FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
                             SELECTED FINANCIAL DATA
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>

                                            Year Ended December 31,
                                ------------------------------------------------
                                  2000      1999      1998      1997      1996
                                  ----      ----      ----      ----      ----
<S>                             <C>       <C>       <C>       <C>       <C>

OPERATING DATA: (1)(2)(3)(4)
 Revenues:
  Vacation ownership
   interests, net               $446,527  $370,766  $301,119  $256,141  $194,612
  Resort management               51,005    43,679    37,210    28,237    26,987
  Interest                        32,296    29,378    33,916    37,179    28,651
  Net interest income and fees
   from qualifying special
   purpose entities               25,210    20,524     9,739      -         -
  Other                           31,819    27,389    25,909    24,622    23,562
                                --------  --------  --------  --------  --------
                                $586,857  $491,736  $407,893  $346,179  $273,812
                                ========  ========  ========  ========  ========

Net earnings                     $66,142   $56,865   $43,628   $21,177   $22,103
                                 =======   =======   =======   =======   =======

Earnings before merger costs,
 litigation charge and
 extraordinary items             $69,427   $56,865   $43,628   $34,009   $22,103
                                 =======   =======   =======   =======   =======

Net earnings per share:
 Basic                             $1.57     $1.29      $.98      $.48      $.54
                                   =====     =====      ====      ====      ====
 Diluted                           $1.50     $1.25      $.93      $.46      $.51
                                   =====     =====      ====      ====      ====

Earnings per share before merger
 costs, litigation charge and
 extraordinary items:
   Basic                           $1.65     $1.29      $.98      $.77      $.54
                                   =====     =====      ====      ====      ====
   Diluted                         $1.58     $1.25      $.93      $.73      $.51
                                   =====     =====      ====      ====      ====

Weighted average shares
 outstanding:
   Basic                          42,052    44,041    44,544    44,200    40,558
                                  ======    ======    ======    ======    ======
   Diluted                        43,960    45,565    46,846    46,282    43,265
                                  ======    ======    ======    ======    ======

BALANCE SHEET DATA
 (AT PERIOD END): (1)(2)(3)(4)
   Receivables, net             $336,558  $234,061  $202,849  $296,699  $227,627
   Total assets                  700,827   498,636   431,093   463,932   385,570
   Financing arrangements        157,018    53,537    79,441   170,081   113,295
   Stockholders' equity          326,887   282,955   222,630   187,182   162,125

</TABLE>

(1) On July 3, 2000, the  Company  tendered  1,764,704 shares of common stock in
    satisfaction  of  certain  debt  and  litigation.  In  connection  with  the
    transaction,  the  Company  recorded  a  pre-tax,  non-cash  charge  of $4.7
    million, a related non-taxable extraordinary gain of $2.9 million associated
    with the  extinguishment  of $7.9 million of related  debt,  and a credit to
    stockholders' equity of $11.0 million (See Note 15 of "Notes to Consolidated
    Financial Statements").

(2) On November 1, 2000, the Company  entered into a  definitive  agreement with
    Cendant  Corporation,  whereby  Cendant  will  acquire all of the  Company's
    outstanding  common  stock.  In  anticipation  of and  preparation  for  the
    proposed  merger,  the  Company  incurred  investment  banking,   legal  and
    accounting fees totaling $1.5 million through December 31, 2000.

(3) In 1998, the Company  incorporated  two qualifying  special purpose entities
    for the  specific  purpose  of  purchasing  contracts  receivable  from  the
    Company. During 2000, 1999 and 1998, the Company sold $145.6 million, $133.2
    million and $212.7  million,  respectively,  of contracts  receivable to the
    qualifying  special purpose  entities.  At December 31, 2000, 1999 and 1998,
    the qualifying special purpose entities held contracts  receivable  totaling
    $271.4 million, $225.9 million and $172.1 million respectively, with related
    borrowings  of  $219.0   million,   $187.6   million  and  $142.9   million,
    respectively.

(4) In 1997, Fairfield  consummated  the merger with Vacation Break U.S.A., Inc.
    which was  accounted  for as a pooling of interests  and,  accordingly,  all
    prior period consolidated  financial information has been restated as if the
    merger took place at the  beginning of the  earliest  period  presented.  In
    conjunction  with  the  merger,  Fairfield  recorded  merger  costs of $16.9
    million  ($12.8  million after  taxes),  of which $3.6 million ($2.2 million
    after taxes)  related to the  extraordinary  loss  resulting  from the early
    extinguishment of substantially all of Vacation Break's debt.


<PAGE>



ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
------   -----------------------------------------------------------------------
         OF OPERATIONS
         -------------

FORWARD-LOOKING INFORMATION

     Certain  statements  in  this  Management's   Discussion  and  Analysis  of
Financial  Condition and Results of Operations  include certain  forward-looking
statements,   including,   without   limitation,   statements  with  respect  to
anticipated future operating and financial  performance,  growth and acquisition
opportunities and other similar forecasts and statements of expectation. Many of
those  statements  are  identified  by  words  such as  "expect,"  "anticipate,"
"intend," "plan," "believe," "seek," "estimate," and "should," and variations of
these words and similar  expressions.  Forward-looking  statements  are based on
estimates,  projections,  beliefs and  assumptions at the time of the statements
and  are not  guarantees  of  future  performance.  The  Company  disclaims  any
obligation  to update  or  revise  any  forward-looking  statement  based on the
occurrence of future events, the receipt of new information, or otherwise.

     Actual future performance,  outcomes and results may differ materially from
those expressed in forward-looking  statements as a result of a number of risks,
uncertainties and assumptions.  Representative examples of these factors include
(without limitation):

     o    changes in national or regional  economic  conditions  that can affect
          the vacation  ownership and travel  industries,  which are cyclical in
          nature and highly  sensitive to such changes,  including,  among other
          features,  levels of employment and discretionary  disposable  income,
          consumer confidence, available financing and interest rates;

     o    the  imposition of additional  compliance  costs on the Company as the
          result of  changes  in any  environmental,  zoning  or other  laws and
          regulations  that govern the acquisition,  subdivision,  marketing and
          sale of real estate and  various  aspects of the  Company's  financing
          operation or the failure of the Company to comply with any such law or
          regulation;

     o    risks  associated  with an  inability  to  locate  suitable  land  and
          vacation ownership inventories for acquisition,  or with a shortage of
          available inventory in the Company's principal markets;

     o    an increase or decrease in the number of resort properties  subject to
          the  percentage-of-completion  method of  accounting,  which  requires
          deferral  of sales  and  profit  recognition  on such  projects  until
          development is substantially complete;

     o    shifts in customer demands;

     o    changes in operating  expenses,  including employee wages,  commission
          structures and related benefits;

     o    the risk of the  Company  incurring  an  unfavorable  judgment  in any
          litigation or audit,  and the impact of any related monetary or equity
          damages;

     o    the  Company's  lack of  experience  in markets where it has purchased
          land and is developing vacation ownership resorts for the first time;

     o    the  Company's  success in hiring,  training and  retaining  qualified
          employees;

     o    the inability of the Company to obtain sources of capital on favorable
          terms to support its operations,  acquire,  carry and develop land and
          vacation  ownership   inventories  and  satisfy  its  debt  and  other
          obligations; and
<PAGE>

     o    the ability of Cendant and  Fairfield  to integrate  their  operations
          successfully,  the  compatibility  of  the  operating  systems  of the
          combined  companies,  and the degree to which existing  administrative
          and  back-office  functions  and costs of Cendant  and  Fairfield  are
          complementary or redundant.

RESULTS OF OPERATIONS

     The Company  features a resort portfolio of 35 resorts located in 12 states
and the Bahamas.  These resorts are in various  stages of  development,  with 25
located in destination areas with popular vacation attractions and 10 located in
scenic regional locations.  During 1999, the Company began sales operations on a
start-up  basis at its newest  destination  resorts:  Sedona,  Arizona;  Daytona
Beach, Florida;  Destin,  Florida; Las Vegas, Nevada and Gatlinburg,  Tennessee.
Additionally,  in December 2000, the Company  acquired the Dolphin's Cove Resort
located in Anaheim, California.

     The  Company  achieved  net  earnings  of $66.1  million  for 2000 on total
revenues of $586.9  million.  This  result  represents  a 16.3%  increase in net
earnings and a 19.3% increase in total revenues over 1999.  Diluted earnings per
share of $1.50 for 2000  increased  20.0%  compared to 1999.  The  Company's net
earnings  of $56.9  million  for 1999,  on total  revenues  of  $491.7  million,
represented  a 30.3%  increase  in net  earnings  and a 20.6%  increase in total
revenues over 1998. Diluted earnings per share of $1.25 for 1999 increased 34.4%
compared to 1998.

     The following table sets forth certain consolidated  operating  information
for the years ended December 31, 2000, 1999 and 1998:
<TABLE>

                                                 Year  Ended December 31,
                                                --------------------------
                                                 2000      1999      1998
                                                 ----      ----      ----
   <S>                                           <C>       <C>       <C>

   As a percentage of total revenues:
    Vacation ownership interests, net            76.1%     75.4%     73.8%
    Resort management                             8.7       8.9       9.1
    Interest income                               5.5       6.0       8.3
    Net interest income and fees from
      qualifying special purpose
      entities                                    4.3       4.2       2.4
    Other revenue                                 5.4       5.5       6.4
                                                ------    ------    ------
                                                100.0%    100.0%    100.0%
                                                =====     =====     =====

   As a percentage of related revenues:
    Costs of sales - vacation ownership
      interests                                  26.3%     25.9%     27.8%
    Resort management                            83.2%     79.5%     85.5%
    Sales and marketing                          48.7%     48.2%     46.9%
    Provision for loan losses                     4.5%      4.9%      4.7%

   As a percentage of total revenues:
    General and administrative                    6.9%      6.6%      7.2%
    Depreciation and amortization                 1.7%      1.6%      1.7%
    Other expense                                 3.6%      4.7%      4.5%
</TABLE>

     Vacation Ownership
     ------------------

     The Company's growth strategy  continues to include the (i) acquisition and
development of properties in new destination locations, (ii) further development
at its existing  destination  resorts and (iii) expansion of sales and marketing
programs,  including the  establishment  of additional  off-site  sales offices.
Future sales growth should be realized as the Company expands its development of
destination  resort locations which have a higher and more consistent  stream of
potential customers generated by existing attractions.
<PAGE>

     Gross revenues from vacation  ownership  interests  totaled $448.2 million,
$369.3  million  and  $304.1  million  for 2000,  1999 and  1998,  respectively.
Revenues for sales of vacation ownership interests at the Company's  destination
resorts  continue to comprise the largest  portion of total  vacation  ownership
interests revenues. These revenues accounted for 81.5%, 80.8% and 77.4% of total
vacation  ownership  interests  revenues for 2000, 1999 and 1998,  respectively.
Management  anticipates  revenue growth trends will continue in 2001 as a result
of the  additional  sales  volumes  to be  realized  from the  Company's  newest
destination resorts.

     Net revenues from vacation ownership  interests increased to $446.5 million
for the year ended  December  31,  2000 from  $370.8  million in 1999 and $301.1
million in 1998.  These revenue  growth trends were affected by the same factors
that  impacted  gross  vacation  ownership  interests  revenues,  as well as the
revenue deferral/recognition resulting from the percentage-of-completion  method
of accounting.

     Revenues  from sales of vacation  ownership  interests  in  projects  under
construction  are  recognized  using  the  percentage-of-completion   method  of
accounting.   Under  this  method,   revenues  are  recognized  as  construction
progresses  and  costs  are  incurred.   The  progression  of  a  project  under
construction  is determined by the  proportion of costs incurred to date as they
relate to total estimated  acquisition,  construction and selling costs for that
project. The remaining revenue and related costs of sales, including commissions
and selling  expenses,  are deferred and  recognized as the remaining  costs are
incurred.   The  Company  has  been   dedicating   greater   resources  to  more
capital-intensive  vacation ownership interest projects. As development of these
larger  projects  continues,  and based on the  Company's  strategy  to pre-sell
projects  when minimal  development  has been  completed,  the amount of revenue
deferred  under the  percentage-of-completion  method of accounting may increase
significantly.  At December 31, 2000, the Company had deferred  revenue totaling
$8.4 million for projects  under  construction,  which will be  recognized  upon
completion of the respective units in 2001.

     The  following  table  reconciles  sales of  vacation  ownership  interests
recorded to vacation ownership  interest revenues  recognized for the respective
periods (In thousands):

<TABLE>
                                                    Year Ended December 31,
                                               ---------------------------------
                                                 2000        1999        1998
                                                 ----        ----        ----
  <S>                                          <C>         <C>         <C>

  Vacation ownership interests                 $448,237    $369,265    $304,119
  Add:  Deferred revenue at
         beginning of year                        6,724       8,225       5,225
  Less: Deferred revenue at
         end of year                             (8,434)     (6,724)     (8,225)
                                               --------    --------    --------
  Vacation ownership interests, net            $446,527    $370,766    $301,119
                                               ========    ========    ========
</TABLE>

     Costs of sales,  for  vacation  ownership  interests,  as a  percentage  of
related  net  revenues,  was  26.3%,  25.9% and  27.8% for 2000,  1999 and 1998,
respectively.  The increase in 2000 was directly related to higher product costs
(including   beachfront  property  purchased  at  higher  prices  and  increased
construction  costs)  at  certain  of the  Company's  destination  resorts.  The
decrease in 1999 was attributable to sales price increases initiated in February
1999 to partially offset higher product costs. The Company anticipates  somewhat
higher  product  costs  during 2001 as it  continues  to develop  and  construct
vacation ownership interests inventory at certain of its destination resorts.

     Sales and marketing expenses, as a percentage of related net revenues, were
48.7%, 48.2% and 46.9%, for 2000, 1999 and 1998, respectively.  Exclusive of the
Company's newest destination resorts,  all of which began "start-up"  operations
in the second quarter of 1999, sales and marketing expenses,  as a percentage of
related net revenues, were 46.6% and 47.1% for 2000 and 1999, respectively.  New
sales locations typically experience lower operating margins during the start-up
phase  of  operations  as the  Company  develops  its  property  owner  base and
establishes sales and marketing programs for each new location.

     The provision for loan losses, as a percentage of related net revenues, was
4.5%, 4.9% and 4.7% for 2000, 1999 and 1998. The Company records a provision for
estimated  losses on contracts  receivable by a
<PAGE>

charge  against  earnings at the time of sale.  Such provision is recorded at an
amount based upon the Company's historical cancellation experience, management's
estimate of future losses and current economic conditions. The Company maintains
the  allowance  for  contracts  receivable  at  a  level  believed  adequate  by
management based on periodic analyses of the contracts receivable portfolio.

     Resort Management
     -----------------

     Resort management  revenues totaled $51.0 million,  $43.7 million and $37.2
million  for  2000,  1999  and  1998,  respectively.  The  increases  in  resort
management  revenues  are due  primarily  to  increased  management  fee  income
resulting from the continued growth in the number of units and resorts under the
Company's  management and the increased  reservation  income  resulting from the
continued growth in the number of property owners using the system.

     Resort management  expenses totaled $42.4 million,  $34.7 million and $31.8
million for 2000, 1999 and 1998, respectively.  Resort management expenses, as a
percentage of related revenues,  were 83.2%, 79.5% and 85.5% for the years ended
December  31,  2000,  1999 and 1998,  respectively.  The increase in 2000 is due
primarily to costs  associated  with the additional  units and resorts under the
Company's management and the additional costs associated with the organizational
infrastructure  necessary  to  support  the  continued  growth in the  Company's
reservation and customer service  operations.  During 1999, the Company realized
certain  economies of scale as resort  management  revenues  increased at a more
rapid pace than the related resort management expenses.

     Interest
     --------

     For  purposes of  management's  discussion  of results of  operations,  net
interest  income  includes   interest  earned  from  the  Company's   receivable
portfolio,  interest expense from the Company's  financing  arrangements and net
interest income and fees from the qualifying special purpose entities ("QSPEs").

     During 2000 and 1999, the Company sold $145.6  million and $133.2  million,
respectively,  of contracts  receivable  to the QSPEs.  At December 31, 2000 and
1999, the QSPEs held  contracts  receivable  totaling  $271.4 million and $225.9
million,  respectively.  The QSPEs  primarily  funded  these  purchases  through
advances under their various credit  agreements,  with $219.0 million and $187.6
million of borrowings outstanding at December 31, 2000 and 1999, respectively.

     Net interest income totaled $51.4 million,  $43.5 million and $35.2 million
in 2000, 1999 and 1998,  respectively.  These increases are due primarily to (i)
corresponding  increases in the average balance of contracts  receivable,  which
was $513.6  million in 2000,  as compared to $407.8  million and $339.5  million
during 1999 and 1998,  respectively,  (ii) an increase in the  weighted  average
interest rate of the contracts receivable portfolio to 15.1% for the years ended
December 31, 2000 and 1999, as compared to 14.6% for the year ended December 31,
1998,  and  (iii) a shift  in  funding  sources  from  the  Company's  financing
arrangements to the credit facilities of the QSPEs, which carry a lower weighted
average cost of funds.

     The  Company  uses  interest  rate  caps,  interest  rate  swaps or similar
instruments  on a limited basis to manage the interest rate  characteristics  of
certain of its  outstanding  financing  arrangements  to obtain a more desirable
fixed rate basis and to limit the Company's  exposure to rising  interest rates.
Interest  rate   differentials  paid  or  received  under  the  terms  of  these
instruments  are recognized as adjustments  of interest  expense  related to the
designated financing arrangements.

     General and Administrative
     --------------------------

     General and  administrative  expenses,  consisting  primarily  of corporate
overhead, as a percentage of total revenues,  were 6.9%, 6.6% and 7.2% for 2000,
1999, and 1998, respectively.  The increase in 2000 is primarily attributable to
the Company's investment in its management and organizational infrastructure and
information technology  infrastructure,  in order to more efficiently manage its
anticipated sales growth of vacation ownership interests. The decrease from 1998
to 1999 was due primarily to benefits  realized from the integration of Vacation
Break's  operational  infrastructure  with that of the Company,  which more than
offset the costs  associated  with the  Company's  relocation  of its  executive
offices to Orlando,  Florida and the move of its credit and collection functions
to Las Vegas, Nevada.
<PAGE>

     Litigation Charge
     -----------------

     On July 3, 2000, the Company  tendered  1,764,704 shares of common stock in
satisfaction of certain debt and litigation. In connection with the transaction,
the  Company  recorded a pre-tax,  non-cash  charge of $4.7  million,  a related
non-taxable   extraordinary   gain  of  $2.9   million   associated   with   the
extinguishment  of $7.9 million of related debt,  and a credit to  stockholders'
equity of $11.0 million.

     Mergers and Acquisitions
     ------------------------

     On November 1, 2000, the Company  entered into a definitive  agreement with
Cendant  Corporation,   whereby  Cendant  will  acquire  all  of  the  Company's
outstanding  common  stock for a price of $15 per share.  The final  acquisition
price may increase to a maximum of $16 per share depending on a formula based on
the average  trading  price of Cendant  common  stock over a twenty  trading day
period prior to the date on which the Company's stockholders meet to approve the
transaction.  Under the terms of the agreement, if sufficient shareholders elect
to receive cash, Cendant must pay at least 50% of the consideration in cash; the
balance will either be in cash or Cendant common stock,  at Cendant's  election.
The  transaction  is  expected  to close in the  second  quarter  of 2001 and is
subject  to  shareholder  approval,  regulatory  approvals  and other  customary
conditions.  In anticipation of and  preparation  for the proposed  merger,  the
Company  incurred  investment  banking,  legal and accounting fees totaling $1.5
million  through  December 31, 2000. The Company  anticipates  that  significant
additional  merger  related  expenses  will be incurred  prior to closing of the
transaction.

     On December  28,  2000,  the Company  acquired  the  Dolphin's  Cove Resort
located in Anaheim, California for $30.9 million in cash and assumption of debt.
As part of the transaction,  the Company acquired, among other things, contracts
receivable  totaling  $19.2 million (net of an allowance for loan losses of $1.4
million), unsold vacation ownership interests of $7.6 million, and option rights
to  develop an  additional  oceanfront  vacation  ownership  resort in  Southern
California.  The transaction was accounted for as a purchase and the excess cost
over fair value of the net assets  acquired will be amortized on a straight-line
basis over a ten-year period.

LIQUIDITY AND CAPITAL RESOURCES

     The  Company  generates  cash  primarily  from  down  payments  on sales of
vacation  ownership  interests  for which it provides  financing,  cash sales of
vacation  ownership  interests,  principal  and  interest  payments on contracts
receivable,  proceeds  from  sales of  contracts  receivable  to the  QSPEs  and
borrowings  collateralized  by  the  contracts  receivable.   The  Company  also
generates  cash on the interest  differential  between the  interest  charged on
contracts  receivable and the interest paid on the borrowings  collateralized by
the contracts receivable.

     Cash and cash  equivalents  of the  Company  increased  $3.1  million  from
December 31, 1999 to December 31, 2000.  Cash  provided by operating  activities
totaled $115.8 million, $124.7 million and $67.8 million in 2000, 1999 and 1998,
respectively.  The single largest use of cash from operating activities involves
the  increase in real estate  inventories  which  totaled  $39.3  million,  $5.5
million and $35.3 million in 2000,  1999, and 1998,  respectively.  During 2000,
the Company acquired vacation  ownership  interests in Anaheim,  California,  as
well as funded  significant  construction  of vacation  ownership  interests  at
several of the  Company's  destination  resorts,  including  resorts  located in
Daytona Beach, Florida; Destin, Florida; Las Vegas, Nevada; Orlando, Florida and
Pompano Beach, Florida.

     The  Company's  primary  investment  activity is the  financing of sales of
vacation ownership interests through the origination of contracts receivable. As
a  result  of  increased   sales  volumes  of  vacation   ownership   interests,
originations  of  contracts  receivable  have  exceeded  principal  collections,
resulting in the net usage of cash.  Additionally,  during 2000,  1999 and 1998,
the  Company  received  $117.9  million,  $110.9  million  and  $170.4  million,
respectively, in cash from the sale of contacts receivables to the QSPEs.

     In 2000, the Company's financing  activities provided $73.0 million to fund
its significant  resort  development  activities and support its loan receivable
portfolio,  net of $37.5  million used to fund the  Company's  stock  repurchase
program. In 1999 and 1998, the Company's financing activities used $28.6 million
and $90.4  million,  respectively,  primarily  to reduce  outstanding  revolving
credit facilities.
<PAGE>

     The  Company's  resort  development  plans in 2001 are  expected to require
approximately  $199.3 million for vacation  ownership  building  construction as
well as  infrastructure,  amenity and lot  development.  The Company  expects to
finance its resort  development  activities  through  cash flow  generated  from
operations,  sales of contracts  receivable  to the QSPEs and  supplemented,  as
necessary, by the existing revolving credit agreement or through other public or
private  financing  sources.  The  Company's  projection  of resort  development
activity is based on a continuation of the Company's current growth projections.
The actual level of resort development may vary from current expectations in the
event of a change in the economy or the Company's  inability or  restrictions on
obtaining adequate credit availability.

     In March 2000,  the Board of Directors  authorized  the repurchase of up to
$60 million of Fairfield's common stock. Utilizing availability under its credit
agreements,  the Company repurchased 4.5 million shares of its common stock at a
cost of $37.5  million.  The  repurchased  shares were accounted for as treasury
shares and will be used to meet the  Company's  obligations  under its  employee
stock-based plans or for other corporate purposes.

     The  Company  intends  to  continue  its   growth-oriented   strategy  and,
accordingly,  may  from  time  to time  acquire  additional  vacation  ownership
resorts,  additional land upon which vacation  ownership resorts may be expanded
or  developed  and  companies  operating  resorts or having  vacation  ownership
assets,  management,  or sales and  marketing  expertise  commensurate  with the
Company's  operations  in  the  vacation  ownership  industry.  The  Company  is
currently  evaluating the acquisition of certain additional land parcels for the
expansion of existing  resorts and the  development  of additional  resorts.  In
addition, the Company is also evaluating certain vacation ownership interest and
property  management  acquisitions to integrate into or expand the operations of
the Company.

     The Company believes that it has access to sufficient  financial  resources
to finance its growth,  as well as to support  its ongoing  operations  and meet
debt service and other cash  requirements.  However,  the  Company's  ability to
acquire and develop additional  properties,  which is important to its continued
growth plans, is partially  dependent on the  availability  and cost of capital.
The Company  monitors the status of the capital markets and regularly  evaluates
the effect that changes in capital market  conditions may have on its ability to
execute its  announced  growth plans.  In the future,  the Company may negotiate
additional credit facilities or 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.

     Credit Facilities of the Company
     --------------------------------

     In 2000,  the Company  amended its  previously  existing  revolving  credit
agreement between Fairfield,  Fairfield Acceptance  Corporation - Nevada ("FAC")
and their  primary  lender.  The  Consolidated,  Amended and Restated  Revolving
Credit  Agreement  provides  for  borrowing  ability  of up to  $145.0  million;
including up to $20.0  million for letters of credit,  of which $6.0 million was
outstanding at December 31, 2000.  Borrowings under the agreement mature in July
2003 and, at December 31, 2000,  contracts  receivable  totaling  $276.1 million
collateralized the borrowings. At December 31, 2000, the Company's net borrowing
availability  under the  agreement  totaled  $81.0  million  and will be used to
finance the Company's  acquisition  and  development  of additional  destination
resorts and for the general operations of the Company.

     At  December  31,  2000,  Fairfield  Capital  Corporation,  a wholly  owned
subsidiary of FAC, had outstanding  borrowings of $19.4 million. At December 31,
2000,  borrowings  collateralized  by these contracts  receivable had a weighted
average maturity of  approximately  23 months,  which represents the approximate
remaining  weighted  average life of the  underlying  contracts  receivable.  At
December 31, 2000,  contracts  receivable totaling $23.7 million  collateralized
the borrowings.  There are no additional fundings available under this financing
arrangement.

     On September 29, 2000, the Company  entered into a $75.0 million  unsecured
Term Loan  Agreement.  The loan was  funded on  October  20,  2000 and  proceeds
totaled $72.9 million, net of $2.1 million in financing costs. This loan matures
in September  2005 and bears  interest at a variable rate equal to LIBOR plus 5%
(11.6% at December 31, 2000).  Contractual maturities within the next five years
are as follows:  2001 - $6.7 million;  2002 - $6.0 million; 2003 - $8.3 million;
2004 - $18.8 million and 2005 - $34.5 million.
<PAGE>

     Credit Facilities of Qualifying Special Purpose Entities
     --------------------------------------------------------

     The credit facility of Fairfield Receivables  Corporation ("FRC"), a wholly
owned unconsolidated  qualifying special purpose subsidiary of FAC, provides for
borrowings of up to $350.0 million for the purchase of contracts receivable from
FAC. At December 31, 2000, FRC held $228.1 million of contracts receivable, with
outstanding  associated  borrowings  of  $185.6  million  collateralized  by the
contracts  receivable.  At December 31, 2000,  these contracts  receivable had a
weighted  average  interest rate of 15.3%,  while FRC's weighted average funding
cost on the borrowed funds was 7.8%.

     At December  31,  2000,  Fairfield  Funding  Corporation,  II ("FFC II"), a
wholly owned  unconsolidated  qualifying special purpose subsidiary of FAC, held
$43.2  million of contracts  receivable,  with  outstanding  borrowings of $33.3
million collateralized by the contracts receivable.  At December 31, 2000, these
contracts  receivable had a weighted average  interest rate of 15.3%,  while FFC
II's weighted  average funding cost on the borrowed funds was 6.9%. There are no
additional borrowings available under this financing arrangement.

     Interest Rate Risk
     ------------------

     The Company is exposed to interest  rate  changes  primarily as a result of
providing   fixed-rate   financing  to  purchasers  of  its  vacation  ownership
interests,  which the Company uses to secure its variable-rate  borrowings under
its financing  arrangements.  To mitigate the impact of  fluctuations  in market
rates of interest, the Company has entered into interest rate swap agreements on
approximately  30% of its  financing  arrangements  and has  interest  rate  cap
agreements on  approximately  40% of its financing  arrangements.  Interest rate
differentials  paid  or  received  under  the  terms  of  these  agreements  are
recognized  as  adjustments  of  interest  expense  related  to  the  designated
financing  arrangement.  The interest rate swap agreements  effectively  convert
certain of the Company's variable interest rate financing  arrangements to fixed
interest rate financing agreements,  thereby reducing the interest rate exposure
of the Company.

     If interest rates on the Company's financing arrangements had increased 200
basis points during 2000, the Company's interest expense,  after considering the
effects  of its  interest  rate cap and swap  agreements,  would  increase;  net
interest  income and fees from the QSPEs would  decrease;  and  earnings  before
provision  for income taxes would  decrease by $3.3 million.  Comparatively,  if
market  interest rates had decreased 200 basis points during 2000, the Company's
interest  expense,  after  considering  the effects of its interest rate cap and
swap  agreements,  would  decrease;  net interest income and fees from the QSPEs
would increase; and earnings before provision for income taxes would increase by
$3.3 million.  These amounts are  determined  by  considering  the impact of the
hypothetical  shifts in  interest  rates on the  Company's  borrowing  costs and
interest rate swap and cap  agreements  based on its  borrowings  outstanding at
December  31,  2000.  These  analyses do not consider the effects of the reduced
level of overall  economic  activity  that could  exist in such an  environment.
Further,  if a change of that magnitude were to occur,  management  would likely
take actions to further mitigate the Company's exposure to the change.  However,
as a result of the  uncertainty of the specific  actions that would be taken and
their  possible  effects,  the  sensitivity  analyses  assumes no changes in the
Company's financial structure.

PROVISION FOR INCOME TAXES

     The  Company  provides  for  income  taxes  under the  liability  method in
accordance with Statement of Financial  Accounting  Standards  ("SFAS") No. 109,
"Accounting  for Income  Taxes." At  December  31,  2000,  the  Company  had net
operating loss  carryforwards  totaling $94.1 million,  which reflect the amount
available to offset regular taxable income in future periods.  Under limitations
imposed by Internal Revenue Code Section 382 ("Section 382"),  certain potential
changes  in  ownership  of the  Company,  which  may be  outside  the  Company's
knowledge or control,  may restrict future  utilization of these  carryforwards.
More  specifically,  changes in ownership  occurring within a rolling three-year
period,  taking into  consideration  filings  with the  Securities  and Exchange
Commission  on  Schedules  13D and 13G by holders  of 5% or more of  Fairfield's
Common Stock,  whether  involving the  acquisition or disposition of Fairfield's
Common   Stock,   may  impose  a  limitation  on  the  Company's  use  of  these
carryforwards.  If an ownership change triggers the Section 382 limitations, the
annual limitation imposed on the use of pre-change  carryforwards  under present
law is an  amount  equal to the  value of the  Company  immediately  before  the
ownership change multiplied by
<PAGE>

the federally  prescribed  long-term tax-exempt rate for the period in which the
change occurs. At December 31, 2000, net operating loss carryforwards  which are
available to offset regular taxable income, if not utilized,  expire as follows:
2007 - $11.8  million;  2008 - $5.4 million;  2009 - $3.3 million;  2010 - $16.1
million;  2011 - $21.4  million;  2012 - $1.7 million;  2018 - $18.4 million and
2020 - $16.0 million.

     The  Company  reports  its sales of  vacation  ownership  interests  on the
installment  method for federal  income tax  purposes.  Under this  method,  the
Company  does not  recognize  taxable  income  on sales  of  vacation  ownership
interests until the  installment  payments have been received from the Company's
customers.  The Company's federal alternative minimum tax is impacted by the net
deferral of income  resulting  from the  Company's  election of the  installment
sales method. The payment of alternative  minimum tax reduces the future regular
tax liability and creates a deferred tax asset.  During the years ended December
31, 2000 and 1999, the Company made  alternative  minimum tax payments  totaling
$25.9 million and $13.1 million,  respectively.  The Company anticipates that it
will  continue to make  significant  alternative  minimum tax payments in future
periods.

     Under Section 453(1) of the Internal  Revenue Code,  interest is imposed on
the amount of tax attributable to the installment  payments  received during any
given year on customer contracts receivable. Interest is computed for the period
beginning on the date of sale and ending on the date such installment payment is
received.  If the Company is not  obligated to pay tax in a particular  year, no
interest  is imposed  because  interest  is based on the amount of tax paid that
year.  The Company has not included an amount for interest in its tax  provision
because it is not currently  subject to such  interest and it is uncertain  that
the  Company  will be subject to such  interest  in future  years.  The  Company
continues  to monitor  its tax  provision  and may adjust it to provide for this
interest if it becomes applicable in the future.

FINANCIAL CONDITION

     Consolidated  assets of the Company  increased $202.2 million from December
31, 1999 to December 31, 2000.  This increase is primarily due to a net increase
in  loans  receivable  of  $102.5  million,  resulting  from  loan  originations
exceeding principal  collections and sales to the QSPEs.  Property and equipment
increased   due  to   additions   in  the   Company's   information   technology
infrastructure  and  to  the  additional  resort  and  sales  facilities  at the
Company's newest destination resorts.  Real estate inventories  increased due to
the acquisition of vacation ownership interests in Anaheim,  California, as well
as significant  construction of vacation  ownership  interests at several of the
Company's  destination  resorts,  including  resorts  located in Daytona  Beach,
Florida; Destin, Florida; Las Vegas, Nevada; Orlando, Florida and Pompano Beach,
Florida.

     Consolidated  liabilities increased $158.3 million in 2000 due to increases
in  financing  arrangements  and  accounts  payable.  The  increase in financing
arrangements  results  primarily  from the  funding of the  Company's  Term Loan
facility. Proceeds from the Term Loan, as well as borrowings under the Company's
other credit  agreements,  were used  primarily to finance the  acquisition  and
development  of  the  Company's  destination  resorts,  the  repurchase  of  the
Company's common stock and for the general operations of the Company.

     Total  stockholders'  equity  increased  by $43.9  million  in  2000.  This
increase is due  primarily to current year net earnings of $66.1 million and the
issuance of 1.8 million shares of common stock in  satisfaction  of the Exchange
Note  litigation,  which was partially  offset by the  repurchase of 4.5 million
shares of common stock at an aggregate cost of $37.5 million.

SEASONALITY

     The  Company  has  historically  experienced  and  expects to  continue  to
experience seasonal fluctuations in its gross revenues and net earnings from the
sale of vacation  ownership  interests,  which have been generally higher in the
second and third quarters.  This seasonality may cause significant  fluctuations
in the  quarterly  operating  results  of the  Company.  In  addition,  material
fluctuations in operating results may occur due to the timing of construction of
future   vacation   ownership   interests   and   the   Company's   use  of  the
percentage-of-completion  method of  accounting  for  recognizing  revenues  and
related expenses on incomplete buildings. Additionally, as the Company opens new
resorts and expands into new markets and geographical

<PAGE>

locations,  it  may  experience  increased  or  different  seasonality  dynamics
creating  fluctuations  in  operating  results  that are  different  from  those
experienced in the past.

IMPACT OF INFLATION OR ADVERSE ECONOMIC CONDITIONS

     Any  substantial  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  significantly  depress  discretionary
consumer spending and have a material adverse effect on the Company's  business.
Economic downturns, including inflation, may also affect the future availability
of  attractive  financing for the Company or its  customers.  Inflation may also
affect the  Company's  income  derived  from sales of  vacation  packages to the
extent that its costs of providing  vacation packages increase from the time the
vacation  package is sold  until the time the  vacation  is taken.  Furthermore,
adverse  changes  in  general  economic  conditions  may  adversely  affect  the
collectibility of the Company's contracts receivable.

     The Company  anticipates  approximately  30% of its revenues  from vacation
ownership  interests will be  concentrated  in the Florida  market.  The Florida
market is one of the largest,  and also one of the most competitive markets, for
sales of  vacation  ownership  interests  in the  United  States.  Historically,
natural  disasters in Florida have had  significant  adverse effects on tourism.
Accordingly, the Florida market could become less favorable for VOI sales or the
Company's business could be adversely affected by its sales concentration in the
Florida market.

RECENT AND PROPOSED ACCOUNTING PRONOUNCEMENTS

     On January 1, 2001,  the Company will adopt SFAS No. 133,  "Accounting  for
Derivative  Instruments and Hedging Activities," as amended by SFAS Nos. 137 and
138. This  statement  requires the Company to recognize all  derivatives  on the
balance sheet at fair value. Derivatives that are not hedges must be adjusted to
fair value through income. If the derivative is a hedge, depending on the nature
of the hedge,  changes in the fair value of  derivatives  will be either  offset
against  the  change in fair  value of the hedged  assets,  liabilities  or firm
commitments through earnings,  or recognized in other comprehensive income until
the  hedged  item is  recognized  in  earnings.  The  ineffective  portion  of a
derivative's  change in fair value will be  immediately  recognized in earnings.
The Company will account for the accounting  change as a cumulative effect of an
accounting  principle.  The Company  expects  the  adoption of SFAS No. 133 will
result in a cumulative effect of an accounting change of $1.1 million, net of an
applicable  tax  benefit  of $0.7  million,  which  will  be  charged  to  other
comprehensive loss.

     In December 1999, the  Securities  and Exchange  Commission  ("SEC") issued
Staff  Accounting  Bulletin ("SAB") No. 101,  "Revenue  Recognition in Financial
Statements."  SAB No.  101  summarizes  certain of the SEC's  views in  applying
generally  accepted  accounting  principles to revenue  recognition in financial
statements.  The Company was  required to adopt SAB No. 101, as amended,  in the
fourth  quarter  of 2000.  The  adoption  of SAB No. 101 did not have a material
effect on the Company's consolidated  financial position,  results of operations
or cash flows.

     In September 2000, the Financial Accounting Standards Board issued SFAS No.
140,   "Accounting   for  Transfers  and  Servicing  of  Financial   Assets  and
Extinguishments  of Liabilities".  SFAS No. 140 replaces SFAS No. 125, issued in
June 1996. SFAS No. 140 revises the standards for accounting for securitizations
and other  transfers of financial  assets and  collateral  and requires  certain
additional  disclosures,  but otherwise  carries over most of the  provisions of
SFAS No. 125 without reconsideration.  SFAS No. 140 is effective for recognition
and   reclassification   of   collateral   and  for   disclosures   relating  to
securitization  transactions  and  collateral  for  fiscal  years  ending  after
December  15,  2000.  Certain  provisions  of SFAS  No.  140 are  effective  for
transfers and servicing of financial assets and  extinguishments  of liabilities
occurring  after March 31, 2001. The Company does not expect the adoption of the
provisions  of  SFAS  No.  140 to have a  material  effect  on its  consolidated
financial position, results of operations or cash flows.

     In 1997,  the AICPA began a project  addressing the accounting for vacation
ownership transactions. The proposed guidance is currently in the drafting stage
of the promulgation  process and, therefore,  the Company is currently unable to
assess the possible impact of this proposed  guidance.  The Company  anticipates
that an exposure draft of the proposed guidance will be issued in 2002.

<PAGE>




                REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS



Stockholders and Board of Directors
Fairfield Communities, Inc.


     We have audited the accompanying  consolidated  balance sheets of Fairfield
Communities,  Inc. and  subsidiaries  as of December 31, 2000 and 1999,  and the
related consolidated statements of earnings, stockholders' equity and cash flows
for each of the  three  years in the  period  ended  December  31,  2000.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

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


                                  ERNST & YOUNG LLP


Little Rock, Arkansas
February 12, 2001


<PAGE>



                  FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                    (DOLLARS IN THOUSANDS, EXCEPT PAR VALUE)

<TABLE>
                                                           December 31,
                                                  ------------------------------
                                                    2000                 1999
                                                    ----                 ----
<S>                                               <C>                  <C>

ASSETS

  Cash and cash equivalents                       $ 20,840             $ 17,716
  Receivables, net                                 336,558              234,061
  Real estate inventories                          180,722              133,874
  Investments in and net amounts due from
    qualifying special purpose entities             54,671               39,385
  Property and equipment, net                       60,421               41,578
  Restricted cash                                   11,927                8,624
  Prepaid expenses and other assets                 35,688               23,398
                                                  --------             --------
         Total assets                             $700,827             $498,636
                                                  ========             ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:

  Financing arrangements                          $157,018             $ 53,537
  Accounts payable                                  69,584               38,251
  Deferred income taxes                             55,741               38,300
  Deferred revenue                                  24,551               23,011
  Accrued liabilities                               67,046               62,582
                                                  --------             ---------
          Total liabilities                        373,940               15,681
                                                  --------             ---------

Stockholders' Equity:
  Common stock, $.01 par value, 100,000,000
   shares authorized; 52,999,453 and
   50,849,153 shares issued in 2000 and
   1999, respectively                                  530                  509
  Paid-in capital                                  138,836              124,120
  Retained earnings                                245,718              179,576
  Unamortized value of restricted stock             (1,591)                (259)
  Treasury stock, at cost, 10,360,384 and
   6,245,723 shares in 2000 and 1999,
   respectively                                    (56,606)             (20,991)
                                                  --------             --------
          Total stockholders' equity               326,887              282,955
                                                  --------             --------
          Total liabilities and
            stockholders' equity                  $700,827             $498,636
                                                  ========             ========

</TABLE>





See notes to consolidated financial statements.


<PAGE>



                  FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF EARNINGS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
                                                      Year Ended December 31,
                                                     2000       1999      1998
                                                     ----       ----      ----
<S>                                               <C>        <C>        <C>

REVENUES
 Vacation ownership interests, net                $446,527   $370,766   $301,119
 Resort management                                  51,005     43,679     37,210
 Interest                                           32,296     29,378     33,916
 Net interest income and fees from qualifying
  special purpose entities                          25,210     20,524      9,739
 Other                                              31,819     27,389     25,909
                                                  --------   --------   --------
                                                   586,857    491,736    407,893
                                                  --------   --------   --------
COSTS AND OPERATING EXPENSES
 Vacation ownership interests - costs of sales     117,529     96,112     83,743
 Sales and marketing                               222,088    182,289    144,996
 Provision for loan losses                          20,615     18,240     14,270
 Resort management                                  42,415     34,733     31,820
 General and administrative                         40,443     32,630     29,517
 Interest, net                                       6,144      6,366      8,490
 Depreciation and amortization                       9,827      8,001      7,072
 Other                                              20,847     23,193     18,448
 Litigation charge                                   4,700        -          -
 Merger related expenses                             1,485        -          -
                                                  --------   --------   --------
                                                   486,093    401,564    338,356
                                                  --------   --------   --------
Earnings before provision for income
 taxes and extraordinary gain                      100,764     90,172     69,537
Provision for income taxes                          37,522     33,307     25,909
                                                  --------   --------   --------
Earnings before extraordinary gain                  63,242     56,865     43,628
Extraordinary gain - extinguishment of debt          2,900        -          -
                                                  --------   --------   --------
Net earnings                                      $ 66,142   $ 56,865   $ 43,628
                                                  ========   ========   ========

BASIC EARNINGS PER SHARE:
 Earnings before extraordinary gain                  $1.50      $1.29       $.98
 Extraordinary gain                                    .07         -          -
                                                     -----      -----       ----
 Net earnings                                        $1.57      $1.29       $.98
                                                     =====      =====       ====
DILUTED EARNINGS PER SHARE:
 Earnings before extraordinary gain                  $1.43      $1.25       $.93
 Extraordinary gain                                    .07         -          -
                                                     -------    -----       ----
 Net earnings                                        $1.50      $1.25       $.93
                                                     =====      =====       ====
WEIGHTED AVERAGE SHARES OUTSTANDING:

 Basic                                              42,052     44,041     44,544
 Diluted                                            43,960     45,565     46,846

</TABLE>

See notes to consolidated financial statements.


<PAGE>


                  FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)

<TABLE>
                                                   Unamortized
                                                     Value of
                   Common Stock  Paid-in  Retained  Restricted  Treasury
                   Shares Amount Capital  Earnings    Stock      Stock    Total
                   ------ ------ -------  --------    -----      -----    -----
<S>                <C>     <C>   <C>      <C>       <C>       <C>      <C>

Balance,
 January 1, 1998   49,492  $495  $107,920 $ 79,083  $  (316)        -  $187,182
  Net earnings          -     -         -   43,628        -         -    43,628
  Amortization
   of restricted
   stock                -     -         -        -      316         -       316
  Activity related
   to employee
   stock benefit
   plans            1,172    12    11,678        -        -         -    11,690
  Repurchase of
   common stock         -     -         -        -        -  $(20,991)  (20,991)
  Other                 -     -       805        -        -         -       805
                   ------  ----  -------- --------  -------  --------  --------

Balance,
 December 31,
 1998              50,664   507   120,403  122,711        -   (20,991)  222,630
  Net earnings          -     -         -   56,865        -         -    56,865
  Issuance of
   restricted
   stock                -     -       276        -     (276)        -         -
  Amortization of
   restricted
   stock                -     -         -        -       17         -        17
  Activity related
   to employee
   stock benefit
   plans              185     2     3,441        -        -         -     3,443
                   ------  ----   -------  -------   ------   -------  --------

Balance,
 December 31,
 1999              50,849   509   124,120  179,576     (259)  (20,991)  282,955
  Net earnings          -     -         -   66,142        -         -    66,142
  Issuance of
   restricted
   stock                -     -         -        -   (1,895)    1,895         -
  Shares issued in
   satisfaction of
   Exchange Note
   litigation       1,765    18    10,982        -        -         -    11,000
  Amortization of
   restricted
   stock                -     -         -        -      563         -       563
  Activity related
   to employee
   stock benefit
   plans              385     3     3,734        -        -         -     3,737
  Repurchase of
   common stock         -     -         -        -        -   (37,510)  (37,510)
                   ------  ----  -------- --------  -------  --------  --------
Balance,
 December 31,
 2000              52,999  $530  $138,836 $245,718  $(1,591) $(56,606) $326,887
                   ======  ====  ======== ========  =======  ========  ========

</TABLE>




See notes to consolidated financial statements.


<PAGE>


                  FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
                                                  Year Ended December 31,
                                            ----------------------------------
                                              2000         1999          1998
                                              ----         ----          ----
<S>                                         <C>         <C>           <C>

OPERATING ACTIVITIES:

 Net earnings                               $66,142     $ 56,865      $ 43,628
 Adjustments to reconcile
  net earnings to net cash
  provided by operating
  activities:
   Extraordinary gain -
    extinguishment of debt                   (2,900)         -             -
   Depreciation and amortization              9,827        8,001         7,072
   Provision for loan losses                 20,615       18,240        14,270
   Net interest income and
    fees from qualifying
    special purpose entities                (25,210)     (20,524)       (9,739)
 Deferred income tax expense                 20,022       18,830        17,012
 Tax benefit from exercise of
  stock warrants                              1,286          722         4,869
 Non-cash litigation charge                   4,700          -             -
 Changes in operating assets
  and liabilities, net of
  acquisitions:
   Real estate inventories                  (39,263)      (5,477)      (35,258)
   Net investment activities
    of qualifying special
    purpose entities                         37,624       35,395        20,148
   Deferred revenue                           1,540       (4,074)       (2,684)
   Other                                     21,389       16,682         8,492
                                           --------     --------      --------
NET CASH PROVIDED BY OPERATING ACTIVITIES   115,772      124,660        67,810
                                           --------     --------      --------

INVESTING ACTIVITIES:

 Purchases of property and
  equipment, net                           (28,670)     (19,517)       (12,764)
 Principal collections on
  receivables                               91,120       87,670         94,372
 Originations of receivables              (340,487)    (262,448)      (227,514)
 Sales of receivables to
  qualifying special
  purpose entities                         117,879      110,887        170,396
 Cash paid for acquisition                 (25,510)         -              -
                                          --------     --------       --------
NET CASH (USED IN) PROVIDED BY
 INVESTING ACTIVITIES                     (185,668)     (83,408)        24,490
                                          --------     --------       --------

FINANCING ACTIVITIES:

 Proceeds from financing
  arrangements                             349,303      152,646        236,952
 Repayments of financing
  arrangements                            (237,922)    (186,450)      (327,592)
 Activity related to employee
  stock benefit plans                        2,452        2,721          6,821
 Net (increase) decrease in
  restricted cash                           (3,303)       2,530         14,453
 Repurchase of common stock                (37,510)         -          (20,991)
                                           -------     --------        -------
NET CASH PROVIDED BY (USED IN)
 FINANCING ACTIVITIES                       73,020      (28,553)       (90,357)
                                           -------     --------        -------

Net increase in cash and cash
 equivalents                                 3,124       12,699          1,943
Cash and cash equivalents,
 beginning of year                          17,716        5,017          3,074
                                          --------     --------       --------
Cash and cash equivalents,
 end of year                              $ 20,840     $ 17,716       $  5,017
                                          ========     ========       ========

SUPPLEMENTAL CASH FLOW INFORMATION:

  Interest paid, net of amounts
   capitalized                            $ 10,480     $  5,807       $  9,951
  Income taxes paid                       $ 25,952     $ 13,540       $  5,490
  Capitalized interest                    $  2,955     $  1,838       $  1,534

</TABLE>


See notes to consolidated financial statements.


<PAGE>


                  FAIRFIELD COMMUNITIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2000

Note 1 - Summary of Significant Accounting Policies
------   ------------------------------------------

Basis of Presentation
---------------------

     Fairfield  Communities,  Inc.  is  one of the  largest  vacation  ownership
companies  in the United  States in terms of  property  owners,  vacation  units
constructed  and  revenues  from  sales of  vacation  ownership  interests.  The
accompanying consolidated financial statements include the accounts of Fairfield
Communities, Inc. and its wholly owned subsidiaries (collectively, "the Company"
or  "Fairfield").  The  Company's  business  includes (i) sales and marketing of
vacation ownership interests at its resort locations and off-site sales centers,
(ii)  acquiring,  developing and operating  vacation  ownership  resorts,  (iii)
providing  consumer  financing  to  individuals  purchasing  vacation  ownership
interests,  and (iv) providing property  management services to property owners'
associations at the Company's resorts and other resorts.  The vacation ownership
interests  offered  by the  Company  consist  of  either  undivided  fee  simple
interests or specified fixed week interval ownership in fully furnished vacation
units.

     All significant intercompany accounts and transactions have been eliminated
in  consolidation.  Where  appropriate,  certain  amounts  in  the  consolidated
financial  statements  of prior years have been  reclassified  to conform to the
current year presentation.

Investments in and Net Amounts Due From Qualifying Special Purpose Entities
---------------------------------------------------------------------------

     Fairfield   Receivables   Corporation   ("FRC")   and   Fairfield   Funding
Corporation,  II ("FFC II" and together with FRC, the "QSPEs") were incorporated
in 1998 as wholly owned,  qualifying  special purpose  subsidiaries of Fairfield
Acceptance  Corporation-Nevada  ("FAC") for the specific  purpose of  purchasing
contracts  receivable  from  the  Company.  Statement  of  Financial  Accounting
Standards ("SFAS") No. 140, "Accounting for Transfers and Servicing of Financial
Assets and  Extinguishments  of Liabilities",  requires that qualifying  special
purpose entities,  which engage in qualified  purchases of financial assets with
affiliated companies, be accounted for on an unconsolidated basis.

     Sales of  contracts  receivable  from the  Company to the QSPEs  occur on a
periodic  basis  and are  recorded  based  on the  relative  fair  value  of the
contracts receivable sold. Fair value is estimated based on the present value of
future  expected  cash flows and,  for the year ended  December  31,  2000,  the
Company utilized the following key assumptions: prepayment speed - 15%; expected
credit losses - 7.6%;  discount rate - 30%; loan  servicing  fees - 1.5%; and an
effective  income  tax  rate  which  approximated  the  Company's   consolidated
effective  tax  rate  for the  year.  The  Company's  assumptions  are  based on
experience  with its  contracts  receivable  portfolio,  available  market data,
estimated  prepayments,  the  cost  of  servicing  and  net  transaction  costs.
Historically,  the estimated fair value of the contracts  receivable at the date
of sale has approximated  cost. As a result,  the Company has recognized no gain
or loss on the sale of contracts receivable to the QSPEs.

     The Company's  cumulative  residual  interests in the contracts  receivable
sold to the QSPEs are  classified  as  "Investments  in and net amounts due from
qualifying  special purpose entities" in the Consolidated  Balance Sheets,  with
income from the residual  interests  reflected as "Net interest  income and fees
from qualifying  special  purpose  entities" in the  Consolidated  Statements of
Earnings.

Use of Estimates
----------------

     The preparation of the consolidated financial statements in conformity with
generally accepted  accounting  principles requires management to make estimates
and  assumptions  that  affect  the  amounts  and  disclosures  reported  in the
consolidated financial statements and accompanying notes. Such estimates include
the  allowance for loan losses on  receivables,  revenue  recognition  under the
percentage-of-completion  method  on  sales  of  vacation  ownership  interests,
depreciation of property and
<PAGE>

equipment,  accrued  liabilities  and  deferred  revenue on the sale of vacation
packages.  Consequently,  actual  results could differ from these  estimates and
assumptions.

Cash and Cash Equivalents
-------------------------

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

Restricted Cash
---------------

     Restricted  cash  consists  primarily  of  deposits  received  on  sales of
vacation  ownership  interests  that are held in  escrow  until  the  applicable
statutory  rescission  period has expired,  restricted  funds held in accordance
with certain financing arrangements and amounts received prior to the attainment
of the required 10% down payment.

Property and Equipment
----------------------

     Property  and  equipment  are  recorded  at cost.  In  connection  with the
development of a resort, the Company  constructs guest  registration  facilities
and  on-site  sales and  marketing  facilities.  The Company  generally  retains
ownership and control over these facilities. These facilities are capitalized as
property and  equipment  and  depreciated  on a  straight-line  basis over their
estimated useful lives,  ranging generally from 10 to 25 years for buildings and
from three to seven years for furniture,  fixtures and equipment.  Additions and
improvements  are  capitalized  while  maintenance  and repairs are  expensed as
incurred.   Asset  and  accumulated   depreciation  accounts  are  relieved  for
dispositions with resulting gains or losses reflected in operations.

Real Estate Inventories
-----------------------

     Real estate  inventories  are stated at the lower of cost or net realizable
value.  VOI  inventories  include  the  cost  of  land  and  land  improvements;
construction  materials;  direct  labor  and  overhead;  taxes  and  capitalized
interest  incurred during the construction of the VOI units and a portion of the
costs of amenities constructed for the use and benefit of property owners. These
costs are  capitalized  as inventory and are  allocated to individual  VOI units
based upon their  relative  sales values.  VOIs  reacquired are placed back into
inventory at the lower of their  original cost basis or estimated  market value.
Company management periodically reviews the carrying value of its inventories to
determine that the carrying value does not exceed market.

Receivables
-----------

     Contracts
     ---------

     The Company's contracts receivable are regionally  diversified.  Generally,
VOIs are sold under installment contracts requiring a 10% - 15% down payment and
monthly  installments,  including interest,  for periods of up to ten years. The
Company  records a provision for  estimated  losses on  uncollectible  contracts
receivable by a charge against  earnings at the time of sale.  Such provision is
recorded  at  an  amount  based  upon  the  Company's  historical   cancellation
experience,   management's  estimate  of  future  losses  and  current  economic
conditions.  The  allowance  for  contracts  receivable is maintained at a level
believed  adequate by  management  based on periodic  analyses of the  contracts
receivable portfolio.

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

<PAGE>


          Percent of Contract Price Paid        Delinquency Period
          ------------------------------        ------------------

               Less than 25%                           90 days
               25% but less than 50%                  120 days
               50% and over                           150 days

     Mortgages
     ---------

     The  Company's   mortgages   receivable   consist  of  a  small  number  of
non-homogeneous  loans  collateralized  primarily by real estate  geographically
dispersed  throughout  the country.  The allowance  for mortgages  receivable is
maintained  at a  level  believed  adequate  by  management  based  on  periodic
evaluation of each mortgage receivable.  Management's evaluation of the adequacy
of this allowance is based on past loss experience,  adverse situations that may
affect  the  borrower's  ability  to  repay  (including  the  timing  of  future
payments),  the estimated value of any underlying  collateral,  current economic
conditions and other relevant factors.

Prepaid Expenses and Other Assets
---------------------------------

     Prepaid expenses and other assets consist  primarily of prepaid  insurance,
prepaid  promotional  items,  prepaid  postage,  costs in excess  of net  assets
acquired  (goodwill),  commitment  fees,  debt issuance costs and  miscellaneous
inventories.  Commitment  fees  and  debt  issuance  costs  are  amortized  on a
straight-line  basis over the estimated  life of the related  debt.  Goodwill is
amortized on a straight-line  basis over the estimated  periods to be benefited,
which do not  exceed  12  years.  Other  prepaid  expenses  are  amortized  on a
straight-line basis over the estimated periods to be benefited.

Revenue and Profit Recognition
------------------------------

     Vacation  ownership  interests  sold  by  the  Company  consist  of  either
undivided fee simple  interests or specified  fixed week  interval  ownership in
fully  furnished  vacation  units.  The  Company  recognizes  sales of  vacation
ownership  interests on a full accrual basis after a binding sales  contract has
been  executed,  a 10% minimum down  payment has been  received,  the  statutory
rescission  period has expired and  construction is substantially  complete.  In
cases where construction is not substantially  complete,  the Company recognizes
revenues using the  percentage-of-completion  method of  accounting.  Under this
method,  revenues  are  recognized  as  construction  progresses  and  costs are
incurred.  The progression of a project under  construction is determined by the
proportion  of  costs  incurred  to date  as  they  relate  to  total  estimated
acquisition,  construction  and selling  costs for that  project.  The remaining
revenue and related costs of sales,  including commissions and selling expenses,
are deferred and recognized as the remaining costs are incurred.

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

     The Company's  Discovery  Vacations  program allows purchasers to receive a
one-year  trial  membership  in the FairShare  Plus system.  Revenues and direct
expenses, including the estimated costs of fulfillment, are recorded at the time
of sale and are classified in "Sales and marketing" expenses in the Consolidated
Statements of Earnings.

     The Company sells vacation package certificates on a non-refundable  basis.
The customer typically has up to 18 months to exercise the certificate, at which
time the  certificate  expires,  if not  extended  generally  upon  payment of a
nominal  fee.  The  earnings  impact  related  to the sale of  vacation  package
certificates  is  generally  deferred  until either the vacation is taken or the
expiration period, including extension, has expired and the Company is no longer
contractually obligated to fulfill the vacation.
<PAGE>

Earnings per Share
------------------

     Earnings per share is based on the weighted average number of common shares
outstanding and includes both basic and diluted earnings per share computations.
Basic  earnings  per share is computed by dividing  net earnings by the weighted
average number of common shares outstanding during the period.  Diluted earnings
per share further reflects all potential dilution of common stock, including the
assumed  exercise of stock options and warrants using the treasury stock method,
along with contingently issuable shares.

Income Taxes
------------

     The  Company  provides  for  income  taxes  under the  liability  method in
accordance  with SFAS No. 109,  "Accounting  for Income Taxes."  Deferred income
taxes are recorded for temporary  differences  between the  financial  statement
bases of assets and  liabilities and their  respective  income tax bases and net
operating loss and tax credit carryforwards. Deferred tax assets and liabilities
are measured  using enacted income 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  resulting from a
change in the  income  tax rate is  recognized  in income  during  the period of
change.

Business Segment
----------------

     The Company operates one reportable  business  segment,  which includes the
development,  marketing,  sales and financing of vacation ownership interests at
its  resorts.  Revenues  for this  segment are derived from the sale of vacation
ownership interests and from the interest income earned on contracts  receivable
generated  by providing  financing to  purchasers  of those  vacation  ownership
interests.

Derivative Financial Instruments
--------------------------------

     The Company uses  derivative  financial  instruments on a limited basis and
does not use them for trading purposes.  However, to manage risk associated with
the Company's  borrowings  bearing  interest at variable rates,  the Company may
from time to time purchase  interest  rate caps,  interest rate swaps or similar
instruments.  Interest rate  differentials  paid or received  under the terms of
these  instruments are recognized as adjustments of interest  expense related to
the designated financing arrangement.

     On January 1, 2001,  the Company will adopt SFAS No. 133,  "Accounting  for
Derivative  Instruments and Hedging Activities," as amended by SFAS Nos. 137 and
138. This  statement  requires the Company to recognize all  derivatives  on the
balance sheet at fair value. Derivatives that are not hedges must be adjusted to
fair value through income. If the derivative is a hedge, depending on the nature
of the hedge,  changes in the fair value of  derivatives  will be either  offset
against  the  change in fair  value of the hedged  assets,  liabilities  or firm
commitments through earnings,  or recognized in other comprehensive income until
the  hedged  item is  recognized  in  earnings.  The  ineffective  portion  of a
derivative's  change in fair value will be  immediately  recognized in earnings.
The Company will account for the accounting  change as a cumulative effect of an
accounting  principle.  The Company  expects  the  adoption of SFAS No. 133 will
result in a cumulative effect of an accounting change of $1.1 million, net of an
applicable  tax  benefit  of $0.7  million,  which  will  be  charged  to  other
comprehensive loss.

Recent and Proposed Accounting Pronouncements
---------------------------------------------

     In December 1999, the  Securities  and Exchange  Commission  ("SEC") issued
Staff  Accounting  Bulletin ("SAB") No. 101,  "Revenue  Recognition in Financial
Statements."  SAB No.  101  summarizes  certain of the SEC's  views in  applying
generally  accepted  accounting  principles to revenue  recognition in financial
statements.  The Company was  required to adopt SAB No. 101, as amended,  in the
fourth  quarter  of 2000.  The  adoption  of SAB No. 101 did not have a material
effect on the Company's consolidated  financial position,  results of operations
or cash flows.
<PAGE>

     In September 2000, the Financial Accounting Standards Board issued SFAS No.
140,   "Accounting   for  Transfers  and  Servicing  of  Financial   Assets  and
Extinguishments  of Liabilities".  SFAS No. 140 replaces SFAS No. 125, issued in
June 1996. SFAS No. 140 revises the standards for accounting for securitizations
and other  transfers of financial  assets and  collateral  and requires  certain
additional  disclosures,  but otherwise  carries over most of the  provisions of
SFAS No. 125 without reconsideration.  SFAS No. 140 is effective for recognition
and   reclassification   of   collateral   and  for   disclosures   relating  to
securitization  transactions  and  collateral  for  fiscal  years  ending  after
December  15,  2000.  Certain  provisions  of SFAS  No.  140 are  effective  for
transfers and servicing of financial assets and  extinguishments  of liabilities
occurring  after March 31, 2001. The Company does not expect the adoption of the
provisions  of  SFAS  No.  140 to have a  material  effect  on its  consolidated
financial position, results of operations or cash flows.

     In 1997,  the AICPA began a project  addressing the accounting for vacation
ownership transactions. The proposed guidance is currently in the drafting stage
of the promulgation  process and, therefore,  the Company is currently unable to
assess the possible impact of this proposed  guidance.  The Company  anticipates
that an exposure draft of the proposed guidance will be issued in 2002.

Note 2 - Receivables, net
------   ----------------
<TABLE>

     Receivables consisted of the following (In thousands):

                                                            December 31,
                                                     ---------------------------
                                                        2000             1999
                                                        ----             ----
      <S>                                           <C>              <C>

       Total contracts receivable                    $ 598,412        $ 451,043
       Less: contracts receivable sold to QSPEs       (271,396)        (225,932)
                                                     ---------        ---------
                                                       327,016          225,111
       Mortgages and other                              29,938           24,892
                                                     ---------        ---------
                                                       356,954          250,003
       Less: allowance for loan losses                 (20,396)         (15,942)
                                                     ---------        ---------
       Receivables, net                              $ 336,558        $ 234,061
                                                     =========        =========
</TABLE>

     During 2000 and 1999, the Company sold $145.6  million and $133.2  million,
respectively,  of contracts  receivable to the QSPEs. The QSPEs primarily funded
these purchases  through advances under their various credit  agreements and, in
conjunction with these sales, the Company received cash  consideration of $117.9
and $110.9 and non-cash  consideration,  primarily in the form of a subordinated
note  receivable,  of  $27.7  million  and  $22.3  million  in  2000  and  1999,
respectively.

     At December 31, 2000 and 1999, the QSPEs held contracts receivable totaling
$271.4  million and $225.9  million,  respectively,  with related  borrowings of
$219.0 million and $187.6  million,  respectively.  Except for the repurchase of
contracts that fail to meet initial eligibility requirements, the Company is not
obligated to repurchase  defaulted or any other  contracts sold to the QSPEs. It
is  anticipated,  however,  that the  Company  will  repurchase  some  defaulted
contracts to  facilitate  the  remarketing  of the  underlying  collateral.  The
Company  maintains an allowance for loan losses in connection with its option to
repurchase  the  defaulted  contracts  and, at December 31, 2000 and 1999,  this
allowance  totaled  $16.3  million  and  $14.5  million,  respectively,  and was
classified  in  "Investments  in and net  amounts  due from  qualifying  special
purpose entities" in the Consolidated Balance Sheets.

     At December 31, 2000 and 1999,  the weighted  average  interest rate on the
Company's contracts receivable was 14.9% and 14.7%, respectively,  with interest
rates on these receivables  ranging generally from 13.3% to 17.9%. The Company's
contracts  receivable  were 98.5% current on a 60-day basis at December 31, 2000
and 1999.

<PAGE>
<TABLE>

     Transactions  in  the  allowance  for  loan  losses  were  as  follows  (In
thousands):

                                                     Year Ended December 31,
                                               ---------------------------------
                                                  2000        1999        1998
                                                  ----        ----        ----
    <S>                                        <C>         <C>         <C>

    Balance at January 1                       $ 15,942    $ 13,005    $ 20,848
    Provision for loan losses                    20,615      18,240      14,270
    Allowance on purchased contracts              1,447         -           -
    Reclassification of allowance pertaining
     to receivables sold to QSPEs                (1,825)     (4,133)    (10,326)
    Net charge-offs                             (15,783)    (11,170)    (11,787)
                                               --------    --------    --------
     Balance at December 31                    $ 20,396    $ 15,942    $ 13,005
                                               ========    ========    ========
</TABLE>

Note 3 - Real Estate Inventories
------   -----------------------
<TABLE>

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

                                                    December 31,
                                               ---------------------
                                                  2000        1999
                                                  ----        ----
    <S>                                        <C>         <C>

    Land and improvements                      $ 25,954    $ 35,581
    Residential housing:
      Vacation ownership                        151,093      93,207
      Homes                                      3,675        5,086
                                               --------    --------
                                                154,768      98,293
                                               --------    --------
                                               $180,722    $133,874
                                               ========    ========
</TABLE>

Note 4 - Property and Equipment, net
------   ---------------------------
<TABLE>

     Property and equipment, net consisted of the following (In thousands):

                                                    December 31,
                                               ---------------------
                                                  2000        1999
                                                  ----        ----
    <S>                                        <C>         <C>

    Land, buildings and improvements           $ 51,661    $ 42,143
    Furniture, fixtures and equipment            36,535      20,686
                                               --------    --------
                                                 88,196      62,829
    Accumulated depreciation                    (27,775)    (21,251)
                                               --------    --------
                                               $ 60,421    $ 41,578
                                               ========    ========
</TABLE>

     During 2000, the Company  acquired  property and equipment,  totaling $19.9
million,  to support its newest destination resorts which began sales operations
in 2000, and for resort and sales facilities at the Company's other  destination
locations.  Additionally,  in 2000, the Company invested $7.2 million related to
its  information  technology  infrastructure,  including the  acquisition of new
hardware  and  software  to support  the  anticipated  sales  growth of vacation
ownership interests.

     The Company has operating  leases which consist  primarily of buildings and
office space used for its sales and  marketing  operations,  and  telephone  and
office  equipment.  Rental expense under operating  leases totaled $13.2 million
for 2000,  $10.2  million for 1999 and $7.2  million for 1998.  At December  31,
2000, future minimum lease commitments for non-cancelable  operating leases with
initial or  remaining  terms in excess of one year are as follows:  2001 - $10.4
million;  2002 - $7.9 million;  2003 - $4.4 million; 2004 - $3.0 million; 2005 -
$2.0 million and thereafter - $4.5 million.

<PAGE>

Note 5 - Financing Arrangements
------   ----------------------
<TABLE>

     Financing  arrangements are summarized as follows (In thousands):

                                                          December 31,
                                                    -----------------------
                                                       2000           1999
                                                       ----           ----
     <S>                                            <C>             <C>

     Term loan facility                             $ 74,250        $   -
     Revolving credit agreement                       57,992          9,300
     Notes payable:
       Collateralized by contracts receivable         19,397         30,338
       Other                                           5,379         13,899
                                                    --------        -------
                                                    $157,018        $53,537
                                                    ========        =======
</TABLE>

     Term Loan Facility
     ------------------

     On September 29, 2000, the Company  entered into a $75.0 million  unsecured
Term Loan  Agreement.  The loan was  funded on  October  20,  2000 and  proceeds
totaled $72.9 million, net of $2.1 million in financing costs. This loan matures
in September  2005 and bears  interest at a variable rate equal to LIBOR plus 5%
(11.6% at December 31, 2000).  Contractual maturities within the next five years
are as follows:  2001 - $6.7 million;  2002 - $6.0 million; 2003 - $8.3 million;
2004 - $18.8 million and 2005 - $34.5 million.

     Revolving Credit Agreement
     --------------------------

     At December  31, 2000,  the  Company's  Consolidated,  Amended and Restated
Revolving Credit Agreement (the "Credit  Agreement")  provided borrowing ability
of up to $145.0 million; including up to $20.0 million for letters of credit, of
which $6.0 million was  outstanding at December 31, 2000.  Borrowings  under the
Credit  Agreement mature in July 2003 and bear interest at a variable rate equal
to  the  base  rate  (9.5%  at  December  31,  2000).   These   borrowings   are
collateralized  by contracts  receivable  with an aggregate book value of $276.1
million at December 31, 2000. The Company's net borrowing availability under the
Credit Agreement totaled $81.0 million at December 31, 2000.

     Notes Payable Collateralized by Contracts Receivable
     ----------------------------------------------------

     At December 31, 2000, notes payable  collateralized by contracts receivable
had a weighted average maturity of approximately 23 months, which represents the
approximate   remaining  weighted  average  life  of  the  underlying  contracts
receivable.  The weighted  average  interest rate on the borrowings was 5.9% for
the year ended  December 31, 2000.  At December 31, 2000,  contracts  receivable
totaling $23.7 million collateralized these borrowings.  There are no additional
fundings  available  under this financing  arrangement.  Contractual  maturities
within the next five years of the contracts receivable which serve as collateral
for and will be used to reduce the notes  payable  are as  follows:  2001 - $9.5
million; 2002 - $8.9 million; 2003 - $4.9 million and 2004 - $0.4 million.

     Notes Payable - Other
     ---------------------

     At December 31, 2000,  notes payable - other consisted  primarily of a $4.8
million borrowing  secured by the Company's  corporate office building in Little
Rock,  Arkansas,  which matures in December  2003 and bears  interest at a fixed
rate of 6.9%.  Scheduled  principal  repayments related to this borrowing are as
follows: 2001 - $0.2 million; 2002 - $0.3 million; and 2003 - $4.3 million.

Note 6 - Deferred Revenue
------   ----------------

     At December  31,  2000,  the Company had deferred  revenue,  totaling  $8.4
million,  relating to sales of vacation  ownership  interests in projects  under
construction,  which will be recognized upon completion of the respective  units
in 2001.

     At December 31, 2000, the Company had net deferred  revenue related to lots
sold for which  development  was not complete of $16.1  million.  The  estimated
costs to complete development work in subdivisions from which lots had been sold
totaled $13.4 million.  The estimated  cost of development
<PAGE>

work within the next five years is as follows:  2001 - $.6  million;  2002 - $.3
million; 2003 - $.3 million; 2004 - $.2 million and 2005 - $.5 million.

Note 7 - Income Taxes
------   ------------

     The Company  had net  operating  loss  carryforwards  at December  31, 2000
totaling  $94.1  million,  which reflect the amount  available to offset taxable
income in future periods.  Under  limitations  imposed by Internal  Revenue Code
Section 382  ("Section  382"),  certain  potential  changes in  ownership of the
Company,  which may be outside the Company's knowledge or control,  may restrict
future  utilization  of  these  carryforwards.  More  specifically,  changes  in
ownership   occurring   within  a  rolling   three-year   period,   taking  into
consideration  filings with the Securities and Exchange  Commission on Schedules
13D  and 13G by  holders  of 5% or more of  Fairfield's  Common  Stock,  whether
involving the acquisition or disposition of Fairfield's Common Stock, may impose
a  material  limitation  on the  Company's  use of  these  carryforwards.  If an
ownership  change triggers the Section 382  limitations,  the annual  limitation
imposed on the use of  pre-change  carryforwards  under present law is an amount
equal to the  value of the  Company  immediately  before  the  ownership  change
multiplied by the federally  prescribed long-term tax-exempt rate for the period
in  which  the  change  occurs.   At  December  31,  2000,  net  operating  loss
carryforwards  which are  available to offset  regular  taxable  income,  if not
utilized,  expire as follows:  2007 - $11.8 million; 2008 - $5.4 million; 2009 -
$3.3 million;  2010 - $16.1 million;  2011 - $21.4 million; 2012 - $1.7 million;
2018 - $18.4 million and 2020 - $16.0 million.
<TABLE>

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

                                               Year Ended December 31,
                                     ----------------------------------------
                                       2000            1999            1998
                                       ----            ----            ----
     <S>                             <C>             <C>            <C>

     Current:
       Federal                       $17,500         $14,477        $  8,356
       State                             -               -               541
                                     -------         -------        --------
                                      17,500          14,477           8,897
                                     -------         -------        --------

     Deferred:
       Federal                        16,471          15,315          14,111
       State                           3,551           3,515           2,901
                                     -------         -------         -------
                                      20,022          18,830          17,012
                                     -------         -------         -------
                                     $37,522         $33,307         $25,909
                                     =======         =======         =======
</TABLE>


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

                                                 Year Ended December 31,
                                          --------------------------------------
                                            2000           1999           1998
                                            ----           ----           ----
     <S>                                  <C>            <C>            <C>

     Statutory tax provision              $36,282        $31,560        $24,338
     State income taxes, net of
       federal benefit                      2,308          2,285          2,237
     Impact of extinguishment of debt      (1,050)           -              -
     Impact of merger expenses                538            -              -
     Other                                   (556)          (538)          (666)
                                          -------        -------        -------
     Provision for income taxes           $37,522        $33,307        $25,909
                                          =======        =======        =======

</TABLE>


<PAGE>



     Significant  components  of the  Company's  net  deferred  tax  liabilities
(taxable temporary differences) consisted of the following (In thousands):
<TABLE>

                                                               December 31,
                                                         -----------------------
                                                           2000           1999
                                                           ----           ----
   <S>                                                   <C>            <C>

   Deferred tax assets:
    Net operating loss carryforwards                     $37,784        $ 30,371
    Loan and cancellation loss reserves                   14,269          11,826
    Deferred revenue                                       3,295           3,104
    Tax over book basis in inventory and
     fixed assets                                          3,596           7,350
    Credit carryforwards                                  45,576          27,809
    Other                                                  7,036           4,646
                                                        --------        --------
                                                         111,556          85,106
                                                        --------        --------
   Deferred tax liabilities:
    Installment sales                                    164,479         120,573
    Other                                                  2,818           2,833
                                                        --------        --------
                                                         167,297         123,406

   Net deferred tax liabilities                         $ 55,741        $ 38,300
                                                        ========        ========
</TABLE>

Note 8 - Accrued Liabilities
------   -------------------

     Accrued liabilities consisted of the following (In thousands):
<TABLE>

                                                              December 31,
                                                        ------------------------
                                                          2000             1999
                                                          ----             ----

  <S>                                                   <C>              <C>
  Accrued employee compensation and benefits            $22,502          $19,170
  Accrual for Discovery Vacations fulfillment            16,125           11,133
  Deposits associated with sales contracts                5,979            7,726
  Accrued association subsidies                           1,421            1,751
  Other                                                  21,019           22,802
                                                        -------          -------
                                                        $67,046          $62,582
                                                        =======          =======
</TABLE>

Note 9 - Stockholders' Equity
------   --------------------

     In March 2000,  the Board of Directors  authorized  the repurchase of up to
$60 million of Fairfield's common stock. Utilizing availability under its credit
agreements,  the Company repurchased 4.5 million shares of its common stock at a
cost of $37.5  million.  The  repurchased  shares were accounted for as treasury
shares and will be used to meet the  Company's  obligations  under its  employee
stock-based plans or for other corporate purposes.

     During 2000,  the Company  issued 230,322 shares of common stock to certain
officers  and  directors   subject  to  certain   restrictions   and  forfeiture
provisions. The restricted shares were issued at no cost and, at the issuance of
these shares,  unearned compensation  equivalent to the market value at the date
of grant was charged to stockholders' equity. The unearned compensation is being
amortized to compensation  expense over the applicable  restricted stock vesting
period.

     Fairfield is  authorized to issue 100 million  shares of common stock,  par
value of $.01 per share. Fairfield is authorized to issue five million shares of
preferred  stock  with a par value of $.01 per  share,  none of which  have been
issued. One million shares of preferred stock, which have been designated as the
Series A Junior  Participating  Preferred Stock, have been reserved for possible
issuance in connection with Fairfield's Rights Agreement as discussed below. The
rights and  preferences  of the  remaining  shares of  authorized  but  unissued
preferred  stock are to be established by Fairfield's  Board of Directors at the
time of issuance.

<PAGE>

     Fairfield  has a  Rights  Agreement  which  provides  for the  issuance  of
one-third of a right for each outstanding share of Fairfield's common stock. The
rights, which entitle the holder to purchase from Fairfield one one-hundredth of
a share of  Series  A Junior  Participating  Preferred  Stock at $25 per  share,
become  exercisable  (i) 10 business days after a person  becomes the beneficial
holder  of 20% or more of  Fairfield's  common  stock or (ii) 10  business  days
following  the  commencement  of a tender or exchange  offer for at least 20% of
Fairfield's  common  stock.  Fairfield  may  redeem the rights at $.01 per right
under certain circumstances. The rights expire on September 1, 2002.

     Certain  of  the  Company's  financing   arrangements  contain  restrictive
covenants  relating to the  maintenance  of certain  financial  ratios and other
financial  requirements.  Under the most restrictive  covenants,  the Company is
prohibited  from paying  dividends or making other  distributions  of its common
stock.

Note 10 - Earnings per Share
-------   ------------------

     The  following  table  sets  forth the  computation  of basic  and  diluted
earnings per share ("EPS") (In thousands, except per share data):

<TABLE>
                                                      Year Ended December 31,
                                                   -----------------------------
                                                     2000       1999       1998
                                                     ----       ----       ----
<S>                                                <C>        <C>        <C>

Numerator:
 Earnings before extraordinary gain                $63,242    $56,865    $43,628
 Extraordinary gain - extinguishment of debt         2,900        -          -
                                                   -------    -------    -------
 Numerator for basic and diluted EPS               $66,142    $56,865    $43,628
                                                   =======    =======    =======

Denominator:
 Denominator for basic EPS - weighted
  average shares                                    42,052     44,041     44,544
 Effect of dilutive securities:
  Contingent shares issued                             435        -          -
  Options and warrants                               1,029      1,181      1,727
  Common stock held in escrow                          278        337        575
  Restricted stock                                     166          6        -
                                                   -------     ------    -------
 Dilutive potential common shares                    1,908      1,524      2,302
                                                   -------     ------    -------
 Denominator for diluted EPS -
  adjusted weighted average shares
  and assumed conversions                           43,960     45,565     46,846
                                                    ======     ======     ======

Basic earnings per share                             $1.57      $1.29       $.98
                                                     =====      =====       ====

Diluted earnings per share                           $1.50      $1.25       $.93
                                                     =====      =====       ====
</TABLE>

Note 11 - Segment Disclosures
-------   -------------------

     The Company operates one reportable  business  segment,  which includes the
development,  marketing,  sales and financing of vacation ownership interests at
its  resorts.  Revenues  for this  segment are derived from the sale of vacation
ownership interests and from the interest income earned on contracts  receivable
generated  by providing  financing to  purchasers  of those  vacation  ownership
interests.   The  Company's  management  evaluates   performance  and  allocates
resources  based  on  operating  profit  before  income  taxes,  which  includes
depreciation  expense,  but does not allocate the related property and equipment
on a segment basis.

     Segment  assets  include all  contracts  receivable.  In addition,  for the
consolidated financial statement  presentation,  portions of interest income and
interest  expense  allocated to the segment are included in "Net interest income
and  fees  from  qualifying   special  purpose  entities"  in  the  Consolidated
Statements of Earnings.

<PAGE>

     The following  table  summarizes  VOI segment  information  for the periods
indicated (In thousands):
<TABLE>

                                                     Year Ended December 31,
                                              ----------------------------------
                                                2000         1999         1998
                                                ----         ----         ----
     <S>                                      <C>          <C>          <C>

     VOI revenues, net                        $446,527     $370,766     $301,119
     Interest income                            73,758       61,522       49,575
     Interest expense, net                      22,396       17,874       14,346
     Depreciation expense                        4,869        3,277        2,480
</TABLE>

     The differences in interest income and interest expense for the years ended
December  31,  2000 and 1999 as reported  for the  segment and the  consolidated
interest  income and interest  expense are  attributable  to interest income and
interest  expense  recorded by the QSPEs.  The difference  between  depreciation
expense  reported by the segment and consolidated  depreciation  expense for the
same time  period is  attributable  to  depreciation  expense by  non-reportable
operating segments or business activities.

     Reconciliation to consolidated totals (In thousands):
     ----------------------------------------------------
<TABLE>

                                         Year Ended December 31,
                           ----------------------------------------------------
                                      2000                     1999
                           -------------------------   -------------------------
                                     Earnings Before             Earnings Before
                                        Taxes and                   Taxes and
                                      Extraordinary               Extraordinary
                           Revenues       Gain         Revenues        Gain
                           --------  ---------------   --------   --------------
<S>                        <C>          <C>            <C>           <C>

Total segment revenue
 and operating profit,
 respectively              $521,995     $134,168       $430,787      $114,816
Other revenues and
 other operating
 profit, respectively        81,114      (33,404)        72,569       (24,532)
Adjustment to interest
 income and net interest
 and fees from QSPEs        (16,252)         -          (11,620)         (112)
                           --------     --------       --------      --------
Consolidated revenues
 and earnings before
 income taxes and
 extraordinary gain,
 respectively              $586,857     $100,764       $491,736      $ 90,172
                           ========     ========       ========      ========

</TABLE>

     Other  revenues  consist  primarily of resort  management  revenue and home
sales.  Other operating  profits includes general and  administrative  expenses,
which are not allocated on a segment basis.
<TABLE>

                                                           December 31,
                                                     ------------------------
                                                       2000            1999
                                                       ----            ----
<S>                                                  <C>             <C>

Reportable segment total assets                      $754,970        $559,530
Other assets                                          200,969         150,578
Adjustment to contracts receivable,
 allowance for loan losses
 and investments in and net
 amounts due from QSPEs                              (255,112)       (211,472)
                                                     --------        --------
Total consolidated assets                            $700,827        $498,636
                                                     ========        ========
</TABLE>

     Other assets  consists  primarily of property and equipment and real estate
inventories - homes. All revenues and assets of the segment are attributed to or
located in the United  States.  The Company  does not have any  customers  which
represent 10 percent or more of its consolidated revenues.

<PAGE>

Note 12 - Employee Benefit Plans
-------   ----------------------

     Savings/Profit Sharing Plan
     ---------------------------

     The Savings/Profit Sharing Plan covers substantially all employees with one
year or more of credited service,  and participants are fully vested after seven
years of credited  service.  The  Savings/Profit  Sharing Plan includes a profit
sharing feature, with annual employer discretionary contributions,  and a 401(k)
feature,  which  allows  employee  elected  salary  deferrals,  with the Company
currently  matching a portion of such  deferrals.  The amount charged to expense
related to the  Savings/Profit  Sharing Plan totaled $4.8 million,  $4.3 million
and $3.4 million for 2000, 1999 and 1998, respectively.

     Excess Benefit Plan
     -------------------

     The Excess Benefit Plan is a  non-qualified,  unfunded plan  established to
provide  qualifying  employees  with  benefits  to  compensate  them for certain
limitations  imposed by federal law on the amount of  compensation  which may be
considered in determining employer contributions to participants' accounts under
the Savings/Profit Sharing Plan. Participants' accounts under the Excess Benefit
Plan are  credited  with  amounts  that,  except for the limits of the  Internal
Revenue Code, would have been contributed to such  participants'  accounts under
the Savings/Profit Sharing Plan. Participants' accounts under the Excess Benefit
Plan vest in accordance  with the vesting  schedule for profit sharing  accounts
under the Savings/Profit Sharing Plan. Interest is credited to the participants'
accounts annually.  The expense associated with the Excess Benefit Plan was $0.5
million for 2000 and 1999, respectively, and $0.3 million for 1998.

     Employee Stock Purchase Plan
     ----------------------------

     The Company  has an Employee  Stock  Purchase  Plan,  whereby all full time
employees are eligible to purchase shares of the Company's Common Stock at a 15%
discount  to the  market  price  on the date of  purchase.  The  Employee  Stock
Purchase Plan is not qualified under Section 401(a) of the Internal Revenue Code
of 1996,  as  amended,  and is not  subject to the  provisions  of the  Employee
Retirement Income Security Act of 1974.

     Option and Warrant Plans
     ------------------------

     The Company has stock  option  plans for certain  employees  and  directors
which generally provide for the grant of non-qualified  stock options at a price
not less than the fair market value of such shares at the date of the grant. The
options  generally vest over two to five years from the date of grant and have a
ten year term. The following  table  summarizes the activity under the Company's
option and warrant plans (shares in thousands):
<TABLE>

                                                             Weighted Average
                                      Shares                 Price Per Share
                              -----------------------    ----------------------
                               2000    1999    1998        2000    1999    1998
                               ----    ----    ----        ----    ----    ----
<S>                           <C>     <C>      <C>       <C>      <C>     <C>

Outstanding at
 beginning of year            3,630   3,521    4,802     $ 6.35   $ 5.45  $ 5.66
Granted                       2,125     375      -         8.97    13.37      -
Exercised                      (393)   (185)  (1,179)      2.69     2.69    4.31
Cancelled                      (182)    (81)    (102)      8.47     8.47   14.48
                              -----   -----   ------

Outstanding at end of year    5,180   3,630    3,521
                              =====   =====    =====
Exercisable at end of year    2,200   2,190    1,918
                              =====   =====    =====
Reserved for future issuance    316     990    1,320
                              =====   =====    =====
</TABLE>


<PAGE>


     The following  table  summarizes  information  concerning  outstanding  and
exercisable  stock  options  and  warrants as of  December  31, 2000  (shares in
thousands):
<TABLE>

                            Outstanding                      Exercisable
                 ----------------------------------   -------------------------
                               Weighted
                                Average    Weighted                    Weighted
                   Number      Remaining   Average      Number         Average
   Range of       of Shares   Contractual  Exercise    of Shares       Exercise
Exercise Prices  Outstanding     Life       Price     Exercisable       Price
---------------  -----------     ----       -----     -----------       -----
<S>                 <C>        <C>         <C>           <C>            <C>

 Less than $2       1,255      3.2 years   $ 1.02        1,255          $ 1.02
   $2 - $9          2,003      8.4 years     7.60          273            3.21
 $10 or more        1,922      8.3 years    11.65          672           11.08
                    -----                                -----
                    5,180                                2,200
                    =====                                =====
</TABLE>

     Pursuant to the  provisions  of SFAS No. 123  "Accounting  for  Stock-based
Compensation",  the Company has  elected to continue  using the  intrinsic-value
method of accounting for stock-based  awards.  Accordingly,  the Company has not
recognized  compensation  expense  on the  issuance  of its  stock  options  and
warrants.

     Pursuant  to SFAS No.  123,  pro  forma  net  earnings  per  share has been
determined  as if the Company had  accounted  for its stock options and warrants
under the fair value method.  The fair values of these options and warrants were
estimated at the date of grant using the Black-Scholes option pricing model with
the  following  weighted-average  assumptions  for 2000 and 1999,  respectively:
risk-free  interest rates of 6.5% and 5.7%;  expected  dividend yields of 0% for
each year  presented;  volatility  factors of the  expected  market price of the
Company's  Common  Stock of 60.7 and 50.8;  and a  weighted-average  life of the
options and warrants of seven years in 2000 and 1999. The weighted-average  fair
value of the options and warrants  granted in 2000 and 1999 was $5.67 and $6.68,
respectively. There were no options granted during 1998.

     For purposes of pro forma  disclosures,  the estimated  fair value of stock
options and  warrants is  amortized  to expense  over their  respective  vesting
periods. The pro forma net earnings and earnings per share, assuming the Company
had elected to adopt the fair value  approach,  would have been $63.2 million or
$1.44 per diluted  share,  $55.6 million or $1.22 per diluted  share,  and $42.3
million or $.91 per diluted share, for 2000, 1999, and 1998, respectively.  Such
pro forma effects are not necessarily indicative of the effect on future years.


<PAGE>


Note 13 - Qualifying Special Purpose Entities
-------   -----------------------------------

     Condensed combined financial  information of the qualifying special purpose
entities is summarized as follows (In thousands):

<TABLE>
                        Condensed Combined Balance Sheets

                                             December 31,
                                       ------------------------
                                         2000            1999
                                         ----            ----
<S>                                    <C>             <C>

ASSETS

   Restricted cash                     $ 19,826        $ 16,663
   Contracts receivable                 271,396         225,932
                                       --------        --------
                                       $291,222        $242,595
                                       ========        ========

LIABILITIES AND EQUITY

   Notes payable                       $218,980        $187,585
   Subordinated note to parent           32,975          28,036
   Other liabilities                      1,287           1,349
   Due to parent                         11,371           7,050
   Equity                                26,609          18,575
                                       --------        --------
                                       $291,222        $242,595
                                       ========        ========
</TABLE>
<TABLE>

                    Condensed Combined Statements of Earnings

                                                Year Ended December 31,
                                       ---------------------------------------
                                         2000            1999            1998
                                         ----            ----            ----
<S>                                    <C>             <C>             <C>

Revenues                               $41,462         $32,144         $15,659
Expenses                                23,472          15,899           8,220
                                       -------         -------         -------
Earnings before provision
 for income taxes                       17,990          16,245           7,439
Provision for income taxes               6,247           5,825           2,684
                                       -------         -------         -------
Net earnings                           $11,743         $10,420         $ 4,755
                                       =======         =======         =======

</TABLE>

Note 14 - Supplemental Information
-------   ------------------------
<TABLE>

     Other revenues consisted of the following (In thousands):

                                               Year  Ended December 31,
                                       ---------------------------------------
                                         2000            1999            1998
                                         ----            ----            ----
<S>                                    <C>             <C>             <C>

Home sales                             $13,809         $11,928         $12,252
Lot sales                                9,143           7,142           8,155
FairShare Plus conversion fees           3,193           1,591           2,494
Other                                    5,674           6,728           3,008
                                       -------         -------         -------
                                       $31,819         $27,389         $25,909
                                       =======         =======         =======

</TABLE>

<PAGE>


     Other expenses consisted of the following (In thousands):
<TABLE>

                                                    Year Ended December 31,
                                                -------------------------------
                                                  2000        1999        1998
                                                  ----        ----        ----
<S>                                             <C>         <C>         <C>

Home cost of sales                              $12,223     $10,489     $10,796
FairShare Plus conversion
 commissions                                      2,988       2,195       1,222
Lot cost of sales                                 2,009       2,013       2,335
Subsidies to property
 owner associations                               1,338       4,211       2,488
Other                                             2,289       4,285       1,607
                                                -------     -------     -------
                                                $20,847     $23,193     $18,448
                                                =======     =======     =======
</TABLE>

     Included in prepaid expenses and other assets at December 31, 2000 and 1999
are (i) costs in excess of net assets  acquired  (goodwill)  of $7.8 million and
$4.5 million,  respectively,  related primarily to the December 2000 acquisition
of the  Dolphin's  Cove  Resort  located  in  Anaheim,  California  and the 1997
acquisition of the remaining  minority  interests in certain of Vacation Break's
joint ventures, (ii) prepaid assets,  including insurance and promotional items,
of  $9.4  million  and  $5.8  million,   respectively,   and  (iii)  unamortized
capitalized financing costs of $5.5 million and $2.9 million, respectively.

     On July 3, 2000, the Company  tendered  1,764,704 shares of common stock in
satisfaction of certain debt and litigation. In connection with the transaction,
the  Company  recorded a pre-tax,  non-cash  charge of $4.7  million,  a related
non-taxable   extraordinary   gain  of  $2.9   million   associated   with   the
extinguishment  of $7.9 million of related debt,  and a credit to  stockholders'
equity of $11.0 million.

     On November 1, 2000, the Company  entered into a definitive  agreement with
Cendant  Corporation,   whereby  Cendant  will  acquire  all  of  the  Company's
outstanding  common  stock for a price of $15 per share.  The final  acquisition
price may increase to a maximum of $16 per share depending on a formula based on
the average  trading  price of Cendant  common  stock over a twenty  trading day
period prior to the date on which the Company's stockholders meet to approve the
transaction.  Under the terms of the agreement, if sufficient shareholders elect
to receive cash, Cendant must pay at least 50% of the consideration in cash; the
balance will either be in cash or Cendant common stock,  at Cendant's  election.
The  transaction  is  expected  to close in the  second  quarter  of 2001 and is
subject  to  shareholder  approval,  regulatory  approvals  and other  customary
conditions.  In anticipation of and  preparation  for the proposed  merger,  the
Company  incurred  investment  banking,  legal and accounting fees totaling $1.5
million through December 31, 2000.

Note 15 - Contingencies
-------   -------------

     During  1993,  two  lawsuits,   the  Storm  and  the  Daleske  cases,  (the
"Recreation Fee Litigation")  were filed against Fairfield in the District Court
of Archuleta  County,  Colorado.  The  Recreation  Fee  Litigation,  which seeks
certification  as class actions,  alleges that Fairfield  wrongfully  imposed an
annual recreation fee on owners in Fairfield's Pagosa, Colorado development. The
Recreation Fee Litigation seeks, among other things,  refund, with interest,  of
recreation  fees  collected  by  Fairfield  (estimated  to  total in  excess  of
$800,000), damages, punitive damages and attorneys' fees. Two additional related
lawsuits were  subsequently  filed in the Archuleta  County District Court:  the
Fiedler case, filed in October 1994,  concerns two lots, while the Lobdell case,
filed in November  1994, is a purported  class action.  By orders dated June 19,
1998,  the Colorado  District Court  generally  denied  plaintiffs'  motions for
summary judgments and granted  Fairfield's  motions for summary judgments in all
of the cases. Fairfield has filed motions seeking payment of past due recreation
fees, plus interest and attorneys' fees and expenses.

<PAGE>

     In 1993,  Charlotte T. Curry,  who purchased a lot from Fairfield  under an
installment  sale contract  subsequently  sold to First Federal Savings and Loan
Association of Charlotte ("First Federal"), previously a wholly-owned subsidiary
of Fairfield,  filed suit against First Federal,  initially  alleging  breach of
contract,  breach of fiduciary duty and unfair trade  practices.  The litigation
contested  Fairfield's  method of calculating  refunds for lot purchasers  whose
installment  sale  contracts  were  cancelled due to their  defaults.  The Curry
lawsuit sought damages,  punitive  damages,  treble damages under North Carolina
law for unfair trade  practices,  prejudgment  interest and attorneys'  fees and
costs. By order dated July 6, 1994, the court  dismissed most claims,  primarily
based on statutes of limitations,  except for the claim  asserting  unfair trade
practices.  By order filed  September  15, 1995,  the court  denied  plaintiff's
motion for class certification,  which decision was upheld by the North Carolina
Court of Appeals,  with the Supreme Court of North  Carolina  declining to grant
discretionary review. In April 1998, Ms. Curry dismissed the lawsuit. On January
7, 1998, the plaintiff's  attorneys filed another lawsuit (the Scarvey lawsuit),
currently pending in Superior Court in Mecklenburg County, North Carolina,  as a
purported class action,  against First Federal,  alleging matters similar to the
original  complaint in the Curry case and seeking similar  damages.  The Scarvey
case seeks to relitigate the North Carolina courts' refusal to certify the Curry
case as a class  action and  asserts  that the Curry case  tolled the statute of
limitations for Ms. Scarvey's claims, which are alleged to post-date Ms. Curry's
claims. The court, by order and opinion dated February 23, 2000, determined that
the Scarvey claims are  collaterally  estopped from proceeding on a class action
basis and that Ms.  Scarvey's  claims are barred by the  applicable  statutes of
limitations.  Ms. Scarvey filed a motion seeking  reconsideration of the court's
February 23, 2000 decision,  which was denied,  and has filed a notice of appeal
from the court's  decision.  Under the Stock Purchase  Agreement for the sale of
First Federal,  Fairfield agreed to indemnify the buyer against any liability in
the Curry litigation.  Fairfield has taken the position that it is not obligated
under the Stock  Purchase  Agreement to indemnify the buyer of First Federal for
the Scarvey  litigation,  but the buyer has filed a third party  action  against
Fairfield contesting Fairfield's  interpretation of the Stock Purchase Agreement
and asserting other common law and statutory grounds for indemnification.

     On March 1, 1997, the Company's 10% Senior Subordinated  Secured Notes (the
"FCI Notes"), having a principal amount of $15.1 million, matured. In settlement
of the FCI  Notes,  the  Company  transferred  $7.9  million  in cash (the "$7.9
Million  Payment")  and  the  assets  collateralizing  the  FCI  Notes,  with an
appraised  market value of $7.2 million (the "Real Estate  Collateral"),  to IBJ
Schroder  Bank & Trust  Company,  as  indenture  trustee for the FCI Notes.  The
indenture  trustee  filed  suit in the  United  States  District  Court  for the
Southern District of New York (the "District  Court"),  contesting the Company's
method of satisfying  this obligation and claiming a default under the indenture
securing the FCI Notes.  This action  alternatively  (a) disputed the  Company's
right to transfer the Real Estate  Collateral in  satisfaction of the FCI Notes,
seeking  instead a cash payment of $7.2 million,  plus interest and the fees and
expenses of the action, in addition to the $7.9 Million Payment, or (b) disputed
the $7.9 Million  Payment,  seeking instead the issuance of 1,764,706  shares of
Fairfield's  Common  Stock (the  "Contested  Shares"),  previously  reserved for
issuance if a deficiency resulted on the FCI Notes at maturity.  Pursuant to the
indenture  for the FCI Notes,  the  noteholders  are  entitled  to retain,  as a
premium,   up  to  $2.0  million  from  the  proceeds  of  the  collateral  (the
"Collateral")  transferred  in  satisfaction  of the FCI  Notes  (including,  if
applicable,  the  Contested  Shares)  in excess of the amount of  principal  and
accrued  interest due at maturity.  The indenture  trustee on September 24, 1997
filed a motion,  which the Company  opposed,  seeking to require  the  immediate
issuance  and sale of the  Contested  Shares,  with the  proceeds  to be held in
escrow,  pending the outcome of the litigation (the  "Injunction  Demand").  The
indenture  trustee  indicates  that it has sold the Real Estate  Collateral  for
approximately  $4.4  million,  although  the Company was advised in late October
1999 that one or more of the  noteholders  participated  in such  purchase.  The
District Court on April 24, 1998 entered an order denying the Injunction  Demand
and granting the Company's motion for summary  judgment.  The indenture  trustee
appealed  the  District  Court's  order to the Court of  Appeals  for the Second
Circuit  (the "Court of  Appeals"),  which on May 6, 1999  reversed the District
Court decision and granted  partial summary  judgment to the indenture  trustee,
holding  that the  Company's  method of  satisfying  the FCI  Notes at  maturity
violated  the terms of the  indenture,  but  declining  to enter  the  indenture
trustee's  Injunction Demand. The Court of Appeals upheld the Company's position
that the Contested  Shares
<PAGE>

should not be distributed to the noteholders  without  limitation,  limiting any
premium to $2.0 million.  The Court of Appeals remanded the case to the District
Court for further  proceedings to enforce the terms of the indenture,  including
specifically  consideration  of whether or not to enter the indenture  trustee's
Injunction  Demand and whether or not the sale of the Real Estate Collateral for
$4.4 million by the indenture  trustee was commercially  reasonable and, if not,
how this  would  bear upon the  relief  sought  by the  indenture  trustee.  The
indenture trustee filed a motion (the "Stock Issuance Motion") with the District
Court,  which the Company initially  opposed,  seeking to compel issuance of the
Contested  Shares  and  authority  to sell a portion of such  shares,  to permit
approximately $12.3 million to be distributed in the interim to the noteholders.

     On July 3, 2000, the Company tendered  1,764,704 shares of its common stock
to the indenture  trustee and  indicated  that it would  generally  withdraw its
opposition to the Stock Issuance Motion.  The Company believes that it is in the
Company's  best interest to conclude this  litigation,  to avoid the  continuing
expenses and need to devote  management time to the defense of this action.  The
Company  intends to seek return of the $7.9 Million Payment and an order closing
the case.  The  indenture  trustee  also seeks  payment of its fees and expenses
associated with the litigation.  The indenture trustee has filed a motion, which
remains  pending,  for leave to amend its  complaint to allege that  Fairfield's
wrongful  failure to issue the  Contested  Shares in 1997  allows the  indenture
trustee to seek a cash  recovery from the Company,  which the indenture  trustee
asserts as of October 13, 2000 amounted to  approximately  $3.25  million,  plus
interest, for the difference between the value realized in selling the stock and
the amount  claimed  by the  indenture  trustee,  plus $10  million in  punitive
damages.  The Company has opposed the  indenture  trustee's  motion for leave to
amend the complaint.  The indenture is  non-recourse to the Company except as to
recourse  to the  Collateral  and except for the  indenture  trustee's  fees and
expenses, which are fully recourse obligations.

     During  1997,  a lawsuit was filed  against  Vacation  Break in the Circuit
Court for Pinellas  County,  Florida by Market  Response  Group & Laser Company,
Inc.  ("MRG&L")  alleging  that Vacation  Break and others  conspired to boycott
MRG&L and fix prices for mailings in violation of the Florida Antitrust Act, and
in concert with others, engaged in various acts of unfair competition, deceptive
trade  practices  and common law  conspiracy.  The  complaint  also alleges that
Vacation   Break   breached  its  contract  with  MRG&L,   that  Vacation  Break
misappropriated  proprietary  information  from  MRG&L and that  Vacation  Break
interfered  with,  and caused other  companies to breach their  contracts  with,
MRG&L.  While the Company cannot calculate the total amount of damages sought by
MRG&L,  it appears from the initial  complaint,  and  subsequent  submissions by
MRG&L's counsel, to be substantially in excess of $50 million.

     On June 2, 1998, Vacation Break filed a separate action in federal District
Court for the Middle  District of Florida,  Tampa  Division,  asserting  various
antitrust  tying and other claims against MRG&L and related  parties.  MRG&L has
asserted in the federal  action similar  counterclaims  as the claims alleged in
the state court action. It is expected that the case will be scheduled for trial
on or after April 2001. Under the terms of the Principal Stockholders Agreement,
entered into in connection with the acquisition of Vacation Break, Fairfield has
been  indemnified for (a) 75% of the damages which may be incurred in connection
with the defense of the MRG&L  litigation and (b) 25% of the expense incurred in
defending  the  MRG&L  litigation,  in excess of the June 30,  1997  reserve  on
Vacation Break's books,  with the maximum amount of  indemnification  to be $6.0
million. Such indemnification agreement has been collateralized by, and recourse
under the indemnity agreement is limited to, the pledge of shares of Fairfield's
Common  Stock,  valued as of December  18, 1997  (adjusted  for stock splits and
certain  other  similar  items),  at an  indemnification  value of $21.59375 per
share, and the proceeds thereof. Any shares of Common Stock the Company receives
under  the   indemnification   agreement   will  reduce  the  number  of  shares
outstanding. The amount of any settlement, adverse judgment or defense costs, in
excess of amounts accrued,  would be charged to operations,  notwithstanding the
availability of indemnification under the Principal Stockholders Agreement.

<PAGE>

     Additionally,  the Company is involved in various other claims and lawsuits
arising in the ordinary  course of business.  In the opinion of management,  the
outcome of these  other  claims and  lawsuits  will not have a material  adverse
effect on the Company's consolidated  financial position,  results of operations
or cash flows.

Note 16 - Fair Value of Financial Instruments
-------   -----------------------------------

     The estimated fair value amounts  presented  herein have been determined by
the  Company  using  relevant  market  information  and  appropriate   valuation
methodologies.  However, as these estimates are subjective in nature and involve
uncertainties and significant judgment,  they are not necessarily  indicative of
their future  values.  The use of different  market  assumptions  or  estimation
methodologies may have a material effect on the estimated fair value amounts.

     The  carrying  value  of cash  and cash  equivalents,  restricted  cash and
accounts payable approximate fair value due to the relatively  short-term nature
of the financial  instruments.  The carrying amount of the investment in and net
amounts due from qualifying  special purpose  entities  approximates  fair value
based  on  valuation  models  using  risk  adjusted  interest  rates,  estimated
pre-payments,  the cost of servicing  and net  transaction  costs.  The carrying
amounts of receivables  approximates  fair value based on valuation models using
risk  adjusted  interest  rates and  historical  pre-payment  experiences  to be
received on similar  current  receivables.  The fair value of the interest  rate
swap agreements approximates carrying value based on valuation models using risk
adjusted interest rates.

     The carrying  amounts of the Company's  borrowings  with variable  interest
rates approximated their fair values at December 31, 2000 and 1999. The carrying
amounts of the  Company's  borrowings  with fixed  interest  rates  totaled $4.8
million and $5.0 million at December 31, 2000 and 1999,  respectively.  The fair
values of these borrowings totaled $4.5 million and $4.8 million at December 31,
2000 and 1999,  respectively,  and were  estimated  using  discounted  cash flow
analyses based on the Company's  current  borrowing rates, or other  appropriate
market rates, for similar types of borrowing arrangements.


<PAGE>


Note 17 - Unaudited Consolidated Quarterly Financial Data
-------   -----------------------------------------------

(In thousands, except per share data)
<TABLE>

                                         Year Ended December 31, 2000
                                  -------------------------------------------
                                   First     Second        Third     Fourth
                                  Quarter    Quarter (1)  Quarter    Quarter (2)
                                  -------    -------      -------    -------
<S>                               <C>        <C>          <C>        <C>

Total revenues                    $120,975   $152,622     $166,790   $146,477
Total expenses                     100,469    128,011      135,945    121,675
                                  --------   --------     --------   --------
Earnings before provision
 for income taxes and
 extraordinary gain                 20,506     24,611       30,845     24,802
Provision for income taxes           7,792      9,260       11,603      8,867
                                  --------   --------     --------   --------
Net earnings before
 extraordinary gain                 12,714     15,351       19,242     15,935
Extraordinary gain -
 extinguishment of debt                -        2,900          -          -
                                  --------   --------     --------   --------
Net earnings                      $ 12,714   $ 18,251     $ 19,242   $ 15,935
                                  ========   ========     ========   ========

Basic earnings per share:
  Earnings before extraordinary
   gain                               $.29       $.38         $.46       $.38
  Extraordinary gain                    -         .07           -          -
                                      ----       ----         ----       ----
  Net earnings                        $.29       $.45         $.46       $.38
                                      ====       ====         ====       ====

Diluted earnings per share:
  Earnings before extraordinary
   gain                               $.28       $.35         $.45       $.36
  Extraordinary gain                    -         .07           -          -
                                      ----       ----         ----       ----
  Net earnings                        $.28       $.42         $.45       $.36
                                      ====       ====         ====       ====

</TABLE>
<TABLE>

                                         Year Ended December 31, 1999
                                  -------------------------------------------
                                   First     Second        Third     Fourth
                                  Quarter    Quarter      Quarter    Quarter
                                  -------    -------      -------    -------
<S>                               <C>        <C>          <C>        <C>

Total revenues                    $99,065    $129,268     $143,702   $119,701
Total expenses                     83,264     104,548      115,603     98,149
                                  -------    --------     --------   --------
Earnings before provision
 for income taxes                  15,801      24,720       28,099     21,552
Provision for income taxes          5,867       8,780       10,755      7,905
                                  -------    --------     --------   --------
Net earnings                      $ 9,934    $ 15,940     $ 17,344   $ 13,647
                                  =======    ========     ========   ========

Basic earnings per share             $.23        $.36         $.39       $.31
                                     ====        ====         ====       ====

Diluted earnings per share           $.22        $.35         $.38       $.30
                                     ====        ====         ====       ====

</TABLE>


(1)  Includes  a  pre-tax,  non-cash  charge  of  $4.7  million  and  a  related
     non-taxable   extraordinary  gain  of  $2.9  million  associated  with  the
     satisfaction of certain debt and litigation (See Notes 14 and 15).

(2)  Includes  charges totaling $1.5 million for investment  banking,  legal and
     accounting fees related to the proposed merger with Cendant Corporation.