30, 2001
-----------------------------------------------------
                  Harry L. Demorest

               /s/ MIICHAEL P. HOLLERN                            Director              March 30, 2001
-----------------------------------------------------
                 Michael P. Hollern

              /s/ DOUGLAS P. KINTZINGER                           Director              March 30, 2001
-----------------------------------------------------
                Douglas P. Kintzinger

                                                                  Director              March 30, 2001
-----------------------------------------------------
                   Linda M. Tubbs

                /s/ RODERICK C. WENDT                             Director              March 30, 2001
-----------------------------------------------------
                  Roderick C. Wendt
</TABLE>

                                        33
<PAGE>   34

                         INDEX TO FINANCIAL STATEMENTS

                    TRENDWEST RESORTS, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Independent Auditors' Report................................  F-2
Consolidated Balance Sheets.................................  F-3
Consolidated Statements of Income...........................  F-4
Consolidated Statements of Shareholders' Equity and
  Comprehensive Income......................................  F-5
Consolidated Statements of Cash Flows.......................  F-6
Notes to Consolidated Financial Statements..................  F-7
</TABLE>

                                       F-1
<PAGE>   35

                          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, 2000 and 1999, and the related
consolidated statements of income, shareholders' equity and comprehensive
income, and cash flows for each of the years in the three-year period ended
December 31, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Trendwest
Resorts, Inc. and subsidiaries as of December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.

KPMG LLP

Seattle, Washington
February 6, 2001, except as to note 18, which is as of February 21, 2001

                                       F-2
<PAGE>   36

                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                              --------------------
                                                                2000        1999
                                                              --------    --------
<S>                                                           <C>         <C>
Assets:
  Cash......................................................  $    404    $  1,760
  Restricted cash...........................................     7,201       2,987
  Notes Receivable, net of allowance for doubtful accounts,
     sales returns and deferred gross profit................    76,197      84,802
  Accrued interest and other receivables....................     8,171       7,906
  Residual interest in Notes Receivable sold................    52,043      36,265
  Receivable from Parent....................................        --       3,058
  Inventories...............................................   104,218      45,601
  MountainStar development..................................    56,536          --
  Property and equipment, net...............................    29,948      24,327
  Refundable income taxes...................................     5,688         600
  Other assets..............................................     6,599       2,657
                                                              --------    --------
          Total assets......................................  $347,005     209,963
                                                              ========    ========

                       LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
  Accounts payable and bank overdraft.......................  $  9,706    $  1,900
  Accrued liabilities.......................................    21,538      12,405
  Accrued construction in progress..........................     2,855         790
  Due to Parent.............................................       419          --
  Note payable to Parent....................................    17,731          --
  Borrowing under bank line of credit.......................    48,441       3,900
  Mortgage payable..........................................    11,696          --
  Allowance for recourse liability and deferred gross profit
     on Notes Receivable sold...............................    26,846      17,211
  Deferred income taxes.....................................       330          42
                                                              --------    --------
          Total liabilities.................................   139,562      36,248
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 25,196,997 and 25,561,617 shares
     at December 31, 2000 and 1999, respectively............    54,119      59,428
  Accumulated other comprehensive loss......................      (522)         --
  Retained earnings.........................................   153,846     114,287
                                                              --------    --------
          Total shareholders' equity........................   207,443     173,715
                                                              --------    --------
Commitments and contingencies
          Total liabilities and shareholders' equity........  $347,005    $209,963
                                                              ========    ========
</TABLE>

        See accompanying notes to the consolidated financial statements.
                                       F-3
<PAGE>   37

                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                      -----------------------------------------
                                                         2000           1999           1998
                                                      -----------    -----------    -----------
<S>                                                   <C>            <C>            <C>
Revenues:
  Vacation Credit and Fractional Interest sales,
     net............................................  $   293,130    $   234,315    $   170,817
  Finance income....................................       15,562         15,243         13,790
  Gains on sales of Notes Receivable................       18,903         16,265         10,959
  Resort management services........................        4,763          3,710          2,328
  Other.............................................        5,280          4,593          3,063
                                                      -----------    -----------    -----------
          Total revenues............................      337,638        274,126        200,957
                                                      -----------    -----------    -----------
Costs and operating expenses:
  Vacation Credit and Fractional Interest cost of
     sales..........................................       74,714         68,611         48,059
  Resort management services........................        1,759          1,656          1,399
  Sales and marketing...............................      137,752        104,952         83,347
  General and administrative........................       31,686         25,234         17,180
  Provision for doubtful accounts and recourse
     liability......................................       21,148         16,100         11,865
  Interest..........................................          479            442            353
                                                      -----------    -----------    -----------
          Total costs and operating expenses........      267,538        216,995        162,203
                                                      -----------    -----------    -----------
Income before income taxes..........................       70,100         57,131         38,754
Income tax expense..................................       27,241         22,258         14,723
                                                      -----------    -----------    -----------
          Net income................................  $    42,859    $    34,873    $    24,031
                                                      ===========    ===========    ===========
Basic net income per common share...................  $      1.69    $      1.36    $       .92
Diluted net income per common share.................  $      1.68    $      1.35    $       .92
Weighted average shares of common stock and dilutive
  potential common stock outstanding:
Basic...............................................   25,372,062     25,694,850     26,119,227
Diluted.............................................   25,454,527     25,765,431     26,125,037
</TABLE>

        See accompanying notes to the consolidated financial statements.
                                       F-4
<PAGE>   38

                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
                                          COMMON STOCK       ACCUMULATED OTHER                  TOTAL
                                      --------------------     COMPREHENSIVE     RETAINED   SHAREHOLDERS'
                                        SHARES     AMOUNT          LOSS          EARNINGS      EQUITY
                                      ----------   -------   -----------------   --------   -------------
<S>                                   <C>          <C>       <C>                 <C>        <C>
BALANCE AT DECEMBER 31, 1997........  26,390,049   $66,742         $  --         $ 55,383     $122,125
  Repurchase of common stock........    (651,900)   (4,894)           --               --       (4,894)
  Net income........................          --        --            --           24,031       24,031
                                      ----------   -------         -----         --------     --------
BALANCE AT DECEMBER 31, 1998........  25,738,149    61,848            --           79,414      141,262
  Repurchase of common stock........    (202,608)   (2,780)           --               --       (2,780)
  Issuance of common stock under the
     Employee Stock Purchase Plan...      26,076       360            --               --          360
  Net income........................          --        --            --           34,873       34,873
                                      ----------   -------         -----         --------     --------
BALANCE AT DECEMBER 31, 1999........  25,561,617   $59,428         $  --         $114,287     $173,715
  Repurchase of common stock........    (418,800)   (5,926)           --               --       (5,926)
  Issuance of common stock under the
     Employee Stock Purchase Plan...      50,880       588            --               --          588
  Issuance of common stock from
     exercise of employee stock
     options........................       3,300        29            --               --           29
  Reduction in retained earnings for
     the excess of the purchase
     price of the MountainStar
     development over the Parent's
     historical cost................          --        --            --           (3,300)      (3,300)
  Comprehensive Income:
     Net income.....................          --        --            --           42,859       42,859
  Other comprehensive loss:
     Change in cumulative effect of
       foreign currency
       translation..................          --        --          (522)                         (522)
                                                                                              --------
     Total comprehensive income.....                                                            42,337
                                      ----------   -------         -----         --------     --------
BALANCE AT DECEMBER 31, 2000........  25,196,997   $54,119         $(522)        $153,324     $207,443
                                      ==========   =======         =====         ========     ========
</TABLE>

        See accompanying notes to the consolidated financial statements.
                                       F-5
<PAGE>   39

                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31,
                                                              -----------------------------------
                                                                2000         1999         1998
                                                              ---------    ---------    ---------
<S>                                                           <C>          <C>          <C>
Cash flows from operating activities:
  Net income................................................  $  42,859    $  34,873    $  24,031
  Adjustments to reconcile net income to net cash (used in)
    provided by operating activities:
    Depreciation and amortization...........................      2,743        1,758        1,079
    Gain on sale of property and equipment..................         --         (869)          --
    Amortization of residual interest in Notes Receivable
     sold...................................................     14,801       10,931        6,877
    Provision for doubtful accounts, sales returns and
     recourse liability.....................................     27,015       21,407       15,435
    Recoveries of Notes Receivable charged off..............        251          260          179
    Residual interest in Notes Receivable sold..............    (28,201)     (21,019)     (11,949)
    Unrealized loss (gain) on residual interest in Notes
     Receivable sold........................................        337        1,139         (779)
    Contract servicing liability arising from sale of Notes
     Receivable.............................................      3,554        2,847           --
    Amortization of contract servicing liability............       (869)        (321)          --
    Change in deferred gross profit.........................      1,631          419       (1,301)
    Deferred income tax expense.............................        290          744          222
    Issuance of Notes Receivable............................   (261,013)    (204,474)    (148,720)
    Proceeds from sale of Notes Receivable..................    211,767      156,303      104,573
    Proceeds from repayment of Notes Receivable.............     57,974       51,198       33,831
    Purchase of Notes Receivable from related parties.......         --         (650)     (17,397)
    Purchase of Notes Receivable............................    (22,201)     (13,576)      (6,990)
    Changes in certain assets and liabilities:
      Restricted cash.......................................     (4,214)        (636)      (1,132)
      MountainStar development..............................    (37,236)          --           --
      Inventories...........................................    (60,396)      (5,159)       2,225
      Accounts payable and accrued liabilities..............     12,534        3,424       (6,141)
      Income taxes payable to Parent........................         --           --       (2,755)
      Income taxes payable..................................         --       (1,153)         273
      Refundable income taxes...............................     (5,088)        (600)          --
      Other.................................................     (4,403)       2,733       (6,236)
                                                              ---------    ---------    ---------
         Net cash (used in) provided by operating
           activities.......................................    (47,865)      39,579      (14,675)
                                                              ---------    ---------    ---------
Cash flows used in investing activities:
  Purchase of property and equipment........................     (6,621)      (4,974)     (14,233)
  Proceeds from sale of property and equipment..............         --        4,412           --
                                                              ---------    ---------    ---------
         Net cash used in investing activities..............     (6,621)        (562)     (14,223)
                                                              ---------    ---------    ---------
Cash flows from financing activities:
  Net borrowings (repayments) under bank line of credit and
    other...................................................     48,394      (26,100)      30,000
  Issuance of mortgage payable..............................     11,700           --           --
  Repayments of mortgage payable............................         (4)          --           --
  (Decrease) increase in Due to Parent......................     (1,392)      (5,688)       3,741
  Increase in Receivable from Parent........................         --       (3,058)          --
  Proceeds from issuance of common stock....................        617          360           --
  Repurchase of common stock................................     (5,926)      (2,780)      (4,894)
                                                              ---------    ---------    ---------
         Net cash provided by (used in) financing
           activities.......................................     53,389      (37,266)      28,847
                                                              ---------    ---------    ---------
Effect of foreign currency exchange rates on cash...........       (259)          --           --
         Net (decrease) increase in cash....................     (1,356)       1,751          (61)
Cash at beginning of year...................................      1,760            9           70
                                                              ---------    ---------    ---------
Cash at end of year.........................................  $     404    $   1,760    $       9
                                                              =========    =========    =========
Supplemental disclosures of cash flow information -- cash
  paid during the period for:
  Interest (excluding capitalized amounts of $2,951, $1,188
    and $704, respectively).................................  $     378    $     179    $     864
  Income taxes..............................................     32,201       22,542       16,983
Supplemental schedule of noncash investing and financing
  activities:
  Issuance of note payable to Parent in connection with the
    MountainStar development acquisition....................     17,731           --           --
  Reduction in retained earnings for the excess of the
    purchase price of the MountainStar development over the
    Parent's historical cost................................      3,300           --           --
  Extinguishment of receivable from Parent in connection
    with the MountainStar development acquisition...........      4,869           --           --
</TABLE>

        See accompanying notes to the consolidated financial statements.
                                       F-6
<PAGE>   40

                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2000, 1999 AND 1998
                         (DOLLAR AMOUNTS IN THOUSANDS)

(1) DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

DESCRIPTION OF BUSINESS

     Trendwest Resorts, Inc. (Trendwest) and subsidiaries (Company) generate
revenues from the sale and financing of Vacation Credits in WorldMark, The Club
(WorldMark) WorldMark South Pacific Club (WorldMark South Pacific) (collectively
The Clubs) and Fractional Interests in resort condominium units. Vacation
Credits entitle the owner to use a fully furnished vacation resort unit in The
Clubs based on the number of Vacation Credits purchased. Vacation Credits are
created through the transfer to The Clubs of resort units developed or purchased
by the Company. The Company also manages resort properties under a management
agreement with The Clubs. The Clubs are separate entities which own 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 The Clubs.

     The Company sells Vacation Credits and Fractional Interests to individuals
principally in the 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.

     In October of 1999, Trendwest 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. Trendwest
South Pacific commenced sales operations in Fiji in March 2000 and in Australia
in June of 2000. The sales terms in the South Pacific are similar to the terms
in the United States.

BASIS OF PRESENTATION

     Trendwest is a majority owned subsidiary of JELD-WEN, inc. (Parent). The
financial statements for the periods presented are presented on a consolidated
basis and include the accounts of Trendwest and its wholly-owned subsidiaries,
which include various finance companies and Trendwest South Pacific.

     All intercompany balances and transactions have been eliminated in
consolidation.

STOCK SPLIT

     All share data and earnings per share figures contained in these
Consolidated Financial Statements have been adjusted to reflect a 3 for 2 stock
split declared on February 21, 2001, as if it were effective for all periods
presented. Refer to note 18 to the consolidated financial statements.

CAPITAL TRANSACTIONS

     In March, 1999 and July, 1998, the Board of Directors authorized the
Company to repurchase up to 750,000, and 654,000 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, 2000, 1999, and 1998, the
Company repurchased 418,800, 202,608, and 651,900 shares, respectively. The
Board of Directors may at its discretion authorize additional repurchases in the
future.

                                       F-7
<PAGE>   41
                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998
                         (DOLLAR AMOUNTS IN THOUSANDS)

BASIC AND DILUTED NET INCOME PER COMMON SHARE

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

<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                                                 --------------------------------------
                                                    2000          1999          1998
                                                 ----------    ----------    ----------
<S>                                              <C>           <C>           <C>
BASIC
Basic weighted average shares outstanding......  25,372,062    25,694,850    26,119,227
DILUTED
Effect of dilutive securities..................      82,465        70,581         5,810
                                                 ----------    ----------    ----------
Diluted weighted average shares outstanding....  25,454,527    25,765,431    26,125,037
                                                 ==========    ==========    ==========
</TABLE>

     Net income available to common shareholders for basic and diluted net
income per share was $42,859, $34,873 and $24,031 for the years ended December
31, 2000, 1999 and 1998, respectively.

     At December 31, 2000, 1999 and 1998, there were options to purchase
1,166,250, 897,000 and 737,250 shares of common stock outstanding, respectively,
which were anti-dilutive 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 and refundable reservation deposits on
MountainStar vacation home sites.

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
interests in Notes Receivable sold. As of December 31, 2000 and 1999, total
retained interest in Notes Receivable sold of $57,674 and $36,782, respectively,
was included in Notes Receivable in the accompanying consolidated balance sheets
relating to Notes Receivable sold of $407,215 and $288,950, 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.
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 uncollectible 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

                                       F-8
<PAGE>   42
                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998
                         (DOLLAR AMOUNTS IN THOUSANDS)

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,
                                                          -------------------
                                                            2000       1999
                                                          --------    -------
<S>                                                       <C>         <C>
Vacation Credits........................................  $ 16,829    $13,247
Construction in progress................................    87,389     32,354
                                                          --------    -------
          Total inventories.............................  $104,218    $45,601
                                                          ========    =======
</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, 2000, 1999 and 1998 amounted to $610, $1,188 and $552,
respectively.

MOUNTAINSTAR DEVELOPMENT

     The MountainStar development is stated at cost. The Company capitalizes all
direct costs and interest incurred relating to the development. During 2000, the
Company capitalized $2,341 in interest cost on MountainStar. All selling
expenses relating to refundable reservation deposits associated with
MountainStar are capitalized and included in other assets.

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 the Company has received an executed sales contract, 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, 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.

                                       F-9
<PAGE>   43
                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998
                         (DOLLAR AMOUNTS IN THOUSANDS)

     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 the Company has
received an executed sales contract, at least a 10% down payment requirement has
been met and any rescission period has expired.

     Fractional Interest marketing and overhead costs are expensed as incurred.
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

     When the Company sells Notes Receivable through securitization
transactions, it retains interest rate differentials, a subordinated principal
tranche, servicing rights, and in some cases a cash reserve account, all of
which are retained interests in the securitized receivables. Gain or loss on
sale of the receivables depends in part on the previous carrying amount of the
financial assets involved in the transfer, allocated between the assets sold and
the retained interests based on their relative fair value at the date of
transfer. To obtain fair values, quoted market prices are used if available.
However, quotes are generally not available for retained interests, so the
Company estimates fair value based on the present value of future expected cash
flows estimated using management's best estimates of the key
assumptions -- credit losses, prepayment speeds and discount rates commensurate
with the risks involved.

     Gains on sales of Notes Receivable represent the present value of the
estimated cash flow 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 fair value servicing costs, 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.

     Income from the differential retained is subsequently 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 arising from the interest rate differential is classified
as a trading security in accordance with SFAS No. 115, Accounting for Certain
Investments in Debt or Equity
                                       F-10
<PAGE>   44
                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998
                         (DOLLAR AMOUNTS IN THOUSANDS)

Securities, and is carried at market value with changes in the market value (see
note 13) of the residual interest in Notes Receivable sold recognized as finance
income.

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..........................  Lesser of estimated useful life
                                                  or the remaining lease term
</TABLE>

     Direct internal and external costs of computer software developed for
internal use are capitalized subsequent to the preliminary stage of the project.
Capitalized costs are amortized over the estimated useful life on a
straight-line basis beginning when each module is complete and ready for its
intended use.

ADVERTISING

     Advertising costs, included in sales and marketing expenses in the
accompanying statements of income, are expensed as incurred and amounted to
$9,956, $7,337, and $5,655 for the years ended December 31, 2000, 1999 and 1998,
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 intends to reinvest future unremitted earnings of
its non-U.S. subsidiary in the foreign jurisdiction and thereby postpone their
remittance indefinitely. Accordingly, no provision for U.S. income taxes is
expected.

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.

FOREIGN CURRENCY TRANSLATION

     The functional currency of the Company's foreign subsidiary is the local
currency of the country in which the subsidiary is located. Assets and
liabilities in foreign operations are translated into U.S. dollars using rates

                                       F-11
<PAGE>   45
                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998
                         (DOLLAR AMOUNTS IN THOUSANDS)

of exchange in effect at the end of the reporting period. Income and expense
accounts are translated into U.S. dollars using average rates of exchange. The
net gain or loss resulting from translation is shown as translation adjustment
and included in other comprehensive income in shareholders' equity. Gains and
losses from foreign currency transactions are included in the consolidated
statements of operations. There were no significant gains or losses on foreign
currency translations in 2000, 1999 or 1998.

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.

     From time to time, 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. In the past, these transactions have met the requirements for
hedge accounting, including designation to a specific transaction and high
correlation. Gains and losses on these agreements were 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. No derivative financial
instruments were outstanding at December 31, 2000.

EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS

     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 for the Company
beginning January 1, 2001. The Company does not anticipate a material impact on
its financial position or results of operations from the adoption of this
standard.

     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition", which was required to
be adopted by the Company no later than the fourth quarter of 2000. Compliance
with SAB No. 101 has not resulted in any material change to the Company's
revenue recognition policies.

     In September 2000, the FASB issued SFAS No. 140, which replaces SFAS No.
125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities and rescinds SFAS No. 125, Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125. SFAS 140 revises
SFAS 125's standards for accounting for securitizations and other transfers of
financial assets and collateral and requires certain disclosures, but it carries
over most of the SFAS 125's provisions without reconsideration. SFAS 140 is
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after March 31, 2001 and for recognition and
reclassification of collateral and for disclosures relating to securitization
transactions and collateral for fiscal years ending after December 15, 2000. The
Company has adopted the new disclosures required under SFAS 140 as of December
31, 2000. SFAS 140 is to be applied prospectively with certain exceptions. SFAS
140 is not expected to have a material impact on the Company's consolidated
results of operations or financial position.

RECLASSIFICATIONS

     Certain reclassifications have been made to prior year amounts to conform
to the current presentation.

                                       F-12
<PAGE>   46
                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998
                         (DOLLAR AMOUNTS IN THOUSANDS)

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.

(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, 2000, are as follows:

<TABLE>
<S>                                                          <C>
2001.......................................................  $13,014
2002.......................................................   14,273
2003.......................................................   14,894
2004.......................................................   15,032
2005.......................................................   14,744
Thereafter.................................................   23,590
                                                             -------
                                                             $95,547
                                                             =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                                2000         1999
                                                              ---------    ---------
<S>                                                           <C>          <C>
Total Notes Receivable......................................  $ 502,762    $ 389,901
Less Notes Receivable sold..................................   (407,215)    (288,950)
                                                              ---------    ---------
Gross on balance sheet Notes Receivable.....................     95,547      100,951
                                                              =========    =========
Unencumbered Notes Receivable...............................     37,873       64,169
Retained interest in Notes Receivable sold..................     57,674       36,782
                                                              ---------    ---------
Gross on balance sheet Notes Receivable.....................     95,547      100,951
Less:
  Deferred gross profit.....................................     (1,340)        (970)
  Allowance for doubtful accounts and sales returns.........    (18,010)     (15,179)
                                                              ---------    ---------
Notes Receivable, net.......................................  $  76,197    $  84,802
                                                              =========    =========
</TABLE>

     Customers over 60 days past due on monthly payments are considered
delinquent. Delinquent Notes Receivable represent 2.29% and 1.91% of Notes
Receivable at December 31, 2000 and 1999, respectively.

                                       F-13
<PAGE>   47
                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998
                         (DOLLAR AMOUNTS IN THOUSANDS)

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

<TABLE>
<CAPTION>
                                                        2000        1999       1998
                                                      --------    --------    -------
<S>                                                   <C>         <C>         <C>
Balances at beginning of period.....................  $ 29,087    $ 20,935    $15,240
Provision for doubtful accounts, sales returns and
  recourse liability................................    27,015      21,407     15,435
Notes Receivable charged-off and sales returns net
  of Vacation Credits recovered.....................   (16,061)    (13,515)    (9,919)
Recoveries..........................................       251         260        179
                                                      --------    --------    -------
Balances at end of period...........................  $ 40,292    $ 29,087    $20,935
                                                      ========    ========    =======
Allowance for doubtful accounts and sales returns...  $ 18,010    $ 15,179    $12,363
Recourse liability on Notes Receivable sold.........    22,282      13,908      8,572
                                                      --------    --------    -------
                                                      $ 40,292    $ 29,087    $20,935
                                                      ========    ========    =======
</TABLE>

(4) SALES OF NOTES RECEIVABLE

     During 2000, 1999 and 1998, the Company sold Notes Receivable in
securitization transactions. In all those securitizations, the Company retained
servicing responsibilities, interest rate differentials and subordinated
interests. The Company receives annual servicing fees of between 1.0% and 1.75%
of the outstanding balance and rights to future cash flows arising after the
investors in the securitization trusts have received the return for which they
contracted. The investors and the securitization trusts have no recourse to the
Company's other assets for failure of debtors to pay when due. The Company's
retained interests are subordinate to investors' interests.

     When the Company enters into a securitization which provides for other than
fair compensation for the related servicing of those receivables, the Company
records a servicing asset or liability. At December 31, 2000 and 1999, the
servicing liabilities were $5,211 and $2,526, respectively, which are included
in accrued liabilities and are being amortized into income as services are
performed.

     In 2000, the Company recognized pre-tax gains of $18.9 million on the
securitization of its Notes Receivable.

     The following are the key assumptions used in 2000 in measuring residual
interests at the dates of the securitizations.

<TABLE>
<S>                                                           <C>
Annual prepayment speed.....................................    5.4%
Weighted-average life (in years)............................    2.2
Expected gross defaults (annual)............................    3.6%
Residual cash flows discounted at...........................  12.25%
</TABLE>

     During 2000, the following cash flows relating to the Company's
securitizations occurred:

<TABLE>
<S>                                                         <C>
Proceeds to the Company from:
  New securitizations.....................................  $174,500
  Reinvested collections..................................  $ 24,535
Purchases of defaulted Notes Receivable...................  $ 14,815
Cash received from residual and retained interests........  $ 52,212
Servicing fees received...................................  $  3,505
</TABLE>

                                       F-14
<PAGE>   48
                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998
                         (DOLLAR AMOUNTS IN THOUSANDS)

     At December 31, 2000, the key economic assumptions and the sensitivity of
the current fair value of residual cash flows to immediate 10% and 20% adverse
changes in those assumptions are as follows:

<TABLE>
<S>                                                          <C>
Carrying amount/fair value of residual interests...........  $52,043
  Weighted average life (in years).........................      2.0
Prepayment speed assumption (annual rate)..................      5.4%
  Impact on fair value of 10% adverse change...............  $  (334)
  Impact on fair value of 20% adverse change...............  $  (662)
Expected gross defaults (annual rate)......................      3.6%
  Impact on fair value of 10% adverse change...............  $  (223)
  Impact on fair value of 20% adverse change...............  $  (444)
Residual cash flows discount rate (annual).................     13.5%
  Impact on fair value of 10% adverse change...............  $(1,223)
  Impact on fair value of 20% adverse change...............  $(2,397)
</TABLE>

     Amounts expressed as annual rates represent the monthly rates multiplied by
twelve.

     These sensitivities are hypothetical and should be used with caution. As
the figures indicate, changes in fair value based on a 10 percent variation in
assumptions generally cannot be extrapolated because the relationship of the
change in assumption to the change in fair value may not be linear. Also, in
this table the effect of a variation in a particular assumption on the fair
value of the residual interest is calculated without changing any other
assumption; in reality, changes in one factor may result in changes in another
(for example, increases in market interest rates may result in lower prepayments
and increased credit losses), which might magnify or counteract the
sensitivities.

     Actual and projected gross defaults for Notes Receivable securitized during
2000 were approximately 9%.

     Information regarding delinquency and defaults for the year ended December
31, 2000 are as follows:

<TABLE>
<CAPTION>
                                                                 PRINCIPAL
                                                              AMOUNT OF NOTES
                                                 PRINCIPAL      60 OR MORE
                                                  BALANCE      DAYS PAST DUE     NET LOSSES
                                                 ---------    ---------------    ----------
<S>                                              <C>          <C>                <C>
Total Notes Receivable managed or
  Securitized..................................  $502,762         $11,472         $11,147
                                                 ========         =======         =======
Less:
Notes Receivable sold or securitized...........  $407,215         $ 5,638
                                                 --------         -------
Total Notes Receivable held....................  $ 95,547         $ 5,834
                                                 ========         =======
</TABLE>

                                       F-15
<PAGE>   49
                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998
                         (DOLLAR AMOUNTS IN THOUSANDS)

(5) PROPERTY AND EQUIPMENT

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

<TABLE>
<CAPTION>
                                                               2000       1999
                                                              -------    -------
<S>                                                           <C>        <C>
Land........................................................  $ 2,467    $ 2,379
Building and improvements...................................   16,745     15,846
Equipment, furniture and fixtures...........................   10,263      6,873
Leasehold improvements......................................    3,726      2,397
Construction in Progress....................................    2,574         78
                                                              -------    -------
                                                               35,775     27,573
Less accumulated depreciation and amortization..............    5,827      3,246
                                                              -------    -------
                                                              $29,948    $24,327
                                                              =======    =======
</TABLE>

(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>
                                                           2000      1999      1998
                                                          ------    ------    -------
<S>                                                       <C>       <C>       <C>
Gross sales value.......................................  $9,388    $7,227    $ 6,496
                                                          ======    ======    =======
Gross profit deferred...................................  $5,094    $3,597    $ 3,043
Gross profit recognized.................................   3,463     3,178      4,344
                                                          ------    ------    -------
Net gross profit deferred (recognized) during period....  $1,631    $  419    $(1,301)
                                                          ======    ======    =======
</TABLE>

     Notes Receivable is presented net of deferred gross profit in the
accompanying balance sheets. Such deferred amounts aggregated $1,340 and $970 at
December 31, 2000 and 1999, 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 $4,564 and $3,303 at December
31, 2000 and 1999, respectively.

(7) DEBT

  (i) Credit Facility

     The Company has a three-year, $60,000 unsecured revolving credit agreement
(Agreement) with a group of banks. The Agreement also allows for borrowings in
Australian dollars up to a maximum of $15 million US dollar equivalent. The
Agreement provides for borrowings at either a reference rate or at LIBOR rates
plus the applicable margin for the level of borrowings outstanding. The
Agreement also requires a quarterly commitment fee of 0.25% to 0.35% based on
the usage level of the total commitment. Available borrowings under the
Agreement are subject to a borrowing base which is a percentage of Notes
Receivable and inventory, including property under development. The Credit
Agreement replaced the previous $30,000 unsecured revolving credit agreement.
Borrowings outstanding under the new agreement at December 31, 2000, were
$48,441 at a weighted average interest rate of 8.48%. Borrowings outstanding at
December 31, 1999, under the previous agreement were $3,900 at a weighted
average interest rate of 8.50%. Subsequent to year end, the Company amended the
Agreement and increased the revolving credit limit to $85,000, increased

                                       F-16
<PAGE>   50
                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998
                         (DOLLAR AMOUNTS IN THOUSANDS)

the Australian dollar limit to a $25 million US dollar equivalent, increased the
quarterly commitment fee to 0.30% to 0.50% and provided a first mortgage on the
MountainStar property.

  (ii) Note Payable to Parent

     In connection with the acquisition of the MountainStar development, the
Company issued an unsecured promissory note payable to Parent in the amount of
$17,731. The note bears an interest rate of 9.0%, with quarterly interest
payments due starting on September 1, 2000. Eight quarterly principal payments
of $2,216 are due starting on September 1, 2001. The note matures on June 1,
2003.

     Maturities of the Note Payable to Parent at December 31, 2000, are as
follows:

<TABLE>
<S>                                                           <C>
2001........................................................  $ 4,433
2002........................................................    8,865
2003........................................................    4,433
                                                              -------
Total.......................................................  $17,731
                                                              =======
</TABLE>

  (iii) Mortgage Payable

     On November 21, 2000, the Company closed a ten-year mortgage payable
secured by its corporate headquarters building. The mortgage carries an interest
rate of 8.29%, with monthly interest and principal payments due starting January
1, 2001. Maturities of the Mortgage Payable at December 31, 2000, are as
follows:

<TABLE>
<S>                                                           <C>
2001........................................................  $    78
2002........................................................       85
2003........................................................       93
2004........................................................       98
2005........................................................      109
Thereafter..................................................   11,237
                                                              -------
Total.......................................................  $11,696
                                                              =======
</TABLE>

                                       F-17
<PAGE>   51
                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998
                         (DOLLAR AMOUNTS IN THOUSANDS)

(8) INCOME TAXES

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

<TABLE>
<CAPTION>
                                                         2000       1999       1998
                                                        -------    -------    -------
<S>                                                     <C>        <C>        <C>
Current
  Federal.............................................  $22,630    $18,988    $12,731
  State...............................................    3,930      2,526      1,770
  Foreign.............................................      391         --         --
                                                        -------    -------    -------
Total current.........................................   26,951     21,514     14,501
                                                        -------    -------    -------
Deferred
  Federal.............................................      326        299        247
  State...............................................      171        445        (25)
  Foreign.............................................     (207)        --         --
                                                        -------    -------    -------
Total deferred........................................      290        744        222
          Total.......................................  $27,241    $22,258    $14,723
                                                        =======    =======    =======
</TABLE>

     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>
                                                               2000       1999
                                                              -------    -------
<S>                                                           <C>        <C>
Deferred tax assets:
  Allowance for credit losses...............................  $15,357    $ 9,853
  Deferred gross profit.....................................    2,271      1,616
  Retained interest in Notes Receivable sold................    1,977      1,310
  Contract Servicing liability arising from Notes Receivable
     sold...................................................    2,005        962
  Other.....................................................      791        694
                                                              -------    -------
          Total deferred tax assets.........................   21,862     14,435
                                                              -------    -------
Deferred tax liabilities:
  Residual interest in Notes Receivable sold................   19,915     12,829
  Property and equipment....................................    1,174        840
  Other.....................................................      564        808
                                                              -------    -------
          Total deferred tax liabilities....................   22,192     14,477
                                                              -------    -------
          Total deferred liabilities, net...................  $  (330)   $   (42)
                                                              =======    =======
</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.

                                       F-18
<PAGE>   52
                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998
                         (DOLLAR AMOUNTS IN THOUSANDS)

     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>
                                                              2000    1999    1998
                                                              ----    ----    ----
<S>                                                           <C>     <C>     <C>
Income tax at Federal statutory rate........................  35.0%   35.0%   35.0%
State tax, net of Federal benefit...........................   3.8     3.4     2.9
Other.......................................................   0.1     0.6     0.1
                                                              ----    ----    ----
                                                              38.9%   39.0%   38.0%
                                                              ====    ====    ====
</TABLE>

     The Company had $895, $0, and $0 of pre-tax losses from foreign operations
for the periods ended December 31, 2000, 1999, and 1998, respectively.

     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.

(9) 401(K) PLAN

     The Company sponsors a 401(k) plan covering all Trendwest employees.
Company contributions totaled $3,792, $2,708 and $2,402 for the years ended
December 31, 2000, 1999, and 1998, 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 two
thousand five hundred dollars 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 50,880 and 26,076 shares of common stock for the years ended December 31,
2000 and 1999, respectively. The 15% discount from the market price is
considered compensation expense for SFAS No. 123 disclosure purposes only and is
included in the SFAS No. 123 disclosures in note 12.

(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. No foreign exchange contracts were outstanding as of December
31, 2000. The Company enters into forward exchange contracts to hedge the
effects of fluctuations in interest rates and foreign currency exchange rates
related to purchases of resort properties.

     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.

                                       F-19
<PAGE>   53
                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998
                         (DOLLAR AMOUNTS IN THOUSANDS)

(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 10% of the Company's outstanding shares (2,519,700 at December 31, 2000).
Stock options vest ratably over five years and expire three years after becoming
fully vested.

     The following table summarizes stock option activity:

<TABLE>
<CAPTION>
                                                            NUMBER OF    WEIGHTED AVERAGE
                                                             SHARES       EXERCISE PRICE
                                                            ---------    ----------------
<S>                                                         <C>          <C>
BALANCE AT DECEMBER 31, 1997..............................    735,000         $17.92
Options granted...........................................    183,750           8.01
Expired or canceled.......................................    (11,250)         17.92
                                                            ---------         ------
BALANCE AT DECEMBER 31, 1998..............................    907,500         $15.91
Options granted...........................................    232,500          14.17
Expired or canceled.......................................    (65,250)         15.78
                                                            ---------         ------
BALANCE AT DECEMBER 31, 1999..............................  1,074,750         $15.55
Options granted...........................................    303,000          16.37
Options exercised.........................................     (3,300)          8.81
Expired or canceled.......................................    (34,650)         16.00
                                                            ---------         ------
BALANCE AT DECEMBER 31, 2000..............................  1,339,800         $15.73
                                                            =========         ======
</TABLE>

     The following table summarizes information about stock options outstanding
under the Company's stock option plan at December 31, 2000:

<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>
$ 7.59 - $15.46..    428,700         6.46              $11.90          107,850         $10.50
$16.59 - $16.59..    258,000         7.96              $16.59               --             --
$17.92 - $17.92..    653,100         4.81              $17.92          391,800         $17.92
---------------   ---------          ----              ------          -------         ------
$ 7.59 - $17.92..  1,339,800         5.95              $15.73          500,250         $16.32
</TABLE>

     At December 31, 2000, 1999, and 1998, exercisable options of 500,250,
302,850, and 144,750, respectively, were outstanding at weighted average
exercise prices of $16.32, $16.81, and $17.92 per share, respectively.

     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, because all options were granted at fair market value of the
underlying common stock on 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

                                       F-20
<PAGE>   54
                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998
                         (DOLLAR AMOUNTS IN THOUSANDS)

indicated below. For disclosure purposes, the Company recognizes compensation
expense related to employee stock options on a straight-line basis.

<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31,
                                                        -----------------------------
                                                         2000       1999       1998
                                                        -------    -------    -------
<S>                                                     <C>        <C>        <C>
Net income, as reported...............................  $42,859    $34,873    $24,031
Net income, pro forma.................................   41,047     33,511     22,748
Basic EPS, as reported................................     1.69       1.36        .92
Diluted EPS, as reported..............................     1.68       1.35        .92
Basic EPS, pro forma..................................     1.62       1.30        .87
Diluted EPS, pro forma................................     1.61       1.30        .87
</TABLE>

     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,
                                                          -----------------------------
                                                           2000       1999       1998
                                                          -------    -------    -------
<S>                                                       <C>        <C>        <C>
Annual dividend yield...................................      0.0%       0.0%       0.0%
Volatility..............................................     50.9%      54.3%      58.2%
Risk free interest rate.................................      5.2%       5.8%       4.5%
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, 2000, 1999, and 1998 were $8.95, $8.21, and
$4.10, 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.

                                       F-21
<PAGE>   55
                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998
                         (DOLLAR AMOUNTS IN THOUSANDS)

     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>
                                                                    2000                    1999
                                                            ---------------------   ---------------------
                                                            CARRYING   ESTIMATED    CARRYING   ESTIMATED
                                                             VALUE     FAIR VALUE    VALUE     FAIR VALUE
                                                            --------   ----------   --------   ----------
<S>                                                         <C>        <C>          <C>        <C>
Financial assets:
  Cash(a).................................................  $   404     $   404     $ 1,760     $ 1,760
  Restricted cash(a)......................................    7,201       7,201       2,987       2,987
  Notes Receivable(a).....................................   77,537      77,537      85,772      85,772
  Residual interest in Notes Receivable sold(b)...........   52,043      52,043      36,265      36,265
  Due from Parent(c)......................................       --          --       3,058       3,058
Financial liabilities:
  Due to Parent(c)........................................      419         419          --          --
  Borrowing under bank line of credit(c)..................   48,441      48,441       3,900       3,900
  Mortgage payable(d).....................................   11,696      11,696          --          --
  Note payable to Parent(d)...............................   17,731      17,731          --          --
  Recourse liability on notes sold(a).....................   22,282      22,282      13,908      13,908
</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.

(b) Fair value is determined using estimated discounted future cash flows taking
    into consideration anticipated prepayment and default 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>
                                                2000         1999
                                               ------    ------------
<S>                                            <C>       <C>
Discount rate................................  13.50%       12.25%
Annual prepayment and default rate...........   9.0%     7.2% to 9.0%
</TABLE>

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

(d) The carrying value reported approximates the fair value because the interest
    rates charged on these obligations approximates the market rate of interest
    for similar types of 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.

                                       F-22
<PAGE>   56
                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998
                         (DOLLAR AMOUNTS IN THOUSANDS)

(14) RELATED PARTY TRANSACTIONS

NOTES RECEIVABLE

     The Company, from time to time, 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>
                                                               2000      1999      1998
                                                              ------    ------    -------
<S>                                                           <C>       <C>       <C>
Sale of Notes Receivable:
  Members of the Board of Directors of the Parent...........  $   --    $   --    $   928
  I&I Holdings, a subsidiary of the Parent..................      --        --          7
Purchases of Notes Receivable:
  Eagle Crest Partners, Ltd., a subsidiary of the Parent....      --       473      2,709
  Running Y Resorts, Ltd., a subsidiary of the Parent.......      --       177      2,537
  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.

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 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. WorldMark has programs whereby an Owner
can use his or her Vacation Credits toward other vacation options such as
package tours and cruises. Trendwest purchases the vacation packages on behalf
of WorldMark and is subsequently reimbursed. WorldMark provides the owner with
the package in exchange for the owner's Vacation Credits plus cash, if
necessary. The Vacation Credits are deposited into a pool of Credits that are
available for one-time for a fee of $.08 per credit by the Company or other
owners. Trendwest utilizes these one-time use Credits in certain marketing
programs. A summary of these transactions for the years ended December 31
follows:

<TABLE>
<CAPTION>
                                                            2000      1999      1998
                                                           ------    ------    ------
<S>                                                        <C>       <C>       <C>
WorldMark:
  Management fee income..................................  $3,877    $2,972    $1,707
  Dues expense incurred by Trendwest.....................   1,008     1,376     1,107
  Delinquent dues expense incurred by Trendwest..........     940       727       500
  Reimbursed salaries....................................   6,208    10,417     7,145
  Travel packages reimbursed by WorldMark................     430        --        --
  One-time use credits purchased by Trendwest............   1,282        --        --
  Other reimbursed expenses..............................     933       763       779
</TABLE>

                                       F-23
<PAGE>   57
                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998
                         (DOLLAR AMOUNTS IN THOUSANDS)

  (ii) Financial Information (Unaudited)

     A summary of financial information for WorldMark as of and for the years
ended December 31, 2000 and 1999 is as follows:

<TABLE>
<CAPTION>
                                                                2000        1999
                                                              --------    --------
<S>                                                           <C>         <C>
Cash and investment securities..............................  $ 16,772    $ 13,762
Member dues receivable......................................    24,378      15,977
Other assets................................................     5,302       2,618
                                                              --------    --------
          Total assets......................................    46,452      32,357
                                                              --------    --------
Deferred revenue............................................    27,432      18,158
Other liabilities...........................................     2,992       2,020
                                                              --------    --------
          Total liabilities.................................    30,424      20,178
                                                              --------    --------
          Net assets........................................  $ 16,028    $ 12,179
                                                              ========    ========
Annual member assessments...................................  $ 36,560    $ 28,213
                                                              ========    ========
Condominiums owned, at Developers' unamortized historical
  cost......................................................  $301,436    $236,885
                                                              ========    ========
</TABLE>

     WorldMark maintains a reserve for replacement costs of depreciable assets.
Such reserves at December 31, 2000 and 1999, were $16,000 and $12,200,
respectively.

WORLDMARK SOUTH PACIFIC

     The Company manages the resort properties in WorldMark South Pacific
through its subsidiary Trendwest South Pacific under the terms of a management
agreement which is subject to renewal every five years starting in 2000. Under
the terms of the management agreement, the Company receives a management fee
equal to 15% of WorldMark South Pacific's expenditures (excluding the management
fee). In addition, the Company is responsible for paying annual dues on Vacation
Credits which it owns prior to their sale to customers and reimburses WorldMark
South Pacific for delinquent dues on canceled memberships. A summary of these
transactions for the years ended December 31 follows:

<TABLE>
<CAPTION>
                                                              2000
                                                              ----
<S>                                                           <C>
WorldMark South Pacific
  Management fee income.....................................  $ 47
  Dues expense incurred by Trendwest........................   279
</TABLE>

     WorldMark South Pacific maintains a reserve for replacement costs of
depreciable assets. Such reserves at December 31, 2000 were $49.

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 (10.50%
and 9.50% at December 31, 2000 and 1999, respectively). Outstanding borrowings
under this credit agreement were $419 and $0 at December 31, 2000 and 1999,
respectively. The Company periodically lends excess funds to the Parent at the
prime rate minus 2% (7.50% and 6.50% at December 31, 2000 and 1999,
respectively). Outstanding lendings under this agreement were $0 and $3,058 at
December 31, 2000 and 1999, respectively.

                                       F-24
<PAGE>   58
                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998
                         (DOLLAR AMOUNTS IN THOUSANDS)

     The Company also reimburses the Parent for administrative services received
and its share of insurance expenses. A summary of these transactions follows for
the years ended December 31:

<TABLE>
<CAPTION>
                                                            2000      1999      1998
                                                           ------    ------    ------
<S>                                                        <C>       <C>       <C>
Parent:
  Interest income........................................  $   44    $   31    $  141
  Interest expense.......................................     114       129        26
  Insurance expense......................................   5,224     3,927     2,624
</TABLE>

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

(15) MOUNTAINSTAR DEVELOPMENT

     The Company is developing a resort in central Washington known as
MountainStar. Prior to June, 2000, the Parent owned the land and the Company was
acting as the developer. In June of 2000, the Company acquired the MountainStar
development from its Parent. The purchase price was $47,600, consisting of
$25,000 in cash, a $17,731 unsecured note payable to Parent and the settlement
by the Company of a $4,869 intercompany receivable from Parent. The excess of
the purchase price over Parent's historical cost was treated as a non-cash
reduction to retained earnings due to the accounting requirement to use
historical cost on such a transfer from a controlling shareholder. The Company
recorded the asset at Parent's historical cost of $44,300; the excess $3,300 of
the purchase price over this amount reduced retained earnings. The cash payment
was funded primarily through the Company's existing credit facilities.

     The property is located approximately 80 miles east of Seattle, Washington.
The Company plans to develop the property as two separate projects: the
MountainStar Master Planned Resort (MPR) and the City of Cle Elum Urban Growth
Area (UGA).

     Plans for the 6,300 acre MPR include at least two golf courses, numerous
recreational amenities and 4,650 dwelling units including two lodges,
condominiums, cabins and vacation homes. The MPR land use plan has been approved
by Kittitas County. The land use plan, as expected, has been appealed. The
Company is also working on several strategies to provide adequate water to
develop the proposed projects. There can be no assurance that these strategies
will be successful. If the Company is unable to achieve its objectives with
regards to water rights or if the land use plan is overturned on appeal, the
actual development of the MPR could be materially different than outlined above.

     The 1,100 acre UGA is planned as a mixed use development including a
primary home community, condominiums, an office park, a golf course and
apartment units. The City of Cle Elum is scheduled to release the Draft
Environmental Impact Statement in Spring, 2001. The entitlement process for the
UGA is independent from the entitlement process for the MPR. If the Company is
not successful in obtaining the desired entitlements for the UGA, the final
development of the property could be materially different than outlined above.

     The Company does not anticipate generating revenue from either project
during 2001.

(16) COMMITMENTS AND CONTINGENCIES

PURCHASE COMMITMENTS

     The Company routinely enters into purchase agreements with various parties
to acquire and build resort properties. At December 31, 2000, the Company has
outstanding purchase commitments of $68,662 related to properties under
development.
                                       F-25
<PAGE>   59
                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998
                         (DOLLAR AMOUNTS IN THOUSANDS)

SURETY AND PERFORMANCE BONDS

     The Company utilizes surety and performance bonds as part of developing
resort properties. As of December 31, 2000, there were $5.4 million in surety
bonds outstanding.

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>
2001........................................................  $6,770
2002........................................................   6,028
2003........................................................   4,494
2004........................................................   3,894
2005........................................................   2,707
Thereafter..................................................   1,212
</TABLE>

     Rental expense amounted to $5,925, $4,225, and $3,262 for the years ended
December 31, 2000, 1999 and 1998, respectively.

(17) 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 the activities
of the Company's finance subsidiaries. Management evaluates 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.

                                       F-26
<PAGE>   60
                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998
                         (DOLLAR AMOUNTS IN THOUSANDS)

     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, 2000:
External revenue.........................................  $293,130   $ 3,943   $4,763   $301,836
Interest revenue -- net..................................        --     4,373               4,373
Interest revenue -- intersegment.........................        --     6,712               6,712
Intersegment revenue.....................................        --     1,933               1,933
                                                           --------   -------   ------   --------
  Segment revenue........................................  $293,130   $16,961   $4,763   $314,854
Segment profit...........................................  $ 53,026   $11,036   $3,004   $ 67,066
SIGNIFICANT NON-CASH ITEMS:
Provision for doubtful accounts, sales returns and
  recourse liability.....................................  $ 27,015        --       --   $ 27,015
</TABLE>

<TABLE>
<CAPTION>
                                                                                         SEGMENT
                                                            SALES     FINANCE   OTHER     TOTAL
                                                           --------   -------   ------   --------
<S>                                                        <C>        <C>       <C>      <C>
YEAR ENDED DECEMBER 31, 1999:
External revenue.........................................  $234,315   $ 4,463   $3,710   $242,488
Interest revenue -- net..................................        --     5,552       --      5,552
Interest revenue -- intersegment.........................        --     3,839       --      3,839
Intersegment revenue.....................................        --     1,605       --      1,605
                                                           --------   -------   ------   --------
  Segment revenue........................................  $234,315   $15,459   $3,710   $253,484
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>

                                       F-27
<PAGE>   61
                            TRENDWEST RESORTS, INC.
                                AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                        DECEMBER 31, 2000, 1999 AND 1998
                         (DOLLAR AMOUNTS IN THOUSANDS)

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

<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,
                                                         ------------------------------
                                                           2000       1999       1998
                                                         --------   --------   --------
<S>                                                      <C>        <C>        <C>
Segment revenue........................................  $314,854   $253,484   $184,109
Interest expense reported net of capitalized
  interest.............................................       479        442        353
Elimination of intersegment revenue....................    (8,645)    (5,444)    (3,846)
Finance subsidiaries revenue...........................    30,950     25,644     20,341
                                                         --------   --------   --------
     CONSOLIDATED REVENUE..............................  $337,638   $274,126   $200,957
                                                         ========   ========   ========
Segment profit.........................................  $ 67,066   $ 52,979   $ 33,785
Corporate overhead not included in segment reporting...   (18,983)   (15,091)   (11,463)
Finance subsidiaries profit............................    22,017     19,243     16,432
                                                         --------   --------   --------
  CONSOLIDATED PRE-TAX INCOME..........................  $ 70,100   $ 57,131   $ 38,754
                                                         ========   ========   ========
</TABLE>

     The Company's revenue from external customers derived from sales within the
United States totaled $287,795, $234,665, and $170,817 for the years ended
December 31, 2000, 1999, and 1998, respectively. Revenue from external customers
derived from sales in all foreign countries totaled $5,335, $0, and $0 for the
years ended December 31, 2000, 1999, and 1998, respectively. Revenue from
external customers is attributed to countries based on the location where the
sale was made. Substantially all of the Company's long-lived assets are located
within the United States. The net assets of foreign operations totaled $6,140 at
December 31, 2000.

(18) SUBSEQUENT EVENT

     On February 21, 2001, the Board of Directors declared a 3 for 2 stock split
for shareholders of record on March 15, 2001, payable on March 29, 2001. All
share data and earnings per share figures presented have been adjusted to
reflect the stock split as if it were effective for all periods presented.

                                       F-28