<PAGE>   1



                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

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

         For the fiscal year ended December 31, 2000
                                       OR

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

                         Commission file number 0-22725

                            CRESCENT OPERATING, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)



            Delaware                                   75-2701931
---------------------------------          ------------------------------------
 (State or other jurisdiction of           (I.R.S. Employer Identification No.)
  incorporation or organization)

   306 West 7th Street, Suite 1000
          Fort Worth, Texas                              76102
-----------------------------------------              ----------
 (Address of principal executive offices)              (Zip Code)


        Registrant's telephone number, including area code (817) 339-2200

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $0.01 per share
                     ---------------------------------------
                                (Title of class)


                         Preferred Share Purchase Rights
                         -------------------------------
                                (Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required
by section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.

                                YES [X]    NO [ ]

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

The aggregate market value of the 9,055,453 shares of $0.01 par value common
stock held by non-affiliates of the registrant on March 30, 2001 was $11.3
million based upon the closing price of $1.25 on The OTC Bulletin Board.

Number of shares of Common Stock outstanding as of March 30, 2001: 11,442,791

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement to be filed with the Securities and Exchange
Commission for registrant's 2000 Annual Meeting of Shareholders to be held in
2001 are incorporated by reference into Part III of this Form 10-K.

<PAGE>   2


                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                                                               PAGE
                                                                                                               ----
<S>        <C>                                                                                                 <C>
                                                      PART I.

Item 1.    Business......................................................................................        4
Item 2.    Properties....................................................................................       18
Item 3.    Legal Proceedings.............................................................................       18
Item 4.    Submission of Matters to a Vote of Security Holders...........................................       19


                                                      PART II.

Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters.........................       19
Item 6.    Selected Financial Data.......................................................................       20
Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations.........       22
Item 7A.   Quantitative and Qualitative Disclosures about Market Risk....................................       33
Item 8.    Financial Statements and Supplementary Data...................................................       33
Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..........       34


                                                     PART III.

Item 10.   Directors and Executive Officers of the Registrant............................................       34
Item 11.   Executive Compensation........................................................................       34
Item 12.   Security Ownership of Certain Beneficial Owners and Management................................       34
Item 13.   Certain Relationships and Related Transactions................................................       34


                                                      PART IV.

Item 14.   Exhibits, Financial Statements Schedules, and Reports on Form 8-K.............................       34
</TABLE>



                                       2
<PAGE>   3


This Form 10-K contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Although Crescent Operating, Inc. (the
"Company") believes that the expectations reflected in such forward-looking
statements are based upon reasonable assumptions, the Company's actual results
could differ materially from those the Company expects to achieve. The Company's
management is currently actively involved in pursuing a strategic restructuring
of the Company in an effort to alleviate the Company's liquidity issues. Any
failure to complete such a restructuring of the Company would have a significant
adverse effect on the Company and its expected results. Without corporate
restructuring and/or infusion of significant equity, the Company will be unable
to meet its financial obligations in a timely manner. The Company's auditors
report included on the financial statements included in this Annual Report on
Form 10-K has expressed substantial doubt about the Company's ability to
continue to operate as a going concern. Some of the other factors that might
cause material variation from the expectations reflected in the forward-looking
statements include:

         o        The inability of the Company to pay its obligations to
                  Crescent Real Estate Equities Company ("Crescent Equities") as
                  they come due (certain payment obligations have been deferred
                  until April 20, 2001), which is probable in the absence of a
                  successful restructuring of the Company or infusion of equity,

         o        the relatively high levels of debt that the Company maintains
                  and the Company's ability to generate revenue sufficient to
                  meet debt service payments and other operating expenses,

         o        the possibility that the Company's outstanding debt (some of
                  which require "balloon" payments of principal) may be
                  refinanced at higher interest rates or otherwise on terms less
                  favorable to the Company,

         o        the availability of equity and debt financing that may be
                  necessary or advantageous to expand or maintain the Company's
                  operations and investments,

         o        the underperformance or non-performance of the Company's
                  existing business investments,

         o        any unfavorable resolution of issues that relate to the
                  bankruptcy petition of Charter Behavioral Health Systems, LLC
                  ("CBHS"), including, but not limited to, judgments against the
                  Company in respect of lawsuits instituted in connection with
                  the closure of certain CBHS facilities prior to CBHS's filing
                  bankruptcy,

         o        the impact of changes in the industries in which the Company's
                  businesses and investments operate (including equipment sales
                  and leasing, hospitality, temperature controlled logistics and
                  land development) and the economic, demographic and other
                  competitive conditions affecting those industries, the
                  Company's cash flows and the value of the Company's
                  investments,

         o        the high levels of debt and rental payments to which certain
                  of the Company's investments are subject make the earnings of
                  those investments extremely sensitive to changes in operations
                  or business activity, and

         o        the effect of the REIT Modernization Act upon future
                  opportunities under the Intercompany Agreement with Crescent
                  Equities; the Intercompany Agreement is not expected to result
                  in future business opportunities.

Given these uncertainties, readers are cautioned not to place undue reliance on
such forward-looking statements. The Company is not obligated to update these
forward-looking statements to reflect any future events or circumstances.


                                       3
<PAGE>   4



                                     PART I

ITEM 1.  BUSINESS

                                   THE COMPANY

Crescent Operating, Inc. ("Crescent Operating" or the "Company"), a Delaware
corporation, was formed on April 1, 1997, by Crescent Real Estate Equities
Company ("Crescent Equities" or "CEI") and its subsidiary Crescent Real Estate
Equities Limited Partnership ("Crescent Partnership"). Effective June 12, 1997
Crescent Equities distributed shares of Crescent Operating common stock to
shareholders of Crescent Equities and unit holders of Crescent Partnership, and,
on that date, Crescent Operating became a public company. Crescent Operating was
formed to be the lessee and operator of certain assets owned or to be acquired
by Crescent Partnership. The relationship between the Company and Crescent
Partnership is governed by the "Intercompany Agreement" which provides the
Company and Crescent Partnership with rights to participate in certain
transactions. The Company also engages in the equipment sales and leasing
business, which is not related to Crescent Equities or the Intercompany
Agreement. Unless the context otherwise requires, the terms "Crescent
Operating", "the Company", "Crescent Equities", "CEI" and "Crescent Partnership"
include the subsidiaries of each and, in the case of "CEI" and "Crescent
Equities", includes "Crescent Partnership".


                                       4
<PAGE>   5

BUSINESS SEGMENTS

Crescent Operating, through various subsidiaries and affiliates, has assets and
operations comprising four business segments: (i) Equipment Sales and Leasing,
(ii) Hospitality, (iii) Temperature Controlled Logistics and (iv) Land
Development. Within these segments the Company owned the following for all or
some portion of 2000:

o        THE EQUIPMENT SALES AND LEASING SEGMENT consisted of a wholly owned
         interest in Crescent Machinery Company, a construction equipment sales,
         leasing and service company which had 18 locations in seven states. See
         Equipment Sales and Leasing - Recent Developments.

o        THE HOSPITALITY SEGMENT consisted of (i) the Company's lessee interests
         in business class Hotels which include the Denver Marriott City Center,
         the Hyatt Regency Albuquerque, the Four Seasons Hotel in Houston, Texas
         (hotel was sold and lease terminated in November 2000; see Hospitality
         - Recent Developments), and the Renaissance Hotel in Houston, Texas;
         lessee interests in Luxury Spa Resorts which include the Hyatt Regency
         Beaver Creek, the Ventana Inn and Spa and the Sonoma Mission Inn and
         Spa (including the Sonoma Mission Inn Golf and Country Club); and
         lessee interests in Destination Fitness Resorts and Spas which include
         Canyon Ranch-Tucson and Canyon Ranch-Lenox (collectively, the
         "Hospitality Properties"), (ii) a two-thirds interest in the Houston
         Center Athletic Club Venture (investment was sold in January 2000; see
         Hospitality - Recent Developments) and (iii) a 5% economic interest in
         CRL Investments, Inc. ("CRL"), which has an investment in the Canyon
         Ranch Day Spa in the Venetian Hotel in Las Vegas, Nevada and
         participates in the future use of the "Canyon Ranch" name.

o        THE TEMPERATURE CONTROLLED LOGISTICS SEGMENT consisted primarily of a
         40% interest in (i) the operations of Vornado Crescent Logistics
         Operating Partnership ("AmeriCold Logistics"), which currently operates
         99 refrigerated storage properties with an aggregate storage capacity
         of approximately 518 million cubic feet, (ii) an effective 12% common
         interest and a 16% preferred interest in Transportal Network LLC
         ("Transportal"), an abandoned venture planned to provide routing and
         load management services and facilitate related purchases over the
         internet to independent truckers, shippers and receivers to enable them
         to increase efficiency (ceased operations in October 2000; see
         Temperature Controlled Logistics Segment - Recent Developments), and
         (iii) a 1% interest in Crescent CS Holdings Corporation ("CS I") and
         Crescent CS Holdings II Corporation ("CS II", and together with CS I,
         the "Temperature Controlled Logistics Partnerships") (sold in December
         2000; see Temperature Controlled Logistics segment - Recent
         Developments).

o        THE LAND DEVELOPMENT SEGMENT consisted of (i) a 4.65% economic interest
         in Desert Mountain, a master planned, luxury residential and
         recreational community in northern Scottsdale, Arizona, (ii) a 52.5%
         general partner interest in The Woodlands Operating Company, L.P.
         ("Woodlands Operating"), (iii) a 2.125% economic interest in The
         Woodlands Land Development Company L.P. ("Landevco") and (iv) a 60%
         economic interest in COPI Colorado, LP ("COPI Colorado"), a company
         that has a 10% economic interest in Crescent Development Management
         Corp. ("CDMC").

The Company sold its investment in CBHS, a behavioral healthcare provider, in
December 2000. Prior to fiscal year 2000, the Company had written off its entire
investment in CBHS and had ceased to report its operations related to CBHS as a
separate segment. During 2000, the Company incurred costs of its previous
ownership related to the CBHS investment, such as legal and accounting costs and
costs related to due diligence on the assets the Company's subsidiary had
offered to purchase out of bankruptcy. CBHS has engaged in efforts to sell and
liquidate, in a controlled fashion through the pending


                                       5
<PAGE>   6


bankruptcy proceedings, all of its ongoing business. See Other Investments -
Charter Behavioral Health Systems, LLC - Recent Developments.

PROPOSED RESTRUCTURING OF CRESCENT OPERATING

On December 17, 1999, President Clinton signed into law the REIT Modernization
Act, which became effective on January 1, 2001, and contains a provision that
permits real estate investments trusts ("REITS"), such as Crescent Equities, to
own and operate certain types of investments that are currently owned and
operated by Crescent Operating, specifically the Hospitality and Land
Development segments. As a consequence, Crescent Equities can retain business
opportunities it would otherwise offer to the Company pursuant to the
Intercompany Agreement. Crescent Operating is considering corporate
restructuring alternatives which include the potential sale of the Company's
Hospitality and Land Development segments to Crescent Equities.

                           EQUIPMENT SALES AND LEASING

OVERVIEW

Crescent Machinery is engaged in the sale, leasing and service of construction
equipment and accessories to the construction industry located primarily in six
states. The Company has dramatically expanded the equipment sales and leasing
business it acquired in 1997. Historically, construction equipment businesses
have been owned and operated primarily by individuals in a localized area.
Crescent Operating has consolidated some of these businesses in order to gain
improvements in purchasing and operating efficiencies. All of the Crescent
Machinery locations are registered equipment dealers representing major lines of
equipment. This differentiates Crescent Machinery from some of its pure
rent-to-rent competition. Crescent Machinery's locations offer new and used
equipment for sale and rent, have factory trained service personnel and provide
parts and warranty service.

Management of Crescent Machinery is focused on a continued increase in the
rental and leasing components as well as the parts and service aspect of
Crescent Machinery's business, which management believes have the potential to
generate higher profit margins. In implementing such strategy, management is
specifically focusing on (i) the elimination of under producing assets to allow
for overall improvement of its return on invested capital for both the rental
and distribution businesses, (ii) increased volume by increased rental market
share of core markets and (iii) growth of the rent-to-own programs and the parts
and service businesses. The growth of rental fleet, while positioning Crescent
Machinery to compete more effectively in its markets, has resulted in, and
during the foreseeable future is likely to result in, increased depreciation and
interest expense.

Crescent Machinery's core markets have experienced robust growth over the past
several years; however, management believes that Crescent Machinery's core
markets will grow at a slower rate over the next five years than during the last
several years. Management believes that in the event of a significant downturn
of the economy, the decline in construction demand would have the largest impact
on Crescent Machinery's lowest margin revenue, new and used equipment sales.
Conversely, during times of market softening, as contractors generally retain
their equipment longer, Crescent Machinery would have the opportunity to obtain
additional service and parts business as a result of older equipment remaining
in the market. Crescent Machinery competes with various large and small
companies. Crescent Machinery believes that the principal competitive factors in
its markets for sale and rental of the construction equipment and accessories it
offers are availability of requested equipment, competitive pricing, product
features, parts and service. Crescent Machinery's operations are seasonal, and
adverse weather conditions, such as extended periods of precipitation, can
adversely affect its operations. The summer months typically have the greatest
positive impact and the winter months typically have the greatest negative
impact on the Company's consolidated results.

RECENT DEVELOPMENTS

In January 2001, the Franklin, Indiana Crescent Machinery location was closed
and its assets have been transferred to other locations where management
believes they can be better utilized.



                                       6
<PAGE>   7



OPERATIONAL STATISTICS

<TABLE>
<CAPTION>


(in thousands)
                                                  For The Year Ended December 31,
                                         ------------------------------------------------
                                         2000       1999       1998       1997       1996
                                         ----       ----       ----       ----       ----
<S>                                      <C>        <C>        <C>        <C>        <C>
Revenue:
 New and used equipment ...........        54%        60%        62%        39%        42%
 Rental equipment .................        27%        21%        19%        32%        29%
 Parts, service and supplies ......        19%        19%        19%        29%        29%
                                         ----       ----       ----       ----       ----
Total revenue .....................       100%       100%       100%       100%       100%

Expenses:
 Cost of sales:
   New and used equipment .........        88%        85%        83%        89%        93%
   Rental equipment ...............        62%        55%        56%        65%        64%
   Parts, service and supplies ....        63%        67%        61%        78%        85%
                                         ----       ----       ----       ----       ----
 Total cost of sales ..............        76%        75%        73%        78%        82%

 Gross profit .....................        24%        25%        27%        22%        18%

 Operating expenses ...............        23%        21%        19%        16%        17%
                                         ----       ----       ----       ----       ----

Income from operations ............         1%         3%         7%         6%         1%
                                         ====       ====       ====       ====       ====

EBITDA ............................        13%        14%        17%        20%        16%
                                         ----       ----       ----       ----       ----
</TABLE>

The Company is focused on increasing the profit margin on its rental revenue
through increased utilization of existing assets, elimination of under producing
assets from the rental fleet, as well as packaging rental equipment to our
larger customers. The Company also continues to focus on minimizing operating
costs and capturing synergies from the consolidation of the multiple
acquisitions completed in prior years. Crescent Machinery's branch locations are
currently fully integrated into a financial and operational computer system
which allows management access, across all branches, to accurate information on
a timely basis. Management believes that the improved information flow is
critical to capturing the synergies of the consolidated group. Management
believes these initiatives are critical to the future success of the Company.

MARKET INFORMATION

The Company believes that predicted slowdowns in private construction
expenditures will likely be offset by increases in public construction. Directly
related to such increase, is the highway construction-related business resulting
from the Transportation Equity Act for the 21st Century ("TEA-21"). TEA-21
provides for record federal highway program funding of $173 billion over a
five-year period, which represents a 40% increase over previous funding levels.
In Texas and California, the states in which Crescent Machinery is most active,
the percentage increase in federal funding for highway programs over previous
levels is 60% and 45%, respectively. Historical double-digit industry growth of
equipment rentals have slowed, with growth currently projected at approximately
6% per year for the foreseeable future.



                                       7
<PAGE>   8




                                   HOSPITALITY

OVERVIEW

The Hospitality segment generally consists of the operations of the Hospitality
Properties. Each of such properties is owned by Crescent Partnership or its
affiliates and all are leased to subsidiaries of the Company under long term
leases. In addition to these properties, the Company also has other investments
in CRL and, until January 2000, the Houston Center Athletic Club Venture
("HCAC"), which was sold for $2.4 million.

The Hospitality Properties are comprised of unique luxury resorts, business and
convention hotels and destination health and fitness resorts and make up a small
portion of the hospitality industry. Because Crescent Operating, for the most
part, relies on third-party operators such as Marriott, Hyatt and Four Seasons,
the Company enjoys the advantage of the third-party operators' nationwide
advertising, reservation services and strong management.

Each of the Hospitality Properties is under lease with Crescent Equities, with
terms that expire from December 2004 to June 2009 and generally provide for (i)
base rent, with periodic rent increases, (ii) percentage rent based on a
percentage of gross hotel revenues less food and beverage revenues above a
specified amount and (iii) a percentage of gross food and beverage revenues
above a specified amount. Under the leases, the Company's subsidiaries have
assumed the rights and obligations of the property owner under the respective
management agreement with the hotel operators (including the property management
agreements with Sonoma Management Company ("SMC") for Sonoma Mission Inn and
Spa, Sonoma Mission Inn Golf and Country Club and Ventana Inn and Spa), as well
as the obligation to pay all property taxes and other charges against the
property. As part of each of the lease agreements for eight of the Hospitality
Properties, Crescent Equities has agreed to fund all capital expenditures
relating to furniture, fixtures and equipment reserves required under the
applicable management agreements. The only exception is Canyon Ranch-Tucson, in
which instance the Company owns all furniture, fixtures and equipment associated
with the property and will fund all related capital expenditures. The Company
has deferred payment of lease rental obligations on the Hospitality Properties,
see Liquidity and Capital Resources.

All of the Company's Hospitality Properties, except for the Sonoma Mission Inn
and Spa, Sonoma Mission Inn Golf and Country Club and the Ventana Inn and Spa,
are managed by third party operators. Through January 2000, Sonoma Mission Inn
and Spa, Sonoma Mission Inn Golf and Country Club and the Ventana Inn and Spa
were managed by the Company with asset management oversight provided by The
Varma Group under asset management agreements. The Varma Group was the exclusive
asset manager of the Company's Hospitality Properties. Johanna Varma, a
principal of The Varma Group, was President of the Hospitality division of the
Company until February 2000.

Effective February 1, 2000, The Varma Group asset management agreements were
terminated by mutual agreement of the parties; at the same time, Crescent
Operating and its hospitality subsidiaries entered into a Master Asset
Management and Administrative Services Agreement with SMC to manage the Hyatt
Albuquerque, the Four Seasons Hotel Houston, the Renaissance Hotel Houston and
the Denver City Center Marriott. At the same time, the Company's hospitality
subsidiaries accepted assignment from the owners of the Sonoma Mission Inn and
Spa, the Sonoma Mission Inn Golf and Country Club and the Ventana Inn and Spa of
its property management agreements with SMC. The principals of SMC are Sanjay
and Johanna Varma and Crescent Equities is an equity owner in SMC. Payment of
obligations under the Master Asset Management and Administrative Services
Agreement are guaranteed by the Company. For each property for which it provides
asset management services, SMC will receive a base fee equal to 0.85% of gross
revenues of the property managed plus an incentive fee of 50% of actual net
income in excess of budgeted net income. For each property for which it provides
property management services, SMC will receive a base fee equal to 2.0% of gross
revenues of the property plus an incentive fee of 20% of net operating income in
excess of 12% annual return on investment to owner.

As consideration for its services under the Master Asset Management and
Administrative Services Agreement, SMC received an annual base fee (and no
incentive fee) for 2000 of approximately $0.8 million, for its asset management
services related to the Hyatt Albuquerque, the Four Seasons Hotel Houston, the
Renaissance Houston Hotel and the Denver City Center Marriott. Following the
sale of the Four Seasons Hotel in Houston (discussed below), a


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<PAGE>   9


subsidiary of the Company paid SMC $0.3 million for the early termination of its
asset management agreement related to that hotel.

Crescent Partnership has committed capital towards projects at certain of the
Hospitality Properties to further enhance the guests' experience. Significant
projects during 2000 include:

         o        Approximately $21.0 million expansion at the Sonoma Mission
                  Inn and Spa which was completed in the second quarter of 2000.
                  The expansion included a 30,000 square foot full-service spa,
                  30 additional suites and a parking deck.

         o        Approximately $15.5 million renovation project at the
                  Renaissance Houston Hotel which was completed in the fourth
                  quarter of 2000. The renovation included improvement to all
                  guest rooms, the lobby, and exterior and interior systems.

         o        Approximately $5.0 million renovation project at the Four
                  Seasons in Houston. The renovation included improvement to
                  guest rooms and common areas.

         o        An estimated $6.9 million renovation at the Hyatt Regency
                  Beaver Creek, scheduled to be completed by the fourth quarter
                  of 2001. The renovation includes improvement to all guest
                  rooms.

The Company has limited the potential impact of downturns in the hospitality
industry on the Company by limiting Crescent Operating's guarantee of the rent
payment obligations of its Hospitality segment subsidiaries. The Company's
guarantee related to rent payments is limited to cash generated by the
Hospitality segment, i.e. cash flows from segments other than Hospitality would
not be used to fund rent payments in the event cash flows of the Hospitality
Properties were less than scheduled rent payments.

The individual Hospitality Properties are affected by seasonality; however, the
seasonal fluctuations are varied and are determined by both location and the
nature of the business conducted on the property. The effects of seasonality of
the Hospitality Properties are generally offsetting; however, March and October
have the greatest positive impact and November through January have the greatest
negative impact on the Company's consolidated results.

The Company's Hospitality Properties in Denver and Albuquerque are business and
convention center hotels that compete against other similar hotels in their
markets. The Company believes, however, that its destination health and fitness
resorts are unique properties that have very limited competition. In addition,
the Company believes that its other Hospitality Properties experience limited or
no direct competition due to their high replacement costs and unique concepts or
locations. The Hospitality Properties do compete, to a limited extent, against
business class hotels or middle-market resorts in their geographic areas, as
well as against luxury resorts nationwide and around the world.

The company has a 5% economic interest, representing all of the voting stock of
CRL. On July 27, 2000, CRL exercised its option to purchase an additional 10%
economic interest in CR license LLC ("CR License") by paying $3.0 million,
bringing CRL's total economic interest in CR license to 30%. CR license is the
entity which owns the rights to the future use of the "Canyon Ranch" name. CRL
also has an approximate 65% economic interest in the Canyon Ranch Spa Club
located in the venetian Hotel in Las Vegas.

Effective January 31, 2000, HCAC sold substantially all of its assets to an
unrelated party. Through a wholly owned subsidiary, the Company received
proceeds from the sale of $2.4 million resulting in an approximate $1.5 million
gain which was recognized by Crescent Operating in the first quarter of 2000.

On November 3, 2000, Crescent Equities completed the sale of the Four Seasons
Hotel in Houston and, in connection therewith, exercised its right under the
lease agreement to terminate the lease. As required under the lease agreement,
Crescent Equities paid the Company the fair market value of the remaining term
of the lease in the fourth quarter of 2000 which was agreed to be $16.6 million
and resulted in a gain of $18.3 million (the difference primarily consisting of
the elimination of the straight-line rent liability related to the lease).



                                       9
<PAGE>   10


OPERATIONAL STATISTICS

The following table sets forth certain information about the Hospitality
Properties, excluding the Sonoma Mission Inn Golf and Country Club, HCAC, CRL
and the Four Seasons for the years ended December 31, 2000 and 1999. The
information below is based on available rooms, except for Canyon Ranch-Tucson
and Canyon Ranch-Lenox, which are destination health and fitness resorts that
measure performance based on available guest nights.


<TABLE>
<CAPTION>

                                                                                   For the year ended December 31,
                                                                                 -----------------------------------
                                                                                    Average            Average
                                                                                   Occupancy            Daily
                                                                                     Rate                Rate
                                                                                 -------------     -----------------
                             Location           Lease Expiraton     Rooms        2000     1999      2000      1999
                             --------           ---------------     -----        ----     ----     ------     ------
<S>                          <C>                <C>                 <C>          <C>      <C>      <C>        <C>
Business Class Hotels:
Denver Marriott City Center    Denver, CO         June 2005           613        84%      80%     $  120      $   124
Hyatt Regency Albuquerque      Albuquerque, NM    December 2005       395        69       66         106          106
Renaissance Houston            Houston, TX        June 2009           389        59       63          95           94
                                                                    -----        --       --      ------      -------
    Total/Weighted Average                                          1,397        73%      71%     $  111      $   112
                                                                    =====        ==       ==      ======      =======

Luxury Spa Resorts:
Hyatt Regency Beaver Creek     Avon, CO           December 2004       276        69%      72%     $  254      $   244
Sonoma Mission Inn & Spa       Sonoma, CA         October 2006(6)     228(1)     75       79         302          225
Ventana Inn & Spa              Big Sur, CA        December 2007        62        78       78         458          388
                                                                    -----        --       --      ------      -------
    Total/Weighted Average                                            566        72%      75%     $  298      $   255
                                                                    =====        ==       ==      ======      =======

                                                                    Guest
                                                                   Nights
Destination Fitness
Resorts and Spas:
Canyon Ranch-Tucson            Tucson, AZ         July 2006           250(2)
Canyon Ranch-Lenox             Lenox, MA          December 2006       212(2)
                                                                    -----        --       --      ------      -------
    Total/Weighted Average                                            462        86%(3)   87%(3)  $  593(4)   $   543(4)
                                                                    =====        ==       ==      ======      =======

Grand Total/Weighted Average                                                     75%      75%     $  246      $   227
                                                                                 ==       ==      ======      =======


<CAPTION>



                                                              For the year ended December 31,
                                                              -------------------------------
                                                                          Revenue
                                                                            Per
                                                                      Available Room
                                                                    -----------------
                                 Location        Lease Expiration    2000       1999
                               ---------------   ----------------   ------     ------
<S>                            <C>               <C>                <C>        <C>
Business Class Hotels:
Denver Marriott City Center    Denver, CO         June 2005         $  101     $   99
Hyatt Regency Albuquerque      Albuquerque, NM    December 2005         73         70
Renaissance Houston            Houston, TX        June 2009             56         59
                                                                    ------     ------
    Total/Weighted Average                                          $   80     $   80
                                                                    ======     ======

Luxury Spa Resorts:
Hyatt Regency Beaver Creek     Avon, CO           December 2004     $  176     $  175
Sonoma Mission Inn & Spa       Sonoma, CA         October 2006(6)      226        179
Ventana Inn & Spa              Big Sur, CA        December 2007        358        302
                                                                    ------     ------
    Total/Weighted Average                                          $  216     $  191
                                                                    ======     ======

Destination Fitness
Resorts and Spas:
Canyon Ranch-Tucson            Tucson, AZ         July 2006
Canyon Ranch-Lenox             Lenox, MA          December 2006
                                                                    ------     ------
    Total/Weighted Average                                          $  487(5)  $  451(5)
                                                                    ======     ======

Grand Total/Weighted Average                                        $  189     $  176
                                                                    ======     ======
</TABLE>


(1)      In January 2000, 20 rooms, which were previously taken out of
         commission for construction of a 30,000 square foot full-service spa in
         connection with an approximately $21 million expansion of the hotel,
         were returned to service. The expansion was completed in the second
         quarter of 2000. The expansion also included 30 additional guest rooms.
         Rates were discounted during the construction period, which resulted in
         a lower average daily rate and revenue per available room for the year
         ended December 31, 1999, as compared to December 31, 2000.

(2)      Represents available guest nights, which is the maximum number of
         guests that the resort can accommodate per night.

(3)      Represents the number of paying and complimentary guests for the
         period, divided by the maximum number of available guest nights for the
         period.

(4)      Represents the average daily "all-inclusive" guest package charges for
         the period, divided by the average daily number of paying guests for
         the period.

(5)      Represents the total "all-inclusive" guest package charges for the
         period, divided by the maximum number of available guest nights for the
         period.

(6)      The lease related to the Sonoma Mission Inn Golf and Country Club
         expires in October 2008.

MARKET INFORMATION

The following is derived from various industry sources. Average hotel room
rental rates grew 4.9%, 4.0%, 4.4% and 6.2%, in 2000, 1999, 1998 and 1997,
respectively. Within the luxury and upscale segments of the industry, average
room rental rates increased approximately 4.5% from 1999 to 2000. Industry
information was compiled from information published by Smith Travel Research.

Business and convention travel accounts for about two-thirds of overall room
demand and has risen over the last three years along with the improving economy.
Domestic leisure travel has also increased, especially among the "baby boomers",
who are not only at the prime age for leisure travel but also have a greater
tendency to travel than previous generations. A healthier, more active senior
population is also contributing to the increase in travel. With the aging of the
"baby boomer" generation and the growing interest in quality of life activities,
the resort/spa industry also is experiencing significant growth in the United
States.


                                       10
<PAGE>   11


                        TEMPERATURE CONTROLLED LOGISTICS

OVERVIEW

The Temperature Controlled Logistics segment consists primarily of a 40%
interest in the operations of AmeriCold Logistics. AmeriCold Logistics,
headquartered in Atlanta, Georgia, has 6,700 employees and operates 99
temperature controlled storage facilities nationwide with an aggregate of
approximately 518 million cubic feet of refrigerated, frozen and dry storage
space. Of the 99 warehouses, AmeriCold Logistics leases 88 temperature
controlled facilities with an aggregate of approximately 439 million cubic feet
from the Temperature Controlled Logistics Partnerships, and manages 11
additional facilities containing approximately 79 million cubic feet of space.
AmeriCold Logistics provides the frozen food industry with refrigerated storage
and transportation management services.

AmeriCold Logistics leases the refrigerated storage facilities used in its
business. The leases, as amended, which commenced in March 1999, generally have
a 15-year term with two five-year renewal options and provide for the payment of
fixed base rent and percentage rent based on revenues AmeriCold Logistics
receives from its customers. Fixed base rent was approximately $136.0 million in
2000 and will be approximately $137.0 million per annum from 2001 through 2003,
$139.0 million per annum from 2004 through 2008 and $141.0 million per annum
from 2009 through February 28, 2014. Percentage rent for each lease is based on
a specified percentage of revenues in excess of a specified base amount. The
aggregate base revenue amount under five of the six leases is approximately
$350.0 million and the weighted average percentage rate is approximately 36%
through 2003, approximately 38% for the period from 2004 through 2008 and
approximately 40% for the period from 2009 through February 28, 2014. The
aggregate base revenue amount under the sixth lease is approximately $32.0
million through 2001, and approximately $26.0 million for the period from 2002
through February 28, 2014, and the percentage rate is 24% through 2001, 37.5%
for the period from 2002 through 2006, 40% from 2007 through 2011 and 41% from
2012 through February 28, 2014. AmeriCold Logistics recognized $164.5 million
and $133.1 million of rent expense for the year ended December 31, 2000 and from
March 11, 1999 (acquisition date) through December 31, 1999, respectively.
AmeriCold Logistics is required to pay for all costs arising from the operation,
maintenance and repair of the properties, including all real estate taxes and
assessments, utility charges, permit fees and insurance premiums, as well as
property capital expenditures in excess of $5.0 million annually. AmeriCold
Logistics has the right to defer the payment of 15% of the fixed base rent and
all percentage rent for up to three years beginning on March 11, 1999 to the
extent that available cash, as defined in the leases, is insufficient to pay
such rent. AmeriCold Logistics deferred $19.0 million and $5.4 million of rent
payments for the periods ending December 31, 2000 and December 31, 1999,
respectively. See Temperature Controlled Logistics - Recent Developments for
discussion of the restructuring of these leases in February 2001.

Under the terms of the partnership agreement for AmeriCold Logistics, Vornado
Operating, Inc. ("Vornado Operating") has the right to make all decisions
relating to the management and operations of AmeriCold Logistics other than
certain major decisions that require the approval of both the Company and
Vornado Operating. Vornado Operating must obtain Crescent Operating's approval
for specified matters involving AmeriCold Logistics, including approval of the
annual budget, requiring specified capital contributions, entering into
specified new leases or amending existing leases, selling or acquiring specified
assets and any sale, liquidation or merger of AmeriCold Logistics. If the
partners fail to reach an agreement on such matters during the period from
November 1, 2000 through October 30, 2007, Vornado Operating may set a price at
which it commits to either buy Crescent Operating's investment, or sell its own,
and Crescent Operating will decide whether to buy or sell at that price. If the
partners fail to reach agreement on such matters after October 30, 2007, either
party may set a price at which it commits to either buy the other party's
investment, or sell its own, and the other party will decide whether to buy or
sell at that price. Neither partner may transfer its rights or interest in the
partnership without the consent of the other partner. The partnership will
continue for a term through October 30, 2027, except as the partners may
otherwise agree.

During the second quarter of 2000, the Company restructured its business venture
with Vornado Operating, Inc. and Crescent Equities to pursue a
business-to-business internet opportunity relating to the Temperature Controlled
Logistics business. As a result of the restructuring, the Company was relieved
of its previously reported obligation


                                       11
<PAGE>   12


to fund initial startup costs previously reported, which resulted in net
investment income of $1.2 million during the second quarter of 2000 and left no
basis in the investment. In October 2000, operations were ceased after
Transportal failed to secure outside funding. The closure has no impact on the
financial statements of Crescent Operating, and the Company has no obligation
for future cash funding.

On December 1, 2000, the Company exercised a preexisting put option to sell the
remaining 20% of its 5% interest in the Temperature Controlled Logistics
Partnerships to Crescent Partnership for $4.1 million, which resulted in a gain
of $0.7 million recognized in the fourth quarter of 2000.

RECENT DEVELOPMENTS

On February 22, 2001, the AmeriCold Logistics leases were restructured to, among
other things, (i) reduce 2001's contractual rent to $146.0 million ($14.5
million less than 2000's contractual rent), (ii) reduce 2002's contractual rent
to $150.0 million (plus contingent rent in certain circumstances), (iii)
increase the Landlord's share of annual maintenance capital expenditures by $4.5
million to $9.5 million effective January 1, 2000 and (iv) extend the deferred
rent period to December 31, 2003 from March 11, 2002.

MARKET INFORMATION

AmeriCold Logistics provides frozen food manufacturers with refrigerated
warehousing and transportation management services. The Temperature-Controlled
Logistics Properties consist of production and distribution facilities.
Production facilities differ from distribution facilities in that they typically
serve one or a small number of customers located nearby. These customers store
large quantities of processed or partially processed products in the facility
until they are further processed or shipped to the next stage of production or
distribution. Distribution facilities primarily serve customers who store a wide
variety of finished products to support shipment to end-users, such as food
retailers and food service companies, in a specific geographic market.

Transportation management services include freight routing, dispatching, freight
rate negotiation, backhaul coordination, freight bill auditing, network flow
management, order consolidation and distribution channel assessment. AmeriCold
Logistics' temperature-controlled logistics expertise and access to both the
frozen food warehouses and distribution channels enable the customers of
AmeriCold Logistics to respond quickly and efficiently to time-sensitive orders
from distributors and retailers.

Customers consist primarily of national, regional and local frozen food
manufacturers, distributors, retailers and food service organizations, including
H.J. Heinz & Co., ConAgra, Inc., Sara Lee Corp., Tyson Foods, Inc. and McCain
Foods, Inc.

AmeriCold Logistics is the largest operator of public refrigerated warehouse
space in the country. AmeriCold Logistics operated an aggregate of approximately
30% of total public refrigerated warehouse space as of December 31, 2000. No
other person or entity operated more than 8% of total public refrigerated
warehouse space as of December 31, 2000. As a result, AmeriCold Logistics does
not have any competitors of comparable size. AmeriCold Logistics operates in an
environment in which competition is national, regional and local in nature and
in which the range of service, temperature-controlled logistics facilities,
customer mix, service performance and price are the principal competitive
factors.


                                       12
<PAGE>   13



OPERATIONAL INFORMATION

The following table shows the location and size of facility for each of the
properties operated by AmeriCold Logistics as of December 31, 2000:

<TABLE>
<CAPTION>

                                          Total Cubic                                                    Total Cubic
                         Number of          Footage                                    Number of           Footage
      State              Properties      (in millions)                State            Properties       (in millions)
-------------------     -------------    --------------         ------------------    -------------     --------------
<S>                     <C>              <C>                    <C>                   <C>               <C>
Alabama                        5               9.5               Missouri(1)                2                46.8
Arizona                        1               2.9               Nebraska                   2                 4.4
Arkansas                       6              33.1               New York                   1                11.8
California                    12              49.8               North Carolina             3                10.0
Colorado                       1               2.8               Ohio                       1                 5.5
Florida                        5               7.5               Oklahoma                   2                 2.1
Georgia                        7              44.5               Oregon                     6                40.4
Idaho                          2              18.7               Pennsylvania               4                50.8
Illinois                       2              11.6               South Carolina             1                 1.6
Indiana                        1               9.1               South Dakota               2                 6.3
Iowa                           2              12.5               Tennessee                  3                10.6
Kansas                         2               5.0               Texas                      4                27.2
Kentucky                       1               2.7               Utah                       1                 8.6
Maine                          1               1.8               Virginia                   2                 8.7
Massachusetts                  5              10.5               Washington                 6                28.7
Minnesota                      1               5.9               Wisconsin                  3                17.4
Mississippi                    1               4.7               Canada                     1                 4.8
                                                                                      -------------     --------------
                                                                Total                      99               518.3
                                                                                      =============     ==============

</TABLE>

(1) Includes one underground facility of approximately 33.1 million cubic feet.


                                LAND DEVELOPMENT

OVERVIEW

The Land Development segment consisted primarily of:

         o        a 4.65% economic interest in Desert Mountain, a master
                  planned, luxury residential and recreational community in
                  northern Scottsdale, Arizona;

         o        a 52.5% general partner interest in Woodlands Operating, which
                  provides management, advisory, landscaping and maintenance
                  services to The Woodlands, Texas and is the lessee of The
                  Woodlands Resort and Conference Center;

         o        a 2.125% economic interest in Landevco, which owns
                  approximately 7,500 acres for commercial and residential
                  development as well as a realty office, an athletic center,
                  and interests in both a title company and a mortgage company;

         o        a 60% economic interest in COPI Colorado, an entity that has a
                  10% economic interest in CDMC, which invests in entities that
                  develop or manage residential and resort properties (primarily
                  in Colorado) and provides support services to such properties.

The Land Development segment competes against a variety of other housing
alternatives including other planned developments, pre-existing single-family
homes, condominiums, townhouses and non-owner occupied housing, such as luxury
apartments. The Company believes that The Woodlands, Desert Mountain and the
entities in which CDMC has investments contain certain features that provide
competitive advantages to these developments. The Woodlands, which is an
approximately 27,000-acre, master-planned residential and commercial community
north of Houston, Texas, is unique among developments in the Houston area
because it functions as a self-contained community.


                                       13
<PAGE>   14


Amenities contained in the development, which are not contained within other
local developments, include a shopping mall, retail centers, office buildings, a
hospital, a community college, places of worship, a conference center, 60 parks,
81 holes of golf, two man-made lakes, a riverwalk and a performing arts
pavilion. The Woodlands could be adversely affected by downturns in the Houston
economy. The Company believes that the entities in which CDMC has investments do
not have any direct competitors because the locations of the projects are unique
and the land is limited in these locations. Desert Mountain, a luxury
residential and recreational community in Scottsdale, Arizona, which also offers
five 18-hole golf courses and tennis courts, does not have any significant
direct competitors due in part to the types of amenities that it offers.
Substantially all of the remaining residential lots for the four developments
that traditionally have competed with Desert Mountain were sold during 1997. As
a result, these developments have become resale communities that no longer
compete with Desert Mountain in any significant respect.

DESERT MOUNTAIN

Desert Mountain includes The Desert Mountain Club, a private golf, tennis and
fitness club which serves over 2,100 members and offers five Jack Nicklaus
signature 18-hole golf courses and four clubhouses. One of these courses is
Cochise, the site of the Senior PGA Tour's The Tradition golf tournament. Lyle
Anderson, the original developer of Desert Mountain, provides advisory services
in connection with the operation and development of Desert Mountain. Pursuant to
the terms of a limited partnership agreement, Desert Mountain Development
Corporation ("Desert Mountain Development") is entitled to receive 93% of the
net cash flow of Desert Mountain after certain payments to the sole limited
partner, Sonora Partners Mountain Partnership which owns the remaining 7%
interest, have been made.

THE WOODLANDS OPERATING COMPANY

The Woodlands, an approximately 27,000-acre master-planned residential and
commercial community located approximately 27 miles north of Houston, Texas,
includes a shopping mall, retail centers, office buildings, a conference center
and country club and other amenities.

Woodlands Operating was formed to provide management, advisory, landscaping and
maintenance services to entities affiliated with Crescent Operating and Crescent
Equities as well as to third parties. Pursuant to the terms of service
agreements, Woodlands Operating performs general management, landscaping and
maintenance, construction, design, sales, promotional and other marketing
services for certain properties in which Crescent Equities owns a direct or
indirect interest. In addition, Woodlands Operating monitors certain of the real
estate investments of, and provides advice regarding real estate and development
issues to, such entities. As compensation for its management and advisory
services, Woodlands Operating is paid a monthly advisory fee on a cost-plus
basis. As compensation for its landscaping and maintenance services, Woodlands
Operating receives a monthly fee on a cost-plus basis related to performing the
required landscaping and maintenance services. Each service agreement provides
for an initial term of at least 12 months (subject to earlier termination under
certain circumstances) and is renewed automatically, unless terminated by either
party upon giving prior notice as specified in each agreement.

Woodlands Operating also leases The Woodlands Conference Center and Country
Club, an executive conference center with a private golf and tennis club and
certain related assets (the "Conference Center") from The Woodlands Commercial
Properties Company, L.P. ("Woodlands Commercial"), a partnership, the interests
of which are owned by Crescent Equities and certain Morgan Stanley Group funds.
Woodlands Operating leases the Conference Center on a triple net basis and will
pay base rent in the amount of $0.75 million per month during the eight-year
term of the lease. The lease also provides for the payment of percentage rent
for each calendar year in which gross receipts from the operation of the
Conference Center exceed certain amounts.

The Woodlands Operating partnership agreement provides that distributions be
made to partners in accordance with specified payout percentages which change
based upon whether certain established cumulative preferred returns have been
earned. As cumulative preferred returns reach certain thresholds, distributions
to the Company from Woodlands Operating increase from 42.5% to 49.5% and then
from 49.5% to 52.5%. Beginning in 2000, both the 42.5% and the 49.5% thresholds
were met by Woodlands Operating; therefore, the payout percentage to the Company
has increased to 52.5%.


                                       14
<PAGE>   15


THE WOODLANDS LAND COMPANY, INC.

Crescent Operating owns all of the voting stock, representing a 5% economic
interest, of The Woodlands Land Development Company ("LandCo"), a residential
and commercial development corporation which was formerly wholly owned by
Crescent Partnership. LandCo holds a 42.5% general partner interest in, and is
the managing general partner of, Landevco, a Texas limited partnership in which
certain Morgan Stanley funds hold a 57.5% limited partner interest. Landevco
primarily owns (i) approximately 4,700 acres of land capable of supporting the
development of more than 12,500 lots for single-family homes, (ii) approximately
1,800 acres capable of supporting more than 16.7 million net rentable square
feet of commercial development, (iii) a realty office, (iv) contract rights
relating to the operation of its property, (v) an athletic center and (vi) a 50%
interest in a title company.

The Landevco partnership agreement provides that distributions be made to
partners in accordance with specified payout percentages which change based upon
whether certain established cumulative preferred returns have been earned. As
cumulative preferred returns reach certain thresholds, distributions to Landco
from Landevco increase from 42.5% to 49.5% and then from 49.5% to 52.5%.
Beginning in 2001, the 42.5% threshold was met by Landevco; therefore, the
payout percentage to the Company has increased by 0.4% to 2.525%.

CRESCENT DEVELOPMENT MANAGEMENT CORP.

CDMC's investments include direct and indirect economic interests that vary from
18% to 70% consisting primarily of the following: (i) five residential and
commercial developments and eleven residential developments in Colorado, South
Carolina and California; (ii) a timeshare development in Colorado; (iii) two
transportation companies that provide approximately 80% of the airport shuttle
service to Colorado resort areas; and (iv) an interest in a partnership that
owns an interest in the Ritz Carlton Hotel in Palm Beach, Florida. Until
December 2000, CDMC had an indirect economic interest in a real estate company
that specializes in the management of resort properties in Colorado, Utah, South
Carolina and Montana. That investment was transferred to CDMC II, a newly formed
entity having the same owners, board of directors and officers as CDMC, in
anticipation of the proposed restructuring discussed above. In connection with
that transfer, CDMC II assumed the indebtedness of CDMC incurred in connection
with that investment, all of which is owed to Crescent Partnership. Effective
March 30, 2001, CDMC II sold that investment -- a membership interest in East
West Resorts, LLC ("EWR") -- to a company affiliated with the other owner of
EWR, for cash and a secured promissory note. CDMC II immediately transferred the
cash and note to Transportal Investment Corp. ("TIC") in exchange for its
assumption of all of its indebtedness and dissolved. Crescent Operating owns 1%,
and Crescent Partnership owns 99%, of TIC, which owns an interest in Transportal
(see "Temperature Controlled Logistics -- Overview" for discussion of
Transportal investment).

Effective September 11, 1998, the Company and Gerald W. Haddock, John C. Goff
and Harry H. Frampton, III (collectively, the "CDMC Sellers") entered into a
partnership agreement (the "Partnership Agreement") to form COPI Colorado. COPI
Colorado's purpose is to hold and manage the voting stock of CDMC (and,
consequently, to manage CDMC) and to invest in shares of Crescent Operating
common stock. In September, 1998, the Company contributed to COPI Colorado $9.0
million in cash in exchange for a 50% general partner interest in COPI Colorado,
and each CDMC Seller contributed to COPI Colorado approximately 667 shares of
CDMC voting stock, which the CDMC Sellers owned individually, in exchange for an
approximately 16.67% limited partner interest in COPI Colorado; as a result and
until January 2000, the Company owned a 50% managing interest in COPI Colorado
and the CDMC Sellers collectively owned a 50% investment interest in COPI
Colorado.

On September 22, 2000, a limited partnership in which CDMC is a majority limited
partner acquired a majority interest in the Northstar-at-Tahoe resort, a
premier, up-scale ski resort located in North Lake Tahoe, California. The
development is expected to span ten years and include an enhanced core village
with new restaurants and retail shops, hotels and spas, and an extensive
residential product mix of over 2,000 condominium and townhome units.

COPI Colorado has purchased approximately 1.1 million shares of Crescent
Operating common stock at a total purchase price of $4.3 million. The average
price paid for such shares, excluding brokers' commissions, was $3.88 per share.
COPI Colorado has not purchased shares of Crescent Operating since August 1999.

OPERATIONAL STATISTICS

The following table sets forth certain information as of December 31, 2000
relating to the residential development properties.


                                       15
<PAGE>   16


<TABLE>
<CAPTION>

                                                    Total          Total       Average
                                       Total      Lots/Units     Lots/Units    Closed
                                       Lots/       Developed       Closed     Sale Price
                                       Units         Since         Since       Per Lot/       Range of Proposed
Land Development                      Planned      Inception     Inception     Unit(1)      Sale Prices Per Lot(2)
----------------                      -------     ----------     ----------   --------      ---------------------
<S>                                   <C>         <C>            <C>          <C>           <C>
Desert Mountain ..............         2,665         2,298         2,130      $496,000      $425,000-$3,000,000(3)
The Woodlands ................        36,385        24,111        22,754      $ 53,000      $ 14,400-$1,000,000
CDMC .........................         2,732           618           557           N/A      $ 25,000-$4,545,000
                                      ------        ------        ------

Total Land Development .......        41,782        27,027        25,441
                                     =======       =======        ======
</TABLE>

(1)  Based on lots/units closed during the Company's ownership period.

(2)  Based on existing inventory of developed lots and lots to be developed.

(3)  Includes golf membership, which as of December 31, 2000, was $225,000.


                                OTHER INVESTMENTS

CHARTER BEHAVIORAL HEALTH SYSTEMS, LLC

CBHS was the largest provider of behavioral health care treatment in the United
States. From September 9, 1999 to December 29, 2000, Crescent Operating (which
prior thereto had owned 50% of CBHS) owned a 25% common membership interest and
100% of the preferred membership interests in CBHS, and a limited partnership
interest in COPI CBHS Holdings (controlled by individual officers of Crescent
Operating), in which Crescent Operating owned 100% of the economic interests,
and which owned 65% of the common interests of CBHS. In the fourth quarter of
1999, CBHS began significant downsizing, including the closing of 18 facilities
in December 1999 and 33 facilities in January 2000. Closure of those facilities
resulted in the filing by terminated employees of several lawsuits against CBHS
and others, including Crescent Operating, for alleged violation of the WARN Act
(see Item 3 -- Legal Proceedings). On February 16, 2000, CBHS petitioned for
relief under Chapter 11 of the United States Bankruptcy Code. Under the
protection of the bankruptcy court, CBHS has engaged in efforts to sell and
liquidate, in a controlled fashion, all of its ongoing business. On April 16,
2000, the asset purchase agreement to which a newly formed, wholly-owned
subsidiary of Crescent Operating had agreed to acquire, for $24.5 million,
CBHS's core business assets used in the operation of 37 behavioral healthcare
facilities, subject to certain conditions, terminated by its own terms because
not all of the conditions precedent to closing had been met by that date. Sales
of 60 properties closed during the twelve months ended December 31, 2000.
Subsequent to December 31, 2000, two additional properties were sold and
contracts or letters of intent have been entered into to sell five additional
properties. CBHS has stated in pleadings filed with the bankruptcy court that it
intends to close its remaining facilities by March 31, 2001 and terminate all
remaining employees by April 30, 2001.

On December 29, 2000 the Company sold its 25% common interest and its 100%
preferred membership interest in CBHS, and COPI CBHS Holdings sold its 65%
common interest in CBHS, to The Rockwood Financial Group, Inc. ("Rockwood") for
a nominal sum. As a result of the liquidation of CBHS through bankruptcy, the
equity investment in CBHS became worthless. Rockwood is wholly owned by Jeffrey
L. Stevens, the Company's Executive Vice President and Chief Operating Officer
and a Director. The sale of CBHS to Rockwood was effected as part of the
Company's tax planning strategy.

MAGELLAN WARRANTS

In connection with the transaction in which the Company acquired its interest in
CBHS in 1997, the Company purchased, for $12.5 million, warrants to acquire
1,283,311 shares of Magellan Health Services, Inc. ("Magellan") common stock for
an exercise price of $30.00 per share. The Magellan warrants are exercisable in
varying increments beginning on May 31, 1998 and ending on May 31, 2009. The
Company has written down its investment in the warrants based on the estimated
fair value of the warrants of $3.0 million at December 31, 2000, using the
Black-Scholes pricing model.

For additional financial information related to the Company's business segments,
see the Company's notes to the consolidated financial statements.


                                       16
<PAGE>   17


                        RECENT ACCOUNTING PRONOUNCEMENTS

SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
provides that all derivative instruments be recognized as either assets or
liabilities depending on the rights or obligations under the contract and that
all derivative instruments be measured at fair value. The Company is required to
adopt SFAS No. 133, as amended by SFAS No. 138, effective January 1, 2001. Upon
adoption, the Company will be required to record the net comprehensive loss
related to the Magellan warrants as a charge in the statement of operations.
Based on the value of the Magellan warrants at December 31, 2000, the impact on
the Company's Statement of Operations on January 1, 2001 will be an expense of
approximately $9.5 million. From January 1, 2001 forward, the Company will be
required to record all changes in the fair value of the Magellan warrants as
investment income (loss) in the statement of operations.

                     TRANSACTIONS WITH CRESCENT PARTNERSHIP

Historically, Crescent Operating generally has been involved with Crescent
Equities in two types of transactions: "LESSEE TRANSACTIONS" and "CONTROLLED
SUBSIDIARY TRANSACTIONS".

         o        LESSEE TRANSACTIONS are those in which Crescent Operating
                  enters into a transaction to lease and operate real property
                  that is owned by Crescent Partnership but which could not,
                  under prior law applicable to REITs, be operated by Crescent
                  Partnership due to Crescent Equities's status as a REIT.
                  Lessee Transactions include the Company's leases of
                  Hospitality Properties.

         o        CONTROLLED SUBSIDIARY TRANSACTIONS are those in which Crescent
                  Operating invests alongside Crescent Partnership in
                  acquisitions where Crescent Operating owns all of the voting
                  stock, and Crescent Partnership owns all of the non-voting
                  stock of a corporate acquisition vehicle which in turn
                  acquires a target business which cannot be operated by
                  Crescent Partnership due to Crescent Equities's status as a
                  REIT. The voting stock represents the controlling interest of
                  the entity being purchased, and due to its status as a REIT,
                  Crescent Equities could not hold a controlling interest in
                  such entities. Controlled Subsidiary Transactions include
                  investments in CRL, Desert Mountain and Landco.

Crescent Operating and Crescent Partnership have entered into the Intercompany
Agreement to provide each other with rights to participate in the types of
transactions mentioned above. The Intercompany Agreement provides, subject to
certain terms, that Crescent Partnership will provide Crescent Operating with a
right of first refusal to become the lessee of any real property acquired by
Crescent Partnership if Crescent Partnership determines that, consistent with
Crescent Equities's status as a REIT, it is required to enter into a "master"
lease arrangement. Crescent Operating's right of first refusal under the
Intercompany Agreement is conditioned upon the ability of Crescent Operating and
Crescent Partnership to negotiate a mutually satisfactory lease arrangement and
the determination of Crescent Partnership, in its sole discretion, that Crescent
Operating is qualified to be the lessee. In general, a master lease arrangement
is an arrangement pursuant to which an entire property or project (or a group of
related properties or projects) is leased to a single lessee. If a mutually
satisfactory agreement cannot be reached within a 30-day period (or such longer
period to which Crescent Operating and Crescent Partnership may agree), Crescent
Partnership may offer the opportunity to others.

Currently, under the Intercompany Agreement, Crescent Operating has agreed not
to acquire or make (i) investments in real estate which, for purposes of the
Intercompany Agreement, includes the provision of services related to real
estate and investment in hotel properties, real estate mortgages, real estate
derivatives or entities that invest in real estate assets or (ii) any other
investments that may be structured in a manner that qualifies under the federal
income tax requirements applicable to REITs. Crescent Operating has agreed to
notify Crescent Partnership of, and make available to Crescent Partnership,
investment opportunities developed by Crescent Operating, or of which Crescent
Operating becomes aware but is unable or unwilling to pursue.



                                       17
<PAGE>   18
The Intercompany Agreement is not expected to result in any future business
opportunities from Crescent Equities to Crescent Operating since the REIT
Modernization Act became effective January 1, 2001. The REIT Modernization Act
permits REITS to own and operate certain types of investments that Crescent
Operating acquired from Crescent Equities because prior law did not allow it to
own or operate such investments.

                                    EMPLOYEES

As of December 31, 2000, Crescent Operating and the following consolidated
subsidiaries had the number of employees indicated below:


<TABLE>

<S>                                                    <C>
Crescent Operating-corporate .......................      10
Equipment Sales and Leasing segment ................     438
Hospitality segment ................................     764
Land Development segment ...........................     639
                                                       -----

                                                       1,851
                                                       =====
</TABLE>

The Company has excluded employees of Woodlands Operating, Landevco and
AmeriCold Logistics, as these subsidiaries represent equity investments for
financial reporting purposes.

ITEM 2.  PROPERTIES

At December 31, 2000, the Company, through its subsidiary, Crescent Machinery,
owned fee simple interests in four properties. The properties are located in
Dallas and Austin, Texas, Tulsa, Oklahoma and Van Wert, Ohio. The Company,
directly or indirectly, also held leasehold interests in certain facilities,
including the Hospitality Properties and other leased Crescent Machinery
locations (collectively, the "Leased Properties"). Management believes that each
of the owned and the Leased Properties is adequately maintained and suitable for
use in its respective capacity. The Company or certain of its subsidiaries has
entered into lease agreements in respect of the Leased Properties, pursuant to
which each respective lessee is responsible for routine maintenance of the
subject property.

For further description as to the general character of the Company's properties
by segment, see Item 1.

ITEM 3.  LEGAL PROCEEDINGS

CBHS became the subject of Chapter 11 bankruptcy proceedings by filing a
voluntary petition on February 16, 2000, in United States Bankruptcy Court for
the District of Delaware. Although CBHS is not a subsidiary of Crescent
Operating, Crescent Operating did own a majority (90%) economic interest in
CBHS, until December 29, 2000. Crescent Operating's claims against the estate of
CBHS include (i) its interests as a direct and indirect equity holder of CBHS
and (ii) its claim for indemnification or contribution against third party
lawsuits and claims where Crescent Operating is a named defendant with CBHS,
such as lawsuits based upon alleged WARN Act violations purported to have been
committed by CBHS and/or its subsidiaries in closing behavioral health care
facilities in 1999 and 2000. Crescent Operating has filed proofs of claim
against CBHS with regard to these claims; however, the Company now believes that
there exists substantial doubt whether any of its claims will be collectible,
due to the presumptively insolvent nature of the debtors' estate.

Another claimant in the CBHS bankruptcy is Crescent Partnership (together with
its parent, Crescent Equities), which is the owner of certain facilities leased
to and operated by CBHS and its subsidiaries and is also the secured lender of
$10 million to CBHS. CBHS has an arrearage on its lease payments owed to
Crescent Partnership accrued prior to the commencement of bankruptcy. While the
claims of Crescent Partnership against CBHS are not necessarily adverse to the
interests of Crescent Operating, the interests of Crescent Partnership are
separate, distinguishable and at least nominally in conflict with the competing
interests and claims of all other interested parties in the bankruptcy,
including Crescent Operating. To the Company's knowledge, none of the directors,
officers or security holders of Crescent Operating has, in his or its individual
capacity, an interest adverse to Crescent Operating in connection with the CBHS
bankruptcy; however, in their capacities as directors, officers


                                       18
<PAGE>   19


and/or security holders of Crescent Partnership or Crescent Equities, certain
persons may be deemed to hold interests adverse to the Company's interest in
connection with the CBHS bankruptcy.

To date, several lawsuits, all of which seek class action certification, have
been filed against CBHS alleging violations of the WARN Act in the closing of
certain healthcare facilities. Of those lawsuits, three also named Crescent
Operating as a defendant, but two of those suits have since been dismissed. An
additional suit seeking similar relief was also filed against Crescent Operating
and other parties, but not CBHS, leaving two WARN Act suits pending against
Crescent Operating. Under the automatic stay provisions of federal bankruptcy
law, lawsuits against CBHS or its subsidiaries are stayed unless otherwise
directed by the bankruptcy court, but the lawsuits against other defendants,
including Crescent Operating, are not stayed automatically. The Company
anticipates that other similar lawsuits may be filed due to the closing of the
CBHS facilities or that COPI may be named in existing lawsuits against CBHS.
With respect to the pending suits and possible future claims against Crescent
Operating based on the closure by CBHS of facilities in 1999 and 2000, the
Company believes that such actions are without basis under the WARN Act and
should be dismissed; however, no assurance can be given that Crescent Operating
will prevail.

In accordance with an agreement between Gerald Haddock and the Company, COPI
Colorado redeemed the limited partnership interest of Mr. Haddock, the Company's
former Chief Executive Officer and President, in January 2000. COPI Colorado
paid Mr. Haddock approximately $2.6 million for his approximate 16.67% limited
partner interest (determined from an independent appraisal of the value of COPI
Colorado). Mr. Haddock has challenged the valuation performed by the independent
appraiser and the procedures followed by the Company with respect to the
redemption and valuation process. The Company believes that it has complied with
all terms of the agreement as it relates to the liquidation of Mr. Haddock from
the partnership. In February 2001, the Company filed a lawsuit seeking a
declaratory judgment to assist in resolution of the Company's dispute with Mr.
Haddock.

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

No matter was submitted to a vote of security holders during the fourth quarter
of the Registrant's fiscal year ended December 31, 2000.

                                     PART II

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

Effective June 12, 1997, shares of the Company's common stock were distributed
to shareholders of Crescent Equities and unit holders of Crescent Partnership of
record on May 30, 1997. For Crescent Equities shareholders, the distribution was
made on the basis of one share of Crescent Operating common stock for every 10
common shares of beneficial interest of Crescent Equities held on the record
date, and for limited partners of Crescent Partnership, the distribution was
made on the basis of one share of Crescent Operating common stock for every 5
units of limited partnership interest held on the record date. The Company's
common stock, $0.01 par value per share, began trading on the OTC Bulletin Board
on June 13, 1997. Effective September 8, 1997, the Company's common stock was
listed on the NASDAQ National Market under the symbol "COPI" and effective April
27, 2000, the Company's shares again began trading on the OTC Bulletin Board
because the Company's shares became ineligible for continued NASDAQ listing.

The following table reflects the high and low bid prices of the common stock for
each calendar quarter indicated.

<TABLE>
<CAPTION>


                            2000                   HIGH       LOW
                            ----                   ----       ---
<S>                                              <C>        <C>
               March 31 ...................      $   3.69   $   2.06
               June 30 ....................      $   2.75   $   1.25
               September 30 ...............      $   1.75   $   1.19
               December 31 ................      $   1.13   $   0.45
</TABLE>


                                       19
<PAGE>   20



<TABLE>
<CAPTION>


                            1999                   HIGH       LOW
                            ----                   ----       ---
<S>                                              <C>        <C>
               March 31 ...................      $   5.25   $   3.06
               June 30 ....................      $   7.63   $   3.25
               September 30 ...............      $   7.13   $   4.00
               December 31 ................      $   4.63   $   2.25
</TABLE>


As of March 26, 2001, there were approximately 218 holders of record of the
common stock of Crescent Operating. No cash dividends have been declared or paid
in respect of the Company's common stock.

ITEM 6.  SELECTED FINANCIAL DATA

The following table sets forth certain summary historical financial information
for the Company and for the Predecessor. For purposes of this table, the
Predecessor consists of Moody-Day, Inc. and Hicks Muse Tate & Furst Equity Fund
II, L.P. (collectively, the "Carter-Crowley Asset Group"). The following
information should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations in Item 7 and the
Financial Statements and Supplementary Data included in Item 8.

<TABLE>
<CAPTION>


                                                                        (Dollars In Thousands)
                                        -------------------------------------------------------------------------------------------
                                                                                                        Carter-Crowley Asset Group
                                                        Crescent Operating, Inc.                               (Predecessor)
                                        ----------------------------------------------------------    -----------------------------
                                                                                  For the Period       For the Period   For the
                                                                                       From                 From       Year Ended
                                                                                    May 9, 1997       January 1, 1997  December 31,
                                           2000           1999         1998      December 31, 1997     to May 8, 1997      1996
                                        ---------       ---------    ---------   -----------------    ---------------  -----------
<S>                                     <C>             <C>          <C>         <C>                  <C>              <C>
Operating Data:
   Revenues .........................   $ 716,826       $ 717,987    $ 493,248       $ 156,882           $   4,657      $  10,394
   Income (loss) from operations ....      19,628          13,867        9,886            (993)                158            109
   Net income (loss) ................      (3,690)         (2,695)       1,141         (22,165)                 25           (111)
   Income (loss) per share-basic
     and diluted ....................        (.36)           (.26)         .10           (2.00)                 --             --

Balance Sheet Data:
   Total assets .....................   $ 910,528       $ 795,653    $ 937,333       $ 602,083                          $  17,483
   Total debt .......................   $ 473,517         421,874      371,139         258,129                              5,405
   Total shareholders' equity
     (deficit) ......................     (23,533)        (20,522)     (16,068)         (8,060)                            10,925
</TABLE>




                                       20
<PAGE>   21


                          SEGMENT FINANCIAL INFORMATION
                    (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

The following is a summary of Crescent Operating's estimated financial
information reported by segment for the year ended December 31, 2000:

<TABLE>
<CAPTION>

                                                        EQUIPMENT                     TEMPERATURE
                                                          SALES                        CONTROLLED         LAND
                                                       AND LEASING     HOSPITALITY      LOGISTICS      DEVELOPMENT
                                                       -----------     -----------     ----------      -----------
<S>                                                     <C>             <C>             <C>             <C>
Revenues .........................................      $ 142,842       $ 272,157       $      --       $ 301,827

Operating expenses ...............................        141,113         275,576              27         276,285
                                                        ---------       ---------       ---------       ---------
Income (loss) from operations ....................          1,729          (3,419)            (27)         25,542
                                                        ---------       ---------       ---------       ---------
Investment income (loss) .........................             --          17,839          (6,237)         34,952
                                                        ---------       ---------       ---------       ---------
Other (income) expense
     Interest expense ............................         10,622             986              --          16,310
     Interest income .............................            (37)           (181)             --          (3,638)
     Other .......................................          1,172              (4)             --          (1,137)
                                                        ---------       ---------       ---------       ---------
Total other (income) expense .....................         11,757             801              --          11,535
                                                        ---------       ---------       ---------       ---------
Income (loss) before income
     taxes and minority interest .................        (10,028)         13,619          (6,264)         48,959
Income tax provision (benefit) ...................         (3,763)          5,010          (2,506)         17,888
                                                        ---------       ---------       ---------       ---------
Income (loss) before minority interests ..........         (6,265)          8,609          (3,758)         31,071
Minority interests ...............................             --           1,575              --         (27,593)
                                                        ---------       ---------       ---------       ---------
Net income (loss) ................................      $  (6,265)      $  10,184       $  (3,758)      $   3,478
                                                        =========       =========       =========       =========

Net income (loss) per share, basic and diluted ...      $   (0.61)      $    0.98       $   (0.36)      $    0.34
                                                        =========       =========       =========       =========

EBITDA Calculation:(1)
     Net income (loss) ...........................      $  (6,265)      $  10,184       $  (3,758)      $   3,478
     Interest expense, net .......................         10,585             108           1,029             671
     Income tax provision (benefit) ..............         (3,763)          6,060          (2,478)          2,595
     Depreciation and amortization ...............         17,658           1,325           3,333           1,397
                                                        ---------       ---------       ---------       ---------
EBITDA ...........................................      $  18,215       $  17,677       $  (1,874)      $   8,141
                                                        =========       =========       =========       =========


<CAPTION>

                                                               OTHER           TOTAL
                                                             ---------       ---------
<S>                                                          <C>             <C>
Revenues .........................................           $      --       $ 716,826

Operating expenses ...............................               4,197         697,198
                                                             ---------       ---------
Income (loss) from operations ....................              (4,197)         19,628
                                                             ---------       ---------
Investment income (loss) .........................                  --          46,554
                                                             ---------       ---------
Other (income) expense
     Interest expense ............................               8,427          36,345
     Interest income .............................                (415)         (4,271)
     Other .......................................                   2              33
                                                             ---------       ---------
Total other (income) expense .....................               8,014          32,107
                                                             ---------       ---------
Income (loss) before income
     taxes and minority interest .................             (12,211)         34,075
Income tax provision (benefit) ...................              (4,882)         11,747
                                                             ---------       ---------
Income (loss) before minority interests ..........              (7,329)         22,328
Minority interests ...............................                  --         (26,018)
                                                             ---------       ---------
Net income (loss) ................................           $  (7,329)      $  (3,690)
                                                             =========       =========

Net income (loss) per share, basic and diluted ...           $   (0.71)      $   (0.36)
                                                             =========       =========

EBITDA Calculation:(1)
     Net income (loss) ...........................           $  (7,329)      $  (3,690)
     Interest expense, net .......................               8,012          20,405
     Income tax provision (benefit) ..............              (4,882)         (2,468)
     Depreciation and amortization ...............                 (71)         23,642
                                                             ---------       ---------
EBITDA ...........................................           $  (4,270)      $  37,889
                                                             =========       =========
</TABLE>


(1) EBITDA represents earnings before interest, income taxes, depreciation and
    amortization. Amounts are calculated based on the Company's ownership
    percentage of the EBITDA components. Management believes that EBITDA can be
    a meaningful measure of the Company's operating performance, cash generation
    and ability to service debt. However, EBITDA should not be considered as an
    alternative to either: (i) net earnings (determined in accordance with
    generally accepted accounting principles ("GAAP")); (ii) operating cash flow
    (determined in accordance with GAAP); or (iii) liquidity. There can be no
    assurance that the Company's calculation of EBITDA is comparable to
    similarly titled items reported by other companies.



                                       21
<PAGE>   22



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

OVERVIEW

The following discussion should be read in conjunction with the "Selected
Financial Data" and the financial statements and notes thereto, appearing
elsewhere in this report. Historical results and percentage relationships set
forth in "Selected Financial Data" should not be taken as indicative of future
operations of the Company.

The following table sets forth financial data for the Company.




<TABLE>
<CAPTION>



                                                     For the               For the                    For the
                                                   Year Ended             Year Ended                 Year Ended
(In thousands)                                 December 31, 2000       December 31, 1999        December 31, 1998
                                               -----------------       -----------------        -----------------
<S>                                            <C>                     <C>                      <C>
REVENUES
  Equipment sales & leasing                        $ 142,842               $ 136,343                $  85,365
  Hospitality                                        272,157                 246,763                  229,491
  Land development                                   301,827                 334,881                  178,392
                                                   ---------               ---------                ---------

     Total revenues                                  716,826                 717,987                  493,248
                                                   ---------               ---------                ---------

OPERATING EXPENSES
  Equipment sales & leasing                          141,113                 131,606                   79,011
  Hospitality                                        212,238                 191,465                  170,556
  Hospitality properties rent                         63,338                  54,012                   52,276
  Land development                                   276,285                 324,432                  178,372
  Corporate general and administrative                 4,224                   2,605                    3,147
                                                   ---------               ---------                ---------

     Total operating expenses                        697,198                 704,120                  483,362
                                                   ---------               ---------                ---------

INCOME FROM OPERATIONS                                19,628                  13,867                    9,886
                                                   ---------               ---------                ---------

INVESTMENT INCOME                                     46,554                  20,939                   27,684
                                                   ---------               ---------                ---------

OTHER (INCOME) EXPENSE
  Interest expense                                    36,345                  30,775                   18,262
  Interest income                                     (4,271)                 (4,046)                  (3,876)
  Other                                                   33                     131                      182
                                                   ---------               ---------                ---------

     Total other (income) expense                     32,107                  26,860                   14,568
                                                   ---------               ---------                ---------

INCOME BEFORE INCOME TAXES
  AND MINORITY INTERESTS                              34,075                   7,946                   23,002

INCOME TAX PROVISION (BENEFIT)                        11,747                  (3,471)                   5,521
                                                   ---------               ---------                ---------

INCOME BEFORE MINORITY INTERESTS                      22,328                  11,417                   17,481

MINORITY INTERESTS                                   (26,018)                (14,112)                 (16,340)
                                                   ---------               ---------                ---------

NET INCOME (LOSS)                                  $  (3,690)              $  (2,695)               $   1,141
                                                   =========               =========                =========
</TABLE>



                                       22
<PAGE>   23


YEAR ENDED DECEMBER 31, 2000, COMPARED TO THE YEAR ENDED DECEMBER 31, 1999

REVENUES

Total revenue decreased $1.2 million, or less than 1%, to $716.8 million for the
year ended December 31, 2000, compared with $718.0 million for the year ended
December 31, 1999. The decrease in total revenue is attributable to the
following:

Equipment Sales and Leasing Segment

Equipment sales and leasing revenue increased $6.5 million, or 4.8% to $142.8
million, for the year ended December 31, 2000, compared with $136.3 million for
the year ended December 31, 1999. Significant components of the overall increase
were:

o        an increase in rental revenue of $9.6 million during the year ended
         December 31, 2000 primarily due to acquisitions since January 1, 1999
         and same store rental growth; and

o        an increase in parts, service and supplies revenue of $2.0 million for
         the current year primarily due to increased demand for maintenance and
         repair work; partially offset by

o        a decrease of $5.1 million in new and used equipment sales due to
         increased demand from customers for rentals as compared to purchases.


Hospitality Segment

Hospitality revenue increased $25.4 million, or 10.3%, to $272.2 million for the
year ended December 31, 2000, compared with $246.8 million for the year ended
December 31, 1999. Significant components of the overall increase were:

o        increased revenues at Sonoma Mission Inn and Spa in the amount of $11.0
         million which can be attributed to the 30 additional guest rooms
         completed in April 2000, the return of 20 rooms in January 2000 which
         were taken out of commission in February 1999 to house a temporary spa
         during the construction of the 30,000 square foot full-service spa, as
         well as increased rates in the current year as compared to discounted
         rates used in the prior year during the construction period;

o        increased revenues of $5.6 million from the Renaissance Hotel, which
         was first leased by the Company in June 1999;

o        increased revenues of $9.3 million from Ventana Inn and Spa, Canyon
         Ranch -- Tucson and Canyon Ranch -- Lenox due primarily to increased
         rates; and

o        increased revenues of $2.1 million from the Denver Marriott due
         primarily to increased occupancy during 2000; partially offset by

o        decreased revenues at the Four Seasons Hotel in Houston of $2.7 million
         due to the sale of the hotel by Crescent Equities on November 3, 2000.

Land Development Segment

Land Development revenue, which represents revenue from Desert Mountain
Development and COPI Colorado prior to the elimination of the Minority
Interests, decreased $33.1 million, or 9.9%, to $301.8 million for the year
ended December 31, 2000, compared with $334.9 million for the year ended
December 31, 1999. Significant components of the overall decrease were:


                                       23
<PAGE>   24


o        a $62.4 million decrease in revenue from Desert Mountain Development
         for the year ended December 31, 2000 primarily due to fewer home and
         lot sales as compared to the prior year; partially offset by

o        a $29.3 million increase in revenue from COPI Colorado which can be
         attributed to (i) a $21.8 million increase in real estate sales
         primarily due to the sale of two parcels of land associated with the
         Riverfront Park project in Denver, Colorado, (ii) an $8.9 million
         increase in property management revenue due to acquisitions during the
         first half of 2000, (iii) a $1.5 million increase in transportation
         revenue due to improved snow conditions in December 2000 resulting in a
         higher number of skiers as compared to the prior year, partially offset
         by (iv) a $2.9 million decrease in service station revenue due to the
         sale of this property in June 2000.

OPERATING EXPENSES

Total operating expenses decreased $6.9 million, or 1.0%, to $697.2 million for
the year ended December 31, 2000, compared with $704.1 million for the year
ended December 31, 1999. The decrease in operating expenses is attributable to
the following:

Equipment Sales and Leasing Segment

Equipment sales and leasing expenses increased $9.5 million, or 7.2%, to $141.1
million for the year ended December 31, 2000, compared with $131.6 million for
the year ended December 31, 1999. Significant components of the overall increase
were:

o        an $8.1 million increase in rental expenses due mainly to an increase
         in rental inventory resulting in increased depreciation expense for the
         year ended December 31, 2000; and

o        a $3.4 million increase in operating expenses due primarily to
         acquisitions since January 1, 1999 and to the startup of the Fort Worth
         location in late 1999; partially offset by

o        a $2.1 million decrease in new and used equipment expenses as a result
         of a decrease in new and used equipment sales.


Hospitality Segment

Hospitality expenses increased $30.1 million, or 12.3%, to $275.6 million for
the year ended December 31, 2000, compared with $245.5 million for the year
ended December 31, 1999. Significant components of the overall increase were:

o        increased rent and expenses associated with Sonoma Mission Inn and Spa
         in the amount of $11.1 million;

o        increased rent and expenses in the amount of $8.2 million associated
         with the Renaissance Hotel, which was first leased by the Company in
         June 1999;

o        additional rent and expenses in the amount of $11.3 million consistent
         with increased revenues generated by certain of the Hospitality
         Properties as a result of increased rates and occupancy; partially
         offset by

o        decreased rent and expenses associated with the Four Seasons Hotel in
         Houston in the amount of $3.3 million due to the sale of the hotel on
         November 3, 2000.

Land Development Segment

Land development expenses, which primarily represent operating costs incurred by
Desert Mountain Development and COPI Colorado prior to the elimination of the
Minority Interests, decreased $48.1 million, or 14.8%, to $276.3 million for the
year ended December 31, 2000, compared with $324.4 million for the year ended
December 31, 1999. Significant components of the overall decrease were:


                                       24
<PAGE>   25


o        a $77.8 million decrease in expenses incurred by Desert Mountain
         Development during the year ended December 31, 2000 due primarily to
         lower costs associated with decreased home and lot sales; partially
         offset by

o        a $29.4 million increase in expenses incurred by COPI Colorado which
         can be attributed to higher costs associated with increased real estate
         and property management revenues, in addition to higher transportation
         costs due to higher fuel prices and startup costs associated with
         additional services.


Corporate General and Administrative Expenses

Corporate general and administrative expenses increased $1.6 million, or 61.5%,
to $4.2 million for the year ended December 31, 2000, compared with $2.6 million
for the year ended December 31, 1999. These expenses consisted of general
corporate overhead costs, such as legal and accounting costs, insurance costs
and corporate salaries. The increase over prior year is primarily attributable
to (i) costs of approximately $0.5 million incurred in connection with
proceedings in bankruptcy court and litigation outside of bankruptcy court
arising from the Company's ownership interest in CBHS, (ii) professional fees of
approximately $0.6 million incurred in connection with the proposed
restructuring of the Company and (iii) transaction costs of approximately $0.5
million incurred by the Company in conjunction with the negotiation, execution
and termination of the asset purchase agreement with CBHS. The Company expects
to incur additional litigation expenses in the future in defending against
claims made as a result of the Company's ownership interest in CBHS. Although
management cannot quantify these future expenses due to the unpredictable nature
of litigation, management believes at this time that such expenses are not
likely, in the aggregate, to become material to the Company as a whole. See Part
I -- Legal Proceedings.

INVESTMENT INCOME

Investment income increased $25.7 million or 123.0%, to $46.6 million for the
year ended December 31, 2000, compared with $20.9 million for the year ended
December 31, 1999. Significant components of the overall increase were:

o        the gain on the lease buyout related to the sale of the Four Seasons in
         the amount of $18.3 million;

o        an increase in equity in income of Landevco in the amount of $8.9
         million; and

o        the gain on sale of HCAC in the amount of $1.6 million; partially
         offset by

o        an increase in equity in loss of AmeriCold Logistics in the amount of
         $3.7 million partially due to holding the investment for a full year as
         compared to ten months in the prior year as well as increased labor
         costs; and

o        a decrease in equity in income of CDMC projects in the amount of $1.2
         million.

OTHER (INCOME) EXPENSE

Other (income) expense increased $5.2 million, or 19.3%, to $32.1 million for
the year ended December 31, 2000, compared with $26.9 million for the year ended
December 31, 1999. The increase is primarily attributable to an increase in
interest expense in the amount of $5.5 million for the year ended December 31,
2000, resulting from:

o        an increase in outstanding indebtedness in connection with
         acquisitions; partially offset by

o        a decrease in interest expense of approximately $2.0 million at Desert
         Mountain Development due to decreased indebtedness.


                                       25
<PAGE>   26


MINORITY INTERESTS

Minority interests increased $11.9 million, or 84.4%, to $26.0 million for the
year ended December 31, 2000, compared to $14.1 million for the year ended
December 31, 1999. Minority Interests consist of the non-voting interests in the
Land Development segment and in CRL Investments.

INCOME TAX PROVISION (BENEFIT)

Income tax provision of $11.7 million for the year ended December 31, 2000
represents an increase of $15.2 million from the year ended December 31, 1999.
Income tax provision consisted of a $4.9 million benefit at the corporate level,
a $3.8 million benefit for the Equipment Sales and Leasing segment and a $2.5
million benefit for the Temperature Controlled Logistics segment, offset by a
$17.9 million provision for the Land Development segment and a $5.0 million
provision for the Hospitality segment.

The Company generally provides for taxes using a 40% effective rate on the
Company's share of income or loss. Management continues to evaluate its ability
to realize the deferred tax assets quarterly by assessing the need for a
valuation allowance. An inability of the Company to execute business plans for
certain of the company's segments could affect the ultimate realization of the
deferred tax assets.

YEAR ENDED DECEMBER 31, 1999, COMPARED TO THE YEAR ENDED DECEMBER 31, 1998

REVENUES

Total revenue increased $224.8 million, or 45.6%, to $718.0 million for the year
ended December 31, 1999, compared with $493.2 million for the year ended
December 31, 1998. The increase in total revenue is attributable to the
following:

Equipment Sales and Leasing Segment

Equipment sales and leasing revenue increased $51.0 million, or 59.7% to $136.4
million, for the year ended December 31, 1999, compared with $85.4 million for
the year ended December 31, 1998. Significant components of the overall increase
were:

o        the Company's acquisitions since January 1, 1998 and the opening of a
         new location on August 1, 1999, resulting in incremental revenue of
         $46.1 million during the year ended December 31, 1999; and

o        same store revenue increased $4.9 million for the year ended December
         31, 1999, as compared to the prior year primarily due to increased
         rental revenue.


Hospitality Segment

Hospitality revenue increased $17.3 million, or 7.5%, to $246.8 million for the
year ended December 31, 1999, compared with $229.5 million for the year ended
December 31, 1998. Significant components of the overall increase were:

o        revenue derived from the operations of the Sonoma Mission Inn Golf and
         Country Club, which was not leased by the Company until October 1998,
         and the Renaissance Hotel, which was not leased by the Company until
         June 1999; offset by the elimination of the Austin Omni Hotel rental
         income, resulting from the termination of the lease effective December
         31, 1998;

o        revenue derived from the newly constructed Allegria Spa at the Hyatt
         Regency Beaver Creek, which conducted operations for the full year
         ended December 31, 1999, as compared to only four months during the
         year ended December 31, 1998; and


                                       26
<PAGE>   27


o        increased rates at certain of the Hospitality Properties resulted in
         higher revenues during 1999 as compared to the corresponding period in
         1998; partially offset by

o        decreased revenues at Sonoma Mission Inn and Spa due to lower occupancy
         and average daily rate caused by construction at the property which
         necessitated taking 20 rooms out of inventory during 1999.

Land Development Segment

Land Development revenue, which represents revenue from Desert Mountain
Development and COPI Colorado prior to the elimination of the Minority
Interests, increased $156.5 million, or 87.7%, to $334.9 million for the year
ended December 31, 1999, compared with $178.4 million for the year ended
December 31, 1998. Significant components of the overall increase were:

o        revenues of COPI Colorado, which the Company did not include during the
         first nine months of 1998, and which resulted in incremental revenues
         of $136.1 million for the year ended December 31, 1999; and

o        a $20.4 million increase in revenue from Desert Mountain Development
         during the year ended December 31, 1999. The increase for the year can
         be attributed to overall higher sales prices for lots as compared to
         the prior year.

OPERATING EXPENSES

Total operating expenses increased $220.7 million, or 45.7%, to $704.1 million
for the year ended December 31, 1999, compared with $483.4 million for the year
ended December 31, 1998. The increase in operating expenses is attributable to
the following:

Equipment Sales and Leasing Segment

Equipment sales and leasing expenses increased $52.6 million, or 66.6%, to
$131.6 million for the year ended December 31, 1999, compared with $79.0 million
for the year ended December 31, 1998. Significant components of the overall
increase were:

o        the Company's acquisitions since January 1, 1998 and the opening of a
         new location on August 1, 1999, resulting in incremental operating
         expenses of $45.8 million during year ended December 31, 1999; and

o        increased costs of $6.8 million incurred during the year ended December
         31, 1999, due mainly to an increase in rental inventory that is not
         attributable to acquisitions resulting in increased depreciation
         expense. Additionally, operating expenses were incurred during 1999
         related to the implementation of a new computer system, integration of
         acquisitions as well as various costs incurred on acquisitions which
         did not come to fruition.

Hospitality Segment

Hospitality expenses increased $22.7 million, or 10.2%, to $245.5 million for
the year ended December 31, 1999, compared with $222.8 million for the year
ended December 31, 1998. Significant components of the overall increase were:

o        rent and expenses associated with the Sonoma Mission Inn Golf and
         Country Club which was not leased by the Company until October 1998,
         and the Renaissance Hotel, which was not leased by the Company until
         June 1999;

o        additional rent for the year ended December 31, 1999, resulting from
         increased revenue generated by the Hospitality Properties, partially
         offset by a decrease in rent for the year ended December 31, 1999, due
         to the termination of the lease of the Austin Omni Hotel effective
         December 31, 1998;

o        rent and expenses associated with the newly constructed Allegria Spa at
         the Hyatt Regency Beaver Creek, which was leased for only four months
         for the period ended December 31, 1998; and


                                       27
<PAGE>   28


o        additional rent associated with capital projects at the Hospitality
         Properties that were incurred during the year ended December 31, 1999.


Land Development Segment

Land development expenses, which primarily represent operating costs incurred by
Desert Mountain Development and COPI Colorado prior to the elimination of the
Minority Interests, increased $146.0 million, or 81.8%, to $324.4 million for
the year ended December 31, 1999, compared with $178.4 million for the year
ended December 31, 1998. Significant components of the overall increase were:

o        operating expenses of COPI Colorado, which the Company did not include
         during the first nine months of 1998, and which resulted in incremental
         expenses of $123.5 million during the year ended December 31, 1999; and

o        a $22.3 million increase in expenses incurred by Desert Mountain
         Development during the year ended December 31, 1999. The increase is
         primarily attributable to overall higher development costs associated
         with selling higher value lots as compared to the prior year.

Corporate General and Administrative Expenses

Corporate general and administrative expenses, totaling $2.6 million for the
year ended December 31, 1999, were comparable with such costs for the year ended
December 31, 1998. These expenses consisted of general corporate overhead costs,
such as legal and accounting costs, insurance costs and corporate salaries.

INVESTMENT INCOME

Investment income decreased $6.8 million or 24.5%, to $20.9 million for the year
ended December 31, 1999, compared with $27.7 million for the year ended December
31, 1998. Significant components of the overall decrease were:

o        equity in loss of AmeriCold Logistics in the amount of $3.7 million due
         to the acquisition of AmeriCold Logistics in March 1999;

o        a decrease in income of the Temperature Controlled Logistics
         Partnerships in the amount of $3.6 million due to the fact that the
         Company no longer consolidates the Temperature Controlled Logistics
         Partnerships as a result of the restructuring of the Temperature
         Controlled Logistics segment;

o        a decrease in investment income from Hicks-Muse in the amount of $3.2
         million as a result of the Company's sale of its investment in
         Hicks-Muse in March 1999;

o        a decrease in equity in income of CDMC projects in the amount of $2.1
         million; and

o        equity in loss of CR Las Vegas, LLC in the amount of $1.1 million due
         to the pre-opening expenses related to the opening of the Venetian Spa
         in Las Vegas in June 1999; partially offset by

o        no losses associated with CBHS for 1999 because the investment in CBHS
         was written off during 1998, as compared to $5.4 million of losses
         recognized in the prior year; and

o        the gain on sale of 80% of the Company's interest in the Temperature
         Controlled Logistics Partnerships in the amount of $1.5 million.


                                       28
<PAGE>   29



OTHER (INCOME) EXPENSE

Other (income) expense increased $12.3 million, or 84.2%, to $26.9 million for
the year ended December 31, 1999, compared with $14.6 million for the year ended
December 31, 1998. The increase is primarily attributable to an increase in
interest expense in the amount of $12.5 million for the year ended December 31,
1999, resulting from:

o        an increase in outstanding indebtedness in connection with
         acquisitions;

o        the inclusion of interest expense of COPI Colorado (in the amount of
         $6.7 million, for the first nine months of 1999) in the Company's
         operating results (operations of CDMC for the first nine months of 1998
         were not included during the prior year); partially offset by

o        a decrease in interest expense of approximately $1.1 million at Desert
         Mountain Development due to decreased indebtedness.

MINORITY INTERESTS

Minority interests decreased $2.2 million, or 13.5%, to $14.1 million for the
year ended December 31, 1999, compared to $16.3 million for the year ended
December 31, 1998. Minority Interests consist of the non-voting interests in the
Land Development segment and in CRL Investments.

INCOME TAX PROVISION (BENEFIT)

Income tax benefit of $3.5 million for the year ended December 31, 1999
represents a change of $9.0 million from the year ended December 31, 1998.
Income tax benefit consisted of a $8.7 million benefit at the corporate level, a
$1.1 million benefit for the Equipment Sales and Leasing segment, a $0.9 million
benefit for the Temperature Controlled Logistics segment, and a $0.1 million
benefit for the Hospitality segment, offset by a $7.3 million provision for the
Land Development segment.

The Company generally provides for taxes using a 40% effective rate on the
Company's share of income or loss. Additionally, for the year ended December 31,
1999, the Company released $4.2 million of its net deferred tax asset valuation
allowance, based on 1999 transactions and expected future taxable income.
Management continues to evaluate its ability to realize the deferred tax assets
quarterly by assessing the need for a valuation allowance. An inability of the
Company to execute business plans for certain of the company's segments could
affect the ultimate realization of the deferred tax assets.

LIQUIDITY AND CAPITAL RESOURCES

The Company's management is currently actively pursuing a strategic
restructuring of the Company in an effort to alleviate the Company's liquidity
issues. If a successful restructuring of Crescent Operating is not completed
and/or significant new equity is not obtained, it is likely that the Company
would be unable to meet its financial obligations in a timely manner.
Recognizing that cash flow from its assets would not provide the Company with
adequate capital to meet its requirements during 2000, the Company, during the
first quarter of 2000, extended certain payment obligations by reaching
agreements with Crescent Equities to defer until February 2001 payments on
certain of Crescent Operating's obligations to Crescent Equities otherwise
scheduled to be made in 2000. In the first quarter 2001, the Company further
extended payment of these obligations until April 20, 2001. Interest payments
and rent payments accrued but deferred as of December 31, 2000 totaled
approximately $5.1 million and $5.8 million, respectively. If a restructuring of
the Company as now contemplated by the Company's management and/or a significant
infusion of equity is successfully completed, the Company believes that it will
be able to meet its capital requirements during 2001. If a successful
restructuring is not completed and/or significant new equity is not obtained,
the Company will not have adequate capital to meet its needs. Based on the
above, the Company's auditors report included on the financial statements
included in this Annual Report on Form 10-K has expressed substantial doubt
about the Company's ability to continue to operate as a going concern.


                                       29
<PAGE>   30


CASH FLOWS

Cash and cash equivalents include amounts from all consolidated subsidiaries,
including subsidiaries not wholly owned. Changes, therefore, do not necessarily
represent increases or decreases in cash directly available to the Company.

Cash and cash equivalents were $62.1 million and $39.0 million at December 31,
2000 and December 31, 1999, respectively. The 59.2% increase is attributable to
$20.4 million and $27.0 million of cash provided by investing and financing
activities, respectively, partially offset by $24.3 million of cash used in
operating activities.

OPERATING ACTIVITIES

Net cash flows used in operating activities for the year ended December 31, 2000
were $24.3 million compared with the net cash used in operating activities of
$9.4 million and the net cash provided by operating activities of $36.1 million
for the years ended December 31, 1999 and 1998, respectively. The Company's
outflow of cash used in operating activities of $24.3 million was primarily
attributable to outflows from:

         o        net loss of $3.7 million;

         o        gain on sale of investments of $20.6 million;

         o        equity in income from unconsolidated subsidiaries of $26.0
                  million;

         o        an increase in real estate of $83.0 million; and

         o        increases in accounts receivable of $13.7 million.

The outflow of cash used in operating activities was partially offset by inflows
from:

         o        non-cash depreciation and amortization of $37.8 million;

         o        increases in accounts payable and accrued expenses of $29.8
                  million; and

         o        increases in deferred revenue of $41.7 million.

INVESTING ACTIVITIES

Net cash flows provided by investing activities for the year ended December 31,
2000 were $20.4 million compared with the net cash used in investing activities
of $34.5 million and $121.7 million for the years ended December 31, 1999 and
1998, respectively. The Company's inflow of cash provided by investing
activities of $20.4 million was primarily attributable to inflows from:

         o        proceeds from the sale of investments of $17.8 million;

         o        proceeds from the sale of property and equipment of $35.4
                  million;

         o        net proceeds from sale and collection of notes receivable of
                  $10.7 million; and

         o        distributions from investments of Controlled Subsidiaries of
                  $33.5 million.

The inflow of cash provided by investing activities was partially offset by
outflows from:

         o        acquisitions of business interests by Controlled Subsidiaries
                  of $8.8 million;

         o        purchases of property and equipment of $68.7 million.

FINANCING ACTIVITIES

Net cash flows provided by financing activities for the year ended December 31,
2000 were $27.0 million compared with the net cash provided by financing
activities of $40.1 million and $85.1 million for the years ended December 31,
1999 and 1998, respectively. The Company's inflow of cash provided by financing
activities of $27.0 million was primarily attributable to inflows from:

         o        proceeds of all long-term debt of $332.8 million; and


                                       30
<PAGE>   31


         o        capital contributions attributable to Minority Interests of
                  $37.8 million.

The inflow of cash provided by financing activities was partially offset by
outflows from:

         o        payments of all long-term debt of $273.3 million; and

         o        distributions to Minority Interests of $66.3 million.

FINANCING ATTRIBUTABLE TO CORPORATE AND WHOLLY OWNED SUBSIDIARIES

Financing instruments attributable to corporate and wholly owned subsidiaries
are as follows:

o        In August 1999, the Company renewed its $15.0 million unsecured bank
         line of credit from Bank of America. The line of credit bears interest
         at the LIBOR rate plus 1% per annum, payable monthly and all principal
         and unpaid interest on the line of credit will be payable in August
         2001. The $15.0 million available under the line of credit from Bank of
         America is fully drawn.

o        In connection with the formation and capitalization of Crescent
         Operating in the second quarter of 1997, Crescent Operating received
         approximately $14.1 million in cash from Crescent Partnership and
         Crescent Partnership loaned Crescent Operating approximately $35.9
         million pursuant to a five-year term loan, maturing on May 8, 2002, of
         which approximately $14.2 million was outstanding as of December 31,
         2000. The loan is a recourse loan that is collateralized, to the extent
         not prohibited by pre-existing arrangements, by a first lien on the
         assets which the Company now owns or may acquire in the future. The
         loan bears interest at the rate of 12% per annum, compounded quarterly,
         with required quarterly principal and interest payments limited by
         quarterly cash flow of the Company as defined in the applicable credit
         agreement.

o        Effective March 12, 1999, the Company agreed to make a permanent
         reduction in its $30.4 million 12% line of credit with Crescent
         Partnership commensurate with the proceeds from the sale of 80% of the
         Company's 2% interest in the Temperature Controlled Logistics
         Partnerships. On March 12, 1999, the Company received $13.2 million of
         proceeds and correspondingly permanently reduced the availability under
         the line of credit from $30.4 million to $17.2 million. The line of
         credit bears interest at the rate of 12% per annum, compounded
         quarterly, payable on an interest-only basis during its term, which
         expires on the later of (i) May 21, 2002 or (ii) five years after the
         last draw under the line of credit (in no event shall the maturity date
         be later than June 2007). Draws may be made under the line of credit
         until June 22, 2002. The line of credit is a recourse obligation and
         amounts outstanding thereunder are collateralized, to the extent not
         prohibited by pre-existing arrangements, by a first lien on the assets
         which the Company now owns or may acquire in the future. The line of
         credit is cross-collateralized and cross-defaulted with the Company's
         other borrowings from Crescent Partnership. As of December 31, 2000,
         $17.7 million was outstanding under the line of credit.

o        Also effective March 12, 1999, the Company obtained from Crescent
         Partnership a $19.5 million line of credit bearing interest at a rate
         of 9% per annum. The line of credit is payable on an interest-only
         basis during its term, which expires in May 2002. The note is
         cross-collateralized and cross-defaulted with the Company's other
         borrowings from Crescent Partnership. Upon inception of this line of
         credit, the Company immediately borrowed the full $19.5 million with
         which it contributed approximately $15.5 million in connection with the
         formation of AmeriCold Logistics and used the remaining $4.0 million of
         proceeds to reduce the amount outstanding under the 12% line of credit
         with Crescent Partnership. As of December 31, 2000, $19.9 million was
         outstanding under the line of credit.

o        As a part of the acquisitions of Western Traction Company ("Western
         Traction"), E.L. Lester and Company ("Lester") and Harvey Equipment
         Center, Inc. ("Harvey"), Crescent Operating issued notes payable in the
         amount of $7.5 million, $6.0 million and $1.2 million, respectively.
         The Western Traction note was paid in full in February 2000. The Lester
         and Harvey notes are payable in semi-annual principal and interest
         payments and bear interest at 7.5% and 8.0%, respectively. All
         principal and unpaid interest on the Harvey and Lester notes are due
         July 2002 and July 2003, respectively. The Lester note is
         collateralized by stock of Lester. As of December 31, 2000, the
         outstanding balances on the Lester and Harvey notes were $4.0 million
         and $0.6 million, respectively.


                                       31
<PAGE>   32


o        The Company funded its contribution to COPI Colorado using the proceeds
         from a $9.0 million term loan from Crescent Partnership. The loan bears
         interest at 12% per annum, with interest payable quarterly and the full
         original principal amount of $9.0 million, together with any accrued
         but unpaid interest, payable in May 2002. The Company's interest in
         COPI Colorado secures the loan, which is cross-collateralized and
         cross-defaulted with the Company's other borrowings from Crescent
         Partnership. As of December 31, 2000, $9.3 million was outstanding
         under the line of credit.

o        As a part of the acquisition of a two-thirds interest in the HCAC, the
         Company borrowed $0.8 million from Crescent Partnership at an interest
         rate of 8.5% per annum. The $0.8 million note was collateralized by the
         two-thirds interest in HCAC. Monthly principal and interest payments on
         the $0.8 million loan commenced in November 1997. The note was paid in
         full in January 2000 upon the sale by HCAC of its assets.

o        Crescent Machinery has various equipment notes payable and floor plan
         notes under credit facilities which are collateralized by the equipment
         financed. The equipment notes are payable in monthly principal and
         interest payments and bear interest at 7.0% to 11.5% per annum and
         mature between 2001 and 2011. The floor plan notes do not bear
         interest, do not require monthly principal or interest payments and
         generally have terms ranging from three to twelve months. As of
         December 31, 2000, the outstanding balance on the equipment notes was
         $115.1 million and on the floor plan notes was $12.6 million. Crescent
         Machinery would have been unable to meet all of its required debt
         payments during 2000 without capital infusions made by the Company.

FINANCING ATTRIBUTABLE TO NON WHOLLY OWNED SUBSIDIARIES

Financing instruments attributable to non wholly owned subsidiaries are as
follows:

o        Desert Mountain Properties also has a credit agreement with Crescent
         Partnership pursuant to which Crescent Partnership has advanced funds
         to Desert Mountain Properties through a "Junior Note" and a "Senior
         Note". The Junior Note evidences a $60.0 million advance from Crescent
         Partnership to Desert Mountain Properties and accrues interest at 14%
         per annum. The Senior Note evidences a $110.0 million advance from
         Crescent Partnership to Desert Mountain Properties and accrues interest
         at 10% per annum. The principal and interest on both the Junior Note
         and the Senior Note are payable in quarterly installments, based on
         proceeds from the operations of Desert Mountain Properties. As of
         December 31, 2000, the outstanding balances of the Junior Note and
         Senior Note were $59.0 million and $0 million, respectively.

o        Desert Mountain Properties entered into a $40.0 million credit facility
         with National Bank of Arizona in May 1998. The facility is comprised of
         (i) a $30.0 million line of credit available for vertical financing
         related to new home construction and bears an annual interest at the
         prime rate and (ii) a $10.0 million line of credit available for
         borrowings against certain notes receivable issued by Desert Mountain
         Properties and bears an annual interest rate of prime plus 1%. The
         credit facility expires June 2001 with interest payable monthly,
         collateralized by land owned by Desert Mountain Properties, deeds of
         trust on lots sold and home construction. As of December 31, 2000, the
         outstanding balance on the line of credit with National Bank of Arizona
         was $9.8 million.

o        CDMC has four lines of credit with Crescent Partnership, one of which
         was increased from $40.2 million to $48.2 million effective January 1,
         1999 and then from $48.2 million to $56.2 million in December 1999. The
         line of credit bears interest at 11.5% per annum, compounded annually.
         Principal and interest payments are due as distributions from projects
         are received, as defined by the applicable agreement. The line of
         credit is due August 2004. As of December 31, 2000, $39.3 million was
         outstanding on the $56.2 million line of credit. The second line of
         credit of $22.9 million bears interest at 12.0% per annum, compounded
         annually. Principal and interest payments are due as distributions from
         projects are received, as defined by the applicable agreement. The line
         of credit is due January 2003. As of December 31, 2000, $17.4 million
         was outstanding on the $22.9 million line of credit.  The third line of
         credit with Crescent Partnership for $40.0 million bears interest at
         11.5% per annum. Principal and interest payments are due as
         distributions are received, as defined by the applicable credit
         agreement. The line of credit is due December 2006. As of December 31,
         2000, $33.9 million


                                       32
<PAGE>   33



         was outstanding on the $40.0 million line of credit. The fourth line of
         credit with Crescent Partnership for $32.0 million bears interest at
         11.5% per annum. Principal and interest payments are due as
         distributions are received, as defined by the applicable credit
         agreement. The line of credit is due September 2008. As of December 31,
         2000, $32.2 million was outstanding on the $32.0 million line of
         credit. The lines of credit are collateralized by CDMC's interests in
         East West Resort Development partnerships, East West Resorts, LLC and
         other CDMC property. CDMC also has a term loan with Crescent
         Partnership for $3.1 million maturing June 2005. The note bears
         interest at 12%, with interest payable quarterly and principal payable
         annually in accordance with an increasing schedule. The note is
         collateralized by CDMC's interests in East West Resorts, LLC, the East
         West Development partnerships and CDMC's other property. As of December
         31, 2000, $2.3 million was outstanding on the $3.1 million term note.
         Generally, CDMC's loans with Crescent Partnership are
         cross-collateralized and cross-defaulted.

o        The operating entities in which CDMC invests have various construction
         loans for East West projects which are collateralized by deeds of
         trust, security agreements and a first lien on the assets conveyed. The
         notes are payable in monthly principal and interest payments and bear
         interest at 8% to 15% per annum. The notes mature between 2001 and
         2003. As of December 31, 2000, the outstanding balance on these
         construction notes was $62.3 million in the aggregate.

o        CRL has a line of credit with Crescent Partnership in the amount of
         $7.0 million bearing interest at a rate of 12% per annum. The line of
         credit is due August 2003. The principal and interest are payable as
         CRL receives distributions pursuant to the CR License Operating
         Agreement and the CR Las Vegas Operating Agreement. The $7.0 million
         available under the line of credit was fully drawn as of December 31,
         2000. In July 2000, CRL obtained from Crescent Partnership a $0.2
         million term note bearing interest at a rate of 12% per annum. The full
         original principal amount of $0.2 million, together with any accrued
         but unpaid interest is due August 2003. As of December 31, 2000, $0.2
         million was outstanding on the note.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company has fixed and variable rate notes payable and lines of credit which
are subject to market risk related to changes in interest rates. The Company
manages its market risk by attempting to match anticipated inflow of cash from
its operating, investing and financing activities with anticipated outflow of
cash to fund debt payments, investments and other cash requirements. The Company
does not use derivative financial instruments to manage interest rate risk.

As of December 31, 2000, the Company had amounts outstanding under variable rate
notes payable and lines of credit totaling $156.3 million, with a weighted
average interest rate of 9.7% per annum. A hypothetical 10% increase in the
weighted average interest rate on the Company's variable rate notes and lines of
credit would cause a $1.5 million increase in interest expense and a decrease in
the Company's earnings and cash flows of $1.0 million, based on the amount of
variable rate debt outstanding as of December 31, 2000. In the event that
interest rates increase significantly and the Company continues to have
significant amounts outstanding under variable rate notes and credit lines,
depending upon market conditions, the Company may be able to substitute fixed
rate notes for some of its variable rate notes and credit lines to minimize its
exposure to interest rate risk. There can be no assurance, however, that any
such substitution could be arranged on terms that are satisfactory to the
Company.

As of December 31, 2000, the Company had amounts outstanding under fixed rate
notes payable and lines of credit totaling $317.2 million, with a weighted
average interest rate of 11.1% per annum. In the event that interest rates
decrease significantly, and market interest rates are substantially lower than
the rates on the Company's fixed rate notes and credit lines, the Company would
be able to reduce interest expense if it were able to prepay and/or refinance
these instruments. There can be no assurance, however, that the Company would be
able to prepay or refinance its debt on terms that are satisfactory to the
Company in a declining interest rate environment.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Information with respect to this Item is contained in the Company's Consolidated
Financial Statements as indicated in the Index on Page F-1 of this Annual Report
on Form 10-K, and is incorporated herein by reference.


                                       33
<PAGE>   34


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

None

                                    PART III

Certain information required by Part III is omitted from this report in that the
Company will file a definitive proxy statement with the Securities and Exchange
Commission (the "Commission") pursuant to Regulation 14A ("Proxy Statement") not
later than 120 days after the end of the fiscal year covered by this report, and
certain information to be included therein is incorporated herein by reference.
Only those sections of the Proxy Statement which specifically address the items
set forth herein are incorporated by reference.

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this Item is incorporated by reference to the
Company's Proxy Statement to be filed with the Commission for its annual
shareholders' meeting to be held in 2001.

ITEM 11.  EXECUTIVE COMPENSATION

The information required by this Item is incorporated by reference to the
Company's Proxy Statement to be filed with the Commission for its annual
shareholders' meeting to be held in 2001.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN  BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item is incorporated by reference to the
Company's Proxy Statement to be filed with the Commission for its annual
shareholders' meeting to be held in 2001.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is incorporated by reference to the
Company's Proxy Statement to be filed with the Commission for its annual
shareholders' meeting to be held in 2001.


                                     PART IV

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

(a)      Documents filed as part of the Annual Report on Form 10-K:

         1. Financial Statements

            Information with respect to this Item is contained on pages F-1 to
            F-73 of this Annual Report on Form 10-K.

         2. Financial Statement Schedules

            Information with respect to this Item is listed on page F-1 and is
            contained on pages S-1 to S-4 of this Annual Report on Form 10-K.

         3. Exhibits


                                       34
<PAGE>   35


EXHIBIT
 NUMBER           DESCRIPTION OF EXHIBITS
-------           -----------------------

  3.1             First Amended and Restated Certificate of Incorporation (filed
                  as Exhibit 3.3 to the Company's registration statement on Form
                  S-1 dated July 12, 1997 ("Form S-1") and incorporated by
                  reference herein)

  3.2             First Amended and Restated Bylaws (filed as Exhibit 3.4 to
                  Form S-1 and incorporated by reference herein)

  3.3             Amendment of Article V of First Amended and Restated Bylaws
                  (filed as Exhibit 3.3 to the Company's June 30, 1998 Form 10-Q
                  ("June 30, 1998 Form 10-Q") and incorporated by reference
                  herein)

  3.4             Repeal of Amendment of Article V of First Amended and Restated
                  Bylaws (filed as Exhibit 3.4 to the Company's September 30,
                  1998 Form 10-Q ("September 30, 1998 Form 10-Q") and
                  incorporated by reference herein)

  4.1             Specimen stock certificate (filed as Exhibit 4.1 to Form S-1
                  and incorporated by reference herein)

  4.2             Preferred Share Purchase Rights Plan (filed as Exhibit 4.2 to
                  Form S-1 and incorporated by reference herein)

  4.3             First Amendment to Preferred Share Purchase Rights Agreement
                  dated as of September 25, 1998, between Crescent Operating,
                  Inc. and Bank Boston, N.A., as Rights Agent (filed as Exhibit
                  4.3 to September 30, 1998 Form 10-Q and incorporated by
                  reference herein)

  4.4             Second Amendment to Preferred Share Purchase Rights Agreement
                  dated as of March 4, 1999, between Crescent Operating, Inc.
                  and Bank Boston, N.A., as Rights Agent (filed as Exhibit 4.4
                  to March 31, 1999 Form 10-Q ("March 31, 1999 Form 10-Q") and
                  incorporated by reference herein)

  10.1            Amended Stock Incentive Plan (filed as Exhibit 10.1 to Form
                  S-1 and incorporated by reference herein)

  10.2            Intercompany Agreement between Crescent Operating, Inc. and
                  Crescent Real Estate Equities Limited Partnership (filed as
                  Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
                  for the Quarter Ended June 30, 1997 ("June 30, 1997 Form
                  10-Q") and incorporated by reference herein)

  10.3            Amended and Restated Operating Agreement of Charter Behavioral
                  Health Systems, LLC (filed as Exhibit 10.3 to June 30, 1997
                  Form 10-Q and incorporated by reference herein)

  10.5            Amended and Restated Credit and Security Agreement, dated as
                  of May 30, 1997, between Crescent Real Estate Equities Limited
                  Partnership and Crescent Operating, Inc., together with
                  related Note (filed as Exhibit 10.5 to the Company's September
                  30, 1997 Form 10-Q ("September 30, 1997 Form 10-Q") and
                  incorporated by reference herein)

  10.6            Line of Credit and Security Agreement, dated as of May 21,
                  1997, between Crescent Real Estate Equities Limited
                  Partnership and Crescent Operating, Inc., together with
                  related Line of Credit Note (filed as Exhibit 10.6 to
                  September 30, 1997 Form 10-Q and incorporated by reference
                  herein)

  10.7            Acquisition Agreement, dated as of February 10, 1997, between
                  Crescent Real Estate Equities Limited Partnership and
                  Carter-Crowley Properties, Inc. (filed as Exhibit 10.7 to Form
                  S-1 and incorporated by reference herein)


                                       35
<PAGE>   36


  10.10           Security Agreement dated September 22, 1997 between COI Hotel
                  Group, Inc., as debtor, and Crescent Real Estate Equities
                  Limited Partnership, as lender, together with related $1
                  million promissory note (filed as Exhibit 10.10 to September
                  30, 1997 Form 10-Q and incorporated by reference herein)

  10.11           Security Agreement dated September 22, 1997 between COI Hotel
                  Group, Inc., as debtor, and Crescent Real Estate Equities
                  Limited Partnership, as lender, together with related $800,000
                  promissory note (filed as Exhibit 10.11 to September 30, 1997
                  Form 10-Q and incorporated by reference herein)

  10.12           Amended and Restated Asset Management dated August 31, 1997,
                  to be effective July 31, 1997, between Wine Country Hotel, LLC
                  and The Varma Group, Inc. (filed as Exhibit 10.12 to September
                  30, 1997 Form 10-Q and incorporated by reference herein)

  10.13           Amended and Restated Asset Management Agreement dated August
                  31, 1997, to be effective July 31, 1997, between RoseStar
                  Southwest, LLC and The Varma Group, Inc. (filed as Exhibit
                  10.13 to September 30, 1997 Form 10-Q and incorporated by
                  reference herein)

  10.14           Amended and Restated Asset Management Agreement dated August
                  31, 1997, to be effective July 31, 1997, between RoseStar
                  Management LLC and The Varma Group, Inc. (filed as Exhibit
                  10.14 to September 30, 1997 Form 10-Q and incorporated by
                  reference herein)

  10.15           Agreement for Financial Services dated July 1, 1997, between
                  Crescent Real Estate Equities Company and Petroleum Financial,
                  Inc. (filed as Exhibit 10.15 to September 30, 1997 Form 10-Q
                  and incorporated by reference herein)

  10.16           Credit Agreement dated August 27, 1997, between Crescent
                  Operating, Inc. and NationsBank of Texas, N.A. together with
                  related $15.0 million promissory note (filed as Exhibit 10.16
                  to September 30, 1997 Form 10-Q and incorporated by reference
                  herein)

  10.17           Support Agreement dated August 27, 1997, between Richard E.
                  Rainwater, John Goff and Gerald Haddock in favor of Crescent
                  Real Estate Equities Company and NationsBank of Texas, N.A.
                  (filed as Exhibit 10.17 to September 30, 1997 Form 10-Q and
                  incorporated by reference herein)

  10.18           1997 Crescent Operating, Inc. Management Stock Incentive Plan
                  (filed as Exhibit 10.18 to the Company's Annual Report on Form
                  10-K for the year ended December 31, 1997 ("December 31, 1997
                  Form 10-K") and incorporated by reference herein)

  10.19           Memorandum of Agreement executed November 16, 1997, among
                  Charter Behavioral Health Systems, LLC, Charter Behavioral
                  Health Systems, Inc. and Crescent Operating, Inc. (filed as
                  Exhibit 10.19 to December 31, 1997 Form 10-K and incorporated
                  by reference herein)

  10.20           Purchase Agreement dated August 31, 1997, by and among
                  Crescent Operating, Inc., RoseStar Management LLC, Gerald W.
                  Haddock, John C. Goff and Sanjay Varma (filed as Exhibit 10.20
                  to December 31, 1997 Form 10-K and incorporated by reference
                  herein)

  10.21           Stock Purchase Agreement dated August 31, 1997, by and among
                  Crescent Operating, Inc., Gerald W. Haddock, John C. Goff and
                  Sanjay Varma (filed as Exhibit 10.21 to December 31, 1997 Form
                  10-K and incorporated by reference herein)

                                       36
<PAGE>   37



  10.22           Amended and Restated Lease Agreement, dated June 30, 1995
                  between Crescent Real Estate Equities Limited Partnership and
                  RoseStar Management LLC, relating to the Denver Marriott City
                  Center (filed as Exhibit 10.17 to the Annual Report on Form
                  10-K of Crescent Real Estate Equities Company for the Fiscal
                  Year Ended December 31, 1995 (the "1995 CEI 10-K") and
                  incorporated by reference herein)

  10.23           Lease Agreement, dated December 19, 1995 between Crescent Real
                  Estate Equities Limited Partnership and RoseStar Management
                  LLC, relating to the Hyatt Regency Albuquerque (filed as
                  Exhibit 10.16 to the 1995 CEI 10-K and incorporated by
                  reference herein)

  10.24           Form of Amended and Restated Lease Agreement, dated January 1,
                  1996, among Crescent Real Estate Equities Limited Partnership,
                  Mogul Management, LLC and RoseStar Management LLC, relating to
                  the Hyatt Regency Beaver Creek (filed as Exhibit 10.12 to the
                  1995 CEI 10-K and incorporated by reference herein)

  10.25           Lease Agreement, dated July 26, 1996, between Canyon Ranch,
                  Inc. and Canyon Ranch Leasing, L.L.C., assigned by Canyon
                  Ranch, Inc. to Crescent Real Estate Equities Limited
                  Partnership pursuant to the Assignment and Assumption
                  Agreement of Master Lease, dated July 26, 1996 (filed as
                  Exhibit 10.24 to the Quarterly Report on Form 10-Q/A of
                  Crescent Real Estate Equities Company for the Quarter Ended
                  June 30, 1997 (the "1997 CEI 10-Q") and incorporated by
                  reference herein)

  10.26           Lease Agreement, dated November 18, 1996 between Crescent Real
                  Estate Equities Limited Partnership and Wine Country Hotel,
                  LLC (filed as Exhibit 10.25 to the Annual Report on Form 10-K
                  of Crescent Real Estate Equities Company for the Fiscal Year
                  Ended December 31, 1996 and incorporated by reference herein)

  10.27           Lease Agreement, dated December 11, 1996, between Canyon
                  Ranch-Bellefontaine Associates, L.P. and Vintage Resorts,
                  L.L.C., as assigned by Canyon Ranch-Bellefontaine Associates,
                  L.P. to Crescent Real Estate Funding VI, L.P. pursuant to the
                  Assignment and Assumption Agreement of Master Lease, dated
                  December 11, 1996 (filed as Exhibit 10.26 to the 1997 CEI 10-Q
                  and incorporated by reference herein)

  10.28           Master Lease Agreement, dated June 16, 1997, between Crescent
                  Real Estate Funding VII, L.P. and Charter Behavioral Health
                  Systems, LLC and its subsidiaries, relating to the Facilities
                  (filed as Exhibit 10.27 to the 1997 CEI 10-Q and incorporated
                  by reference herein)

  10.29           Form of Indemnification Agreement (filed as Exhibit 10.29 to
                  December 31, 1997 Form 10-K and incorporated by reference
                  herein)

  10.30           Purchase Agreement, dated as of September 29, 1997, between
                  Crescent Operating, Inc. and Crescent Real Estate Equities
                  Limited Partnership, relating to the purchase of Desert
                  Mountain Development Corporation (filed as Exhibit 10.30 to
                  December 31, 1997 Form 10-K and incorporated by reference
                  herein)

  10.31           Lease Agreement dated December 19, 1997, between Crescent Real
                  Estate Equities Limited Partnership, as Lessor, and Wine
                  Country Hotel, as Lessee, for lease of Ventana Inn (filed as
                  Exhibit 10.31 to the Company's March 31, 1998 Form 10-Q
                  ("March 31, 1998 Form 10-Q") and incorporated by reference
                  herein)

  10.32           Lease Agreement dated September 22, 1997, between Crescent
                  Real Estate Equities Limited Partnership, as Lessor, and COI
                  Hotel Group, Inc., as lessee, for lease of Four Seasons Hotel,
                  Houston (filed as Exhibit 10.32 to March 31, 1998 Form 10-Q
                  and incorporated by reference herein)

  10.33           Asset Purchase Agreement dated December 19, 1997, among
                  Crescent Operating, Inc., Preco Machinery Sales, Inc., and
                  certain individual Preco shareholders (filed as Exhibit 10.33
                  to March 31, 1998 Form 10-Q and incorporated by reference
                  herein)

                                       37
<PAGE>   38


  10.34           Asset Purchase Agreement dated April 30, 1998, among Crescent
                  Operating, Inc., Central Texas Equipment Company, and certain
                  individual Central Texas shareholders (filed as Exhibit 10.34
                  to March 31, 1998 Form 10-Q and incorporated by reference
                  herein)

  10.35           Credit Agreement dated August 29, 1997 between Crescent Real
                  Estate Equities Limited Partnership, as lender, and Desert
                  Mountain Properties Limited Partnership, as borrower, together
                  with related Senior Note, Junior Note and deed of trust (filed
                  as Exhibit 10.35 to March 31, 1998 Form 10-Q and incorporated
                  by reference herein)

  10.36           Buy-Out Agreement dated April 24, 1998, between Crescent
                  Operating, Inc. and Crescent Real Estate Equities Limited
                  Partnership (filed as Exhibit 10.36 to March 31, 1998 Form
                  10-Q and incorporated by reference herein)

  10.37           Stock Acquisition Agreement and Plan of Merger dated June 4,
                  1998, among Machinery, Inc., Oklahoma Machinery, Inc.,
                  Crescent Machinery Company, Crescent Operating, Inc. and
                  certain individual Machinery shareholders (filed as Exhibit
                  10.37 to June 30, 1998 Form 10-Q and incorporated by reference
                  herein)

  10.38           Master Revolving Line of Credit Loan Agreement (Borrowing Base
                  and Warehouse) dated May 14, 1998, between Desert Mountain
                  Properties Limited Partnership and National Bank of Arizona
                  (filed as Exhibit 10.38 to June 30, 1998 Form 10-Q and
                  incorporated by reference herein)

  10.39           1997 Management Stock Incentive Plan (filed as Exhibit 10.39
                  to June 30, 1998 Form 10-Q and incorporated by reference
                  herein)

  10.40           Credit and Security Agreement, dated as of September 21, 1998,
                  between Crescent Real Estate Equities Limited Partnership and
                  Crescent Operating, Inc., together with related Note (filed as
                  Exhibit 10.40 to September 30, 1998 Form 10-Q and incorporated
                  by reference herein)

  10.41           First Amendment to Amended and Restated Pledge Agreement,
                  dated as of September 21, 1998, between Crescent Real Estate
                  Equities Limited Partnership and Crescent Operating, Inc.
                  (filed as Exhibit 10.41 to September 30, 1998 Form 10-Q and
                  incorporated by reference herein)

  10.42           First Amendment to Line of Credit and Security Agreement,
                  dated as of August 11, 1998, between Crescent Real Estate
                  Equities Limited Partnership and Crescent Operating, Inc.,
                  together with related Note (filed as Exhibit 10.42 to
                  September 30, 1998 Form 10-Q and incorporated by reference
                  herein)

  10.43           First Amendment to Amended and Restated Credit and Security
                  Agreement, dated as of August 11, 1998, between Crescent Real
                  Estate Equities Limited Partnership and Crescent Operating,
                  Inc. (filed as Exhibit 10.43 to September 30, 1998 Form 10-Q
                  and incorporated by reference herein)

  10.44           Second Amendment to Amended and Restated Credit and Security
                  Agreement, dated as of September 21, 1998, between Crescent
                  Real Estate Equities Limited Partnership and Crescent
                  Operating, Inc. (filed as Exhibit 10.44 to September 30, 1998
                  Form 10-Q and incorporated by reference herein)

  10.45           Second Amendment to Line of Credit and Security Agreement,
                  dated as of September 21, 1998, between Crescent Real Estate
                  Equities Limited Partnership and Crescent Operating, Inc.
                  (filed as Exhibit 10.45 to September 30, 1998 Form 10-Q and
                  incorporated by reference herein)

                                       38
<PAGE>   39


  10.46           Agreement of Limited Partnership of COPI Colorado, L.P. (filed
                  as Exhibit 10.1 to that Schedule 13D Statement dated September
                  28, 1998, filed by COPI Colorado, L.P., Crescent Operating,
                  Inc., Gerald W. Haddock, John C. Goff and Harry H. Frampton,
                  III, and incorporated by reference herein)

  10.47           Contribution Agreement effective as of September 11, 1998, by
                  and among Crescent Operating, Inc., Gerald W. Haddock, John C.
                  Goff and Harry H. Frampton, III (filed as Exhibit 10.2 to that
                  Schedule 13D Statement dated September 28, 1998, filed by COPI
                  Colorado, L.P., Crescent Operating, Inc., Gerald W. Haddock,
                  John C. Goff and Harry H. Frampton, III, and incorporated by
                  reference herein)

  10.48           Agreement Regarding Schedules and Other Matters made as of
                  September 11, 1998, by and among Crescent Operating, Inc.,
                  Gerald W. Haddock, John C. Goff and Harry H. Frampton, III
                  (filed as Exhibit 10.3 to that Schedule 13D Statement dated
                  September 28, 1998, filed by COPI Colorado, L.P., Crescent
                  Operating Inc., Gerald W. Haddock, John C. Goff and Harry H.
                  Frampton, III, and incorporated by reference herein)

  10.49           Stock Purchase Agreement dated as of August 7, 1998 by and
                  among Western Traction Company, The Carlston Family Trust,
                  Ronald D. Carlston and Crescent Operating, Inc. (filed as
                  Exhibit 10.49 to September 30, 1998 Form 10-Q and incorporated
                  by reference herein)


  10.50           Stock Purchase Agreement dated as of July 31, 1998 by and
                  among Harvey Equipment Center, Inc., L and H Leasing Company,
                  William J. Harvey, Roy E. Harvey, Jr., Betty J. Harvey and
                  Crescent Operating, Inc. (filed as Exhibit 10.50 to September
                  30, 1998 Form 10-Q and incorporated by reference herein)

  10.51           Credit Agreement dated as of July 28, 1998, between Crescent
                  Real Estate Equities Limited Partnership and CRL Investments,
                  Inc., together with the related Note (filed as Exhibit 10.51
                  to September 30, 1998 Form 10-Q and incorporated by reference
                  herein)

  10.52           Security Agreement dated as of July 28, 1998, between Crescent
                  Real Estate Equities Limited Partnership and CRL Investments,
                  Inc. (filed as Exhibit 10.52 to September 30, 1998 Form 10-Q
                  and incorporated by reference herein)

  10.53           First Amendment to Credit Agreement effective as of August 27,
                  1998, among Crescent Operating, Inc., NationsBank, N. A., and
                  the Support Parties identified therein (filed as Exhibit 10.53
                  to September 30, 1998 Form 10-Q and incorporated by reference
                  herein)

  10.54           Lease Agreement dated as of October 13, 1998, between Crescent
                  Real Estate Equities Limited Partnership and Wine Country Golf
                  Club, Inc., relating to Sonoma Golf Club (filed as Exhibit
                  10.54 to September 30, 1998 Form 10-Q and incorporated by
                  reference herein)

  10.55           First Amendment to Lease Agreement effective December 31,
                  1998, between Canyon Ranch Leasing, L.L.C., and Crescent Real
                  Estate Equities Limited Partnership, relating to Canyon Ranch
                  -- Tucson (filed as Exhibit 10.55 to the Company's Annual
                  Report on Form 10-K for the year ended December 31, 1998
                  ("December 31, 1998 Form 10-K") and incorporated by reference
                  herein)

  10.56           First Amendment to Lease Agreement effective April 1, 1996;
                  Second Amendment to Lease Agreement effective November 22,
                  1996; Third Amendment to Lease Agreement effective August 12,
                  1998; and Fourth Amendment to Lease Agreement effective
                  December 31, 1998 between RoseStar Southwest, LLC, and
                  Crescent Real Estate Funding II L.P., relating to Hyatt
                  Regency Albuquerque (filed as Exhibit 10.56 to December 31,
                  1998 Form 10-K and incorporated by reference herein)

  10.57           First Amendment to Lease Agreement effective December 31,
                  1998, between Wine Country Hotel, LLC, and Crescent Real
                  Estate Equities Limited Partnership, relating to Sonoma
                  Mission Inn & Spa (filed as Exhibit 10.57 to December 31, 1998
                  Form 10-K and incorporated by reference herein)


                                       39
<PAGE>   40


  10.58           First Amendment to Amended and Restated Lease Agreement
                  effective December 31, 1998, between RoseStar Management, LLC,
                  and Crescent Real Estate Equities Limited Partnership,
                  relating to Marriott City Center, Denver (filed as Exhibit
                  10.58 to December 31, 1998 Form 10-K and incorporated by
                  reference herein)

  10.59           First Amendment to Lease Agreement effective December 31,
                  1998, between Wine Country Hotel, LLC, and Crescent Real
                  Estate Equities Limited Partnership, relating to Ventana Inn
                  (filed as Exhibit 10.59 to December 31, 1998 Form 10-K and
                  incorporated by reference herein)

  10.60           First Amendment to Amended and Restated Lease Agreement
                  effective April 1, 1996 and Second Amendment to Amended and
                  Restated Lease Agreement effective December 31, 1998, between
                  RoseStar Southwest, LLC, and Crescent Real Estate Funding II,
                  L.P., relating to Hyatt Regency Beaver Creek (filed as Exhibit
                  10.60 to December 31, 1998 Form 10-K and incorporated by
                  reference herein)

  10.61           First Amendment to Lease Agreement effective December 31,
                  1998, between COI Hotel Group, Inc. and Crescent Real Estate
                  Equities Limited Partnership, relating to Four Seasons --
                  Houston (filed as Exhibit 10.61 to December 31, 1998 Form 10-K
                  and incorporated by reference herein)

  10.62           First Amendment to Lease Agreement effective December 31,
                  1998, between Wine Country Hotel, LLC and Crescent Real Estate
                  Funding VI, L.P., relating to Canyon Ranch -- Lenox (filed as
                  Exhibit 10.62 to March 31, 1999 Form 10-Q and incorporated by
                  reference herein)


  10.63           Master Guaranty effective December 31, 1998, by Crescent
                  Operating, Inc. for the benefit of Crescent Real Estate
                  Equities Limited Partnership, Crescent Real Estate Funding II,
                  L.P., and Crescent Real Estate Funding VI, L.P., relating to
                  leases for Hyatt Regency Albuquerque, Hyatt Regency Beaver
                  Creek, Canyon Ranch-Lenox, Sonoma Mission Inn & Spa, Canyon
                  Ranch -- Tucson, and Marriott City Center Denver (filed as
                  Exhibit 10.63 to December 31, 1998 Form 10-K and incorporated
                  by reference herein)

  10.64           Guaranty of Lease effective December 19, 1997, by Crescent
                  Operating, Inc. for the benefit of Crescent Real Estate
                  Equities Limited Partnership, relating to Ventana Inn (filed
                  as Exhibit 10.64 to December 31, 1998 Form 10-K and
                  incorporated by reference herein)

  10.65           Amended and Restated Guaranty of Lease effective December 31,
                  1998, by Crescent Operating, Inc. for the benefit of Crescent
                  Real Estate Equities Limited Partnership, relating to Four
                  Seasons Hotel -- Houston (filed as Exhibit 10.65 to December
                  31, 1998 Form 10-K and incorporated by reference herein)

  10.66           Amended and Restated Guaranty of Lease effective December 31,
                  1998, by Crescent Operating, Inc. for the benefit of Crescent
                  Real Estate Equities Limited Partnership, relating to Sonoma
                  Golf Club (filed as Exhibit 10.66 to December 31, 1998 Form
                  10-K and incorporated by reference herein)

  10.67           Credit Agreement dated August 11, 1995, between Crescent
                  Development Management Corp., as borrower, and Crescent Real
                  Estate Equities Limited Partnership, as lender; First
                  Amendment to Credit Agreement dated as of April 15, 1997;
                  Second Amendment to Credit Agreement dated as of May 8, 1998;
                  and related Note and Security Agreement (filed as Exhibit
                  10.67 to December 31, 1998 Form 10-K and incorporated by
                  reference herein)


                                       40
<PAGE>   41



  10.68           Credit Agreement dated January 1, 1998, between Crescent
                  Development Management Corp., as borrower, and Crescent Real
                  Estate Equities Limited Partnership, as lender, and related
                  Note and Security Agreement (filed as Exhibit 10.68 to
                  December 31, 1998 Form 10-K and incorporated by reference
                  herein)

  10.69           $3,100,000 Note dated February 29, 1996, made by Crescent
                  Development Management Corp. payable to Crescent Real Estate
                  Equities Limited Partnership (filed as Exhibit 10.69 to
                  December 31, 1998 Form 10-K and incorporated by reference
                  herein)

  10.70           Credit Agreement dated January 1, 1999, between Crescent
                  Development Management Corp., as borrower, and Crescent Real
                  Estate Equities Limited Partnership, as lender, and related
                  Line of Credit Note and Security Agreement (filed as Exhibit
                  10.70 to March 31, 1999 Form 10-Q and incorporated by
                  reference herein)

  10.71           Amended and Restated Credit Agreement dated January 1, 1999,
                  between Crescent Development Management Corp., as borrower,
                  and Crescent Real Estate Equities Limited Partnership, as
                  lender, and related Line of Credit Note and Amended and
                  Restated Security Agreement (filed as Exhibit 10.71 to March
                  31, 1999 Form 10-Q and incorporated by reference herein)


  10.72           Purchase Agreement dated March 12, 1999, between Crescent
                  Operating, Inc. and Crescent Real Estate Equities Limited
                  Partnership, relating to sale of interests in Crescent CS
                  Holdings Corp., and Crescent CS Holdings II Corp., and related
                  Put Agreement of same date (filed as Exhibit 10.72 to March
                  31, 1999 Form 10-Q and incorporated by reference herein)


  10.73           Second Amendment to Lease Agreement effective April 1, 1999,
                  between Wine Country Hotel, LLC, and Crescent Real Estate
                  Funding VI, L.P., relating to Canyon Ranch-Lenox (filed as
                  Exhibit 10.73 to March 31, 1999 Form 10-Q and incorporated by
                  reference herein)

  10.74           Master Revolving Line of Credit Loan Agreement (Borrowing Base
                  and Warehouse) dated May 14, 1998, between Desert Mountain
                  Properties Limited Partnership, as borrower, and National Bank
                  of Arizona, as lender; Modification Agreement dated December
                  30, 1998; second Modification Agreement dated March 31, 1999;
                  and related Promissory Note (Borrowing Base), Promissory Note
                  (Warehouse), Pledge Agreement, Deed of Trust, and Amendment to
                  Deed of Trust (filed as Exhibit 10.74 to March 31, 1999 Form
                  10-Q and incorporated by reference herein)

  10.75           Lease Agreement dated as of June 15, 1999, between Crescent
                  Real Estate Funding III, L.P. and COI Hotel Group, Inc.,
                  relating to the Renaissance Houston Hotel (filed as Exhibit
                  10.75 to June 30, 1999 Form 10-Q and incorporated by reference
                  herein)

  10.76           Guaranty of Lease dated June 15, 1999, by Crescent Operating,
                  Inc. for the benefit of Crescent Real Estate Funding III,
                  L.P., relating to Renaissance Houston Hotel (filed as Exhibit
                  10.76 to June 30, 1999 Form 10-Q and incorporated by reference
                  herein)

  10.77           Asset Management Agreement dated as of January 1, 1999,
                  between Crescent Real Estate Equities Limited Partnership and
                  COI Hotel Group, Inc., relating to the Omni Austin Hotel
                  (filed as Exhibit 10.77 to June 30, 1999 Form 10-Q and
                  incorporated by reference herein)

  10.78           Agreement dated June 11, 1999, by and between Gerald W.
                  Haddock and Crescent Operating, Inc. and its subsidiaries and
                  affiliates (filed as Exhibit 10.78 to June 30, 1999 Form 10-Q
                  and incorporated by reference herein)


                                       41
<PAGE>   42


  10.79           Stock Purchase Agreement dated as of July 15, 1999, by and
                  among E. L. Lester & Company, Incorporated, E. L. Lester, Jr.,
                  Howard T. Tellepsen II, Karen Tellepsen, Tom Tellepsen II,
                  Linda Lester Griffen, Crescent Operating, Inc. and Crescent
                  Machinery Company (filed as Exhibit 10.79 to the Company's
                  September 30, 1999 Form 10-Q ("September 30, 1999 Form 10-Q")
                  and incorporated by reference herein)

  10.80           Stock Purchase Agreement dated as of July 8, 1999, by and
                  among Solveson Crane Rental, Inc., Solveson Family Revocable
                  Trust, and Crescent Machinery Company (filed as Exhibit 10.80
                  to September 30, 1999 Form 10-Q and incorporated by reference
                  herein)

  10.81           Second Amendment to Credit Agreement effective as of August
                  27, 1999, among Crescent Operating, Inc., Bank of America,
                  N. A. (formerly NationsBank, N. A.), and the Support Parties
                  identified therein (filed as Exhibit 10.81 to September 30,
                  1999 Form 10-Q and incorporated by reference herein)

  10.82           First Amendment to 1997 Crescent Operating, Inc. Management
                  Stock Incentive Plan (filed as Exhibit 10.82 to the Company's
                  December 31, 1999 Form 10-K ("December 31, 1999 Form 10-K")
                  and incorporated by reference herein)

  10.83           Form of Sales and Service Agreement between BLAW KNOX
                  Construction Equipment Corporation and certain of Crescent
                  Machinery Company and its subsidiaries (filed as Exhibit 10.83
                  to December 31, 1999 Form 10-K and incorporated by reference
                  herein)

  10.84           Form of Heavy Equipment Distributor Agreement between
                  Compaction America, Inc. and certain of Crescent Machinery
                  Company and its subsidiaries (filed as Exhibit 10.84 to
                  December 31, 1999 Form 10-K and incorporated by reference
                  herein)

  10.85           Form of Gradall Equipment Distributor Agreement between The
                  Gradall Company and certain of Crescent Machinery Company and
                  its subsidiaries (filed as Exhibit 10.85 to December 31, 1999
                  Form 10-K and incorporated by reference herein)

  10.86           Form of Distributor Selling Agreement between Ingersoll-Rand
                  Company and certain of Crescent Machinery Company and its
                  subsidiaries (filed as Exhibit 10.86 to December 31, 1999 Form
                  10-K and incorporated by reference herein)

  10.87           Form of JCB Dealership Agreement between JCB Inc. and certain
                  of Crescent Machinery Company and its subsidiaries (filed as
                  Exhibit 10.87 to December 31, 1999 Form 10-K and incorporated
                  by reference herein)

  10.88           Form of Distributor Agreement between LBX Company, LLC, and
                  certain of Crescent Machinery Company and its subsidiaries
                  (filed as Exhibit 10.88 to December 31, 1999 Form 10-K and
                  incorporated by reference herein)

  10.89           Form of Distributor Agreement between Liebherr Construction
                  Equipment Co. and certain of Crescent Machinery Company and
                  its subsidiaries (filed as Exhibit 10.89 to December 31, 1999
                  Form 10-K and incorporated by reference herein)

  10.90           Form of Distributor Agreement between Link-Belt Construction
                  Equipment Company and certain of Crescent Machinery Company
                  and its subsidiaries (filed as Exhibit 10.90 to December 31,
                  1999 Form 10-K and incorporated by reference herein)

  10.91           Form of Dealer Floor Plan Financing and Security Agreement
                  between General Electric Capital Corporation and certain of
                  Crescent Machinery Company and its subsidiaries (filed as
                  Exhibit 10.91 to December 31, 1999 Form 10-K and incorporated
                  by reference herein)



                                       42
<PAGE>   43



  10.92           Taxable REIT Subsidiary Election Agreement dated December 17,
                  1999, among Crescent Real Estate Equities Company, Crescent
                  Real Estate Equities Limited Partnership, Crescent Operating,
                  Inc. and Crescent Development Management Corp. (filed as
                  Exhibit 10.92 to December 31, 1999 Form 10-K and incorporated
                  by reference herein)

  10.93           Taxable REIT Subsidiary Election Agreement dated December 17,
                  1999, among Crescent Real Estate Equities Company, Crescent
                  Real Estate Equities Limited Partnership, Crescent Operating,
                  Inc. and Crescent CS Holdings II Corp. (filed as Exhibit 10.93
                  to December 31, 1999 Form 10-K and incorporated by reference
                  herein)

  10.94           Taxable REIT Subsidiary Election Agreement dated December 17,
                  1999, among Crescent Real Estate Equities Company, Crescent
                  Real Estate Equities Limited Partnership, Crescent Operating,
                  Inc. and Crescent CS Holdings Corp. (filed as Exhibit 10.94 to
                  December 31, 1999 Form 10-K and incorporated by reference
                  herein)

  10.95           Taxable REIT Subsidiary Election Agreement dated December 17,
                  1999, among Crescent Real Estate Equities Company, Crescent
                  Real Estate Equities Limited Partnership, Crescent Operating,
                  Inc. and Desert Mountain Development Corp. (filed as Exhibit
                  10.95 to December 31, 1999 Form 10-K and incorporated by
                  reference herein)

  10.96           Taxable REIT Subsidiary Election Agreement dated December 17,
                  1999, among Crescent Real Estate Equities Company, Crescent
                  Real Estate Equities Limited Partnership, Crescent Operating,
                  Inc. and The Woodlands Land Company, Inc. (filed as Exhibit
                  10.96 to December 31, 1999 Form 10-K and incorporated by
                  reference herein)

  10.97           $19.5 Million Credit and Security Agreement affective as of
                  March 11, 1999, between Crescent Real Estate Equities Limited
                  Partnership and Crescent Operating, Inc. with related
                  Promissory Note (filed as Exhibit 10.97 to December 31, 1999
                  Form 10-K and incorporated by reference herein)

  10.98           First Amendment to Credit and Security Agreement effective as
                  of March 11, 1999, between Crescent Real Estate Equities
                  Limited Partnership and Crescent Operating, Inc. (filed as
                  Exhibit 10.98 to December 31, 1999 Form 10-K and incorporated
                  by reference herein)

  10.99           Third Amendment to Amended and Restated Credit and Security
                  Agreement effective as of March 11, 1999, between Crescent
                  Real Estate Equities Limited Partnership and Crescent
                  Operating, Inc. (filed as Exhibit 10.99 to December 31, 1999
                  Form 10-K and incorporated by reference herein)

  10.100          Third Amendment to Line of Credit Credit and Security
                  Agreement effective as of March 11, 1999, between Crescent
                  Real Estate Equities Limited Partnership and Crescent
                  Operating, Inc. (filed as Exhibit 10.100 to December 31, 1999
                  Form 10-K and incorporated by reference herein)

  10.101          Agreements for Wholesale Financing (with Addendum) between
                  Deutsche Financial Services Corporation and, respectively,
                  Western Traction Company, Machinery Inc., Solveson Crane
                  Rentals Inc., Harvey Equipment Center Inc., and Crescent
                  Machinery Company, with Guarantees (filed as Exhibit 10.101 to
                  December 31, 1999 Form 10-K and incorporated by reference
                  herein)

  10.102          Master Security Agreements between Associates Commercial
                  Corporation and, respectively, Crescent Machinery Company and
                  Western Traction Company; Security Agreement between
                  Associates Commercial Corporation and Western Traction
                  Company; Addendum; and Continuing Guaranty by Crescent
                  Machinery Company (filed as Exhibit 10.102 to December 31,
                  1999 Form 10-K and incorporated by reference herein)



                                       43
<PAGE>   44

  10.103          First Amendment to Amended and Restated Credit Agreement dated
                  as of December 20, 1999, between Crescent Real Estate Equities
                  Limited Partnership and Crescent Development Management Corp.
                  with related Line of Credit Note and letter amendment to
                  related security agreement (filed as Exhibit 10.103 to
                  December 31, 1999 Form 10-K and incorporated by reference
                  herein)

  10.104          $5,600,000 Promissory Note dated February 28, 2000, made by
                  East West Resorts, LLC payable to Crescent Real Estate
                  Equities Limited Partnership (filed as Exhibit 10.104 to the
                  Company's March 31, 2000 Form 10-Q ("March 31, 2000 Form
                  10-Q") and incorporated by reference herein)

  10.105          Mutual Termination of Asset Management Agreement for Omni
                  Austin Hotel, Austin, Texas, effective January 31, 2000,
                  between Crescent Real Estate Equities Limited Partnership and
                  COI Hotel Group, Inc. (filed as Exhibit 10.105 to March 31,
                  2000 Form 10-Q and incorporated by reference herein)

  10.106          Master Asset Management and Administrative Services Agreement
                  dated February 1, 2000, by and among Sonoma Management Corp.
                  I, Crescent Operating, Inc. and each of its subsidiaries
                  identified therein (filed as Exhibit 10.106 to March 31, 2000
                  Form 10-Q and incorporated by reference herein)

  10.107          Management Agreement effective February 1, 2000, between
                  Sonoma Management Corp. I, as Manager, and Crescent Real
                  Estate Funding VIII, L.P., as Owner and assignor to the
                  Company, relating to Ventana Inn & Spa (filed as Exhibit
                  10.107 to March 31, 2000 Form 10-Q and incorporated by
                  reference herein)

  10.108          Management Agreement effective February 1, 2000, between
                  Sonoma Management Corp. I, as Manager, and Crescent Real
                  Estate Funding VIII, L.P., as Owner and assignor to the
                  Company, relating to Sonoma Mission Inn Golf and Country Club
                  (filed as Exhibit 10.108 to March 31, 2000 Form 10-Q and
                  incorporated by reference herein)

  10.109          Management Agreement effective February 1, 2000, between
                  Sonoma Management Corp. I, as Manager, and Crescent Real
                  Estate funding VIII, L.P., as Owner and assignor to the
                  Company, relating to Sonoma Mission Inn and Spa (filed as
                  Exhibit 10.109 to March 31, 2000 Form 10-Q and incorporated by
                  reference herein)

  10.110          Termination of Lease Agreement for The Four Seasons Hotel,
                  Houston, effective November 3, 2000, between COI Hotel Group,
                  Inc. and Crescent Real Estate Funding IX, L.P. (filed as
                  Exhibit 10.110 to the Company's September 30, 2000 Form 10-Q
                  ("September 30, 2000 Form 10-Q") and incorporated by reference
                  herein)

  10.111          First Amendment to Credit and Security agreement effective
                  February 1, 2000, between Crescent Realty Estate Equities
                  Limited Partnership and Crescent Operating, Inc. relating to
                  $19.5 Million Credit and Security Agreement effective March
                  11, 1999 (filed as Exhibit 10.111 to September 30, 2000 Form
                  10-Q and incorporated by reference herein)

  10.112          Second Amendment to Credit and Security Agreement effective
                  February 1, 2000, between Crescent Real Estate Equities
                  Limited Partnership and Crescent Operating, Inc. relating to
                  $9 Million Credit and Security Agreement effective September
                  21, 1998 (filed as Exhibit 10.112 to September 30, 2000 Form
                  10-Q and incorporated by reference herein)

  10.113          Fourth Amendment to Amended and Restated Credit and Security
                  Agreement effective February 1, 2000, between Crescent Real
                  Estate Equities Limited Partnership and Crescent Operating,
                  Inc. relating to Amended and Restated Credit and Security
                  Agreement effective May 21, 1997 (filed as Exhibit 10.113 to
                  September 30, 2000 Form 10-Q and incorporated by reference
                  herein)


                                       44
<PAGE>   45


  10.114          Fourth Amendment to Line of Credit Credit and Security
                  Agreement effective February 1, 2000, between Crescent Real
                  Estate Equities Limited Partnership and Crescent Operating,
                  Inc. relating to Line of Credit Credit and Security Agreement
                  effective May 21, 1997 (filed as Exhibit 10.114 to September
                  30, 2000 Form 10-Q and incorporated by reference herein)

  10.115          Credit Agreement dated September 21, 2000, between Crescent
                  Development Management Corp., as borrower, and Crescent Real
                  Estate Equities Limited Partnership, as lender, and related
                  Line of Credit Note and Security Agreement (filed herewith)

  10.116          Assignment of Interest in East West Resorts, LLC (CDMC to
                  COPI); Assignment of Interest in East West Resorts, LLC (COPI
                  to CDMC); and Assignment, Assumption and Consent Agreement
                  dated December 31, 2000, among Crescent Development Management
                  Corp., Crescent Development Management Corp. II, and Crescent
                  Real Estate Equities Limited Partnership (filed herewith)

  10.117          Assignment of Membership Interest dated December 29, 2000
                  between Crescent Operating, Inc. and Rockwood Financial Group,
                  Inc.; Assignment of Membership Interest dated December 29,
                  2000 between COPI CBHS Holdings, L.P. and Rockwood Financial
                  Group, Inc.; and related Indemnification Agreement dated
                  December 29, 2000 among COPI CBHS Holdings, L.P., Crescent
                  Operating, Inc. and Rockwood Financial Group, Inc. (filed
                  herewith)

  21              List of Subsidiaries of Crescent Operating, Inc.

  23.1            Consent of Ernst & Young LLP

  23.2            Consent of Deloitte & Touche LLP

  23.3            Consent of Arthur Andersen LLP -- Denver

  23.4            Consent of Arthur Andersen LLP -- Houston




(b)      Reports on Form 8-K:

         No reports on Form 8-K were filed during the last quarter of the year
         ended December 31, 2000.

(c)      Exhibits Required by Item 601 of Regulation S-K:

         Exhibits required are listed under Item 14(a)(3).

(d)      Financial Statement Schedules Required by Regulation S-X:

         Information with respect to this Item is contained on Pages F-1 to
         F-73 of this Annual Report on Form 10-K.


                                       45
<PAGE>   46



                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 17th day of April,
2001.


                                   CRESCENT OPERATING, INC.
                                   (Registrant)



                                   By  /s/ John C. Goff
                                     -------------------------------------
                                                John C. Goff
                                     President and Chief Executive Officer



Pursuant to the requirements of the Securities Exchange Act of 1934 as amended,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>


       SIGNATURE                           TITLE                                          DATE
       ---------                           -----                                          ----
<S>                           <C>                                                    <C>
/s/ Richard E. Rainwater
------------------------      Chairman of the Board of Directors                     April 17, 2001
    Richard E. Rainwater

/s/ John C. Goff
------------------------      President, Chief Executive Officer, Vice               April 17, 2001
    John C. Goff               Chairman of the Board of Directors
                              (Principal Executive Officer)

/s/ Jeffrey L. Stevens
------------------------      Executive Vice President, Chief Operating              April 17, 2001
    Jeffrey L. Stevens        Officer and Director

/s/ Richard P. Knight
------------------------      Vice President, Chief Financial Officer                April 17, 2001
    Richard P. Knight         (Principal Financial and Accounting Officer)

/s/ William A. Abney
------------------------      Director                                               April 17, 2001
    William A. Abney

/s/ Anthony M. Frank
------------------------      Director                                               April 17, 2001
    Anthony M. Frank

/s/ Paul E. Rowsey, III
------------------------      Director                                               April 17, 2001
    Paul E. Rowsey, III

/s/ Carl F. Thorne
------------------------      Director                                               April 17, 2001
    Carl F. Thorne
</TABLE>


                                       46
<PAGE>   47

                            CRESCENT OPERATING, INC.
                          INDEX TO FINANCIAL STATEMENTS


The following Consolidated Financial Statements of the Registrant are submitted
herewith in response to Item 8 and Item 14(a)1:

<TABLE>
<CAPTION>
                                                                                 PAGE
                                                                                 ----
<S>                                                                            <C>
CRESCENT OPERATING, INC.

     Reports of Independent Auditors...........................................   F-3

     Consolidated Balance Sheets...............................................   F-8

     Consolidated Statements of Operations.....................................   F-9

     Consolidated Statements of Changes in Shareholders' Equity (Deficit)......  F-10

     Consolidated Statements of Cash Flows.....................................  F-11

     Notes to Consolidated Financial Statements................................  F-12

     The following financial statement schedule of the Registrant and its
     subsidiaries is submitted herewith in response to Item 14(a)2:

     Schedule I -- Condensed Financial Information of the Registrant...........   S-1
</TABLE>

The following Consolidated Financial Statements are submitted herewith in
response to Rule 3-09 of Regulation S-X:

<TABLE>
<S>                                                                            <C>
VORNADO CRESCENT LOGISTICS OPERATING PARTNERSHIP AND SUBSIDIARY

     Independent Auditors Report...............................................  F-38

     Consolidated Balance Sheets...............................................  F-39

     Consolidated Statements of Operations.....................................  F-41

     Consolidated Statements of Partners' Capital .............................  F-42

     Consolidated Statements of Cash Flows.....................................  F-43

     Notes to Consolidated Financial Statements................................  F-45
</TABLE>




                                      F-1
<PAGE>   48


<TABLE>
<S>                                                                            <C>
THE WOODLANDS OPERATING COMPANY, L.P. AND SUBSIDIARY

     Report of Independent Public Accountants..................................  F-54

     Consolidated Balance Sheets...............................................  F-55

     Consolidated Statements of Earnings.......................................  F-56

     Consolidated Statements of Changes in Partners' Equity (Deficit)..........  F-57

     Consolidated Statements of Cash Flows.....................................  F-58

     Notes to Consolidated Financial Statements................................  F-59

THE WOODLANDS LAND DEVELOPMENT COMPANY, L.P. AND SUBSIDIARY

     Report of Independent Public Accountants..................................  F-62

     Consolidated Balance Sheets...............................................  F-63

     Consolidated Statements of Earnings.......................................  F-64

     Consolidated Statements of Changes in Partners' Equity ...................  F-65

     Consolidated Statements of Cash Flows.....................................  F-66

     Notes to Consolidated Financial Statements................................  F-67
</TABLE>


All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.














                                      F-2
<PAGE>   49


                         REPORT OF INDEPENDENT AUDITORS


Board of Directors and Shareholders
Crescent Operating, Inc.

We have audited the accompanying consolidated balance sheets of Crescent
Operating, Inc. and subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of operations, shareholders' equity (deficit),
and cash flows for each of the three years in the period ended December 31,
2000. Our audits also included the financial statement schedule listed in the
index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits. We did
not audit the financial statements of The Woodlands Land Development Company,
L.P., The Woodlands Operating Company, L.P., Crescent Development Management
Corp., Crescent Development Management Corp. II or Vornado Crescent Logistics
Operating Partnership, which statements reflect total assets constituting 43.6%
and 34.9%, respectively, of consolidated assets as of December 31, 2000 and
1999, and total revenues constituting 24.6%, 19.2%, and 2.3%, respectively, of
consolidated revenues for each of the three years in the period ended December
31, 2000. Those statements were audited by other auditors whose reports have
been furnished to us, and our opinion, insofar as it relates to data included
for The Woodlands Land Development Company, L.P., The Woodlands Operating
Company, L.P., Crescent Development Management Corp., Crescent Development
Management Corp. II and Vornado Crescent Logistics Operating Partnership, is
based solely on the reports of the other auditors.

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 and the reports of other auditors
provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Crescent Operating, 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. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.

The accompanying consolidated financial statements have been prepared assuming
that Crescent Operating, Inc. will continue as a going concern. The Company has
incurred recurring net losses, has a net capital deficiency, has principal,
interest and rent obligations to Crescent Real Estate Equities Limited
Partnership due in 2001 which have been deferred, and a line of credit payable
to a bank which matures in August 2001. In addition a substantial amount of debt
matures in 2002, the related interest of which is not being paid on a current
basis. The Company's operations do not provide sufficient cash flow to service
this debt as currently structured. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are described in Note 20. The consolidated financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.


                                                ERNST & YOUNG LLP

Dallas, Texas
March 29, 2001







                                      F-3
<PAGE>   50




                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Executive Committee of
The Woodlands Operating Company, L.P.:


We have audited the accompanying consolidated balance sheets of The Woodlands
Operating Company, L.P. (a Texas limited partnership) and subsidiary as of
December 31, 2000 and 1999 and the related consolidated statements of earnings,
changes in partners' equity and cash flows for each of the three years ended
December 31, 2000. These financial statements are the responsibility of The
Woodlands Operating Company, L.P.'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 The
Woodlands Operating Company, L.P. and subsidiary as of December 31, 2000 and
1999 and the consolidated results of their operations and cash flows for each of
the three years ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States.

ARTHUR ANDERSEN LLP

Houston, Texas
January 15, 2001





                                      F-4
<PAGE>   51




                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Executive Committee of
The Woodlands Land Development Company, L.P.:


We have audited the accompanying consolidated balance sheets of The Woodlands
Land Development Company, L.P. (a Texas limited partnership) and subsidiary as
of December 31, 2000 and 1999 and the related consolidated statements of
earnings, changes in partners' equity and cash flows for each of the three years
ended December 31, 2000. These financial statements are the responsibility of
The Woodlands Land Development Company, L.P.'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 The
Woodlands Land Development Company, L.P. and subsidiary as of December 31, 2000
and 1999 and the consolidated results of their operations and cash flows for
each of the three years ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States.

ARTHUR ANDERSEN LLP

Houston, Texas
January 15, 2001






                                      F-5
<PAGE>   52





                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Shareholders of
Crescent Development Management Corp:

We have audited the accompanying consolidated balance sheets of CRESCENT
DEVELOPMENT MANAGEMENT CORP. (a Delaware corporation) AND SUBSIDIARIES as of
December 31, 2000 and 1999 and the related consolidated statements of
operations, shareholders' equity and cash flows for the years then ended. 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Crescent
Development Management Corp. and subsidiaries at December 31, 2000 and 1999, and
the results of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States.

ARTHUR ANDERSEN LLP

Denver, Colorado
February 19, 2001





                                      F-6
<PAGE>   53



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Shareholders of
Crescent Development Management Corp. II:

We have audited the accompanying consolidated balance sheet of CRESCENT
DEVELOPMENT MANAGEMENT CORP. II (a Delaware corporation) AND SUBSIDIARY as of
December 31, 2000 and the related consolidated statements of operations,
shareholders' equity and cash flows for the year then ended. 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 audit.

We conducted our audit 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 audit provides a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Crescent
Development Management Corp. II and subsidiary as of December 31, 2000, and the
results of its operations and its cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States.

ARTHUR ANDERSEN LLP

Denver, Colorado
February 9, 2001





                                      F-7
<PAGE>   54


                           CRESCENT OPERATING, INC.
                          CONSOLIDATED BALANCE SHEETS
                            (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                   December 31, 2000     December 31, 1999
                                                                   -----------------     -----------------

<S>                                                                  <C>                  <C>
                                              ASSETS

CURRENT ASSETS
  Cash and cash equivalents                                          $        62,078      $        39,017
  Accounts receivable, net of allowance for doubtful accounts of
     $998 and $478 in 2000 and 1999, respectively                             62,318               51,638
  Inventories                                                                 42,710               47,442
  Notes receivable                                                             3,940                6,329
  Real estate                                                                151,279              121,412
  Prepaid expenses and other current assets                                   21,616                8,385
                                                                     ---------------      ---------------
     Total current assets                                                    343,941              274,223
                                                                     ---------------      ---------------

PROPERTY AND EQUIPMENT, NET                                                  219,739              215,764
                                                                     ---------------      ---------------

INVESTMENTS                                                                   70,396               80,470
                                                                     ---------------      ---------------

OTHER ASSETS
  Real estate                                                                128,318               83,147
  Intangible assets, net                                                      88,840               92,077
  Deferred tax assets                                                         30,677               21,371
  Other assets                                                                28,617               28,601
                                                                     ---------------      ---------------
     Total other assets                                                      276,452              225,196
                                                                     ---------------      ---------------

TOTAL ASSETS                                                         $       910,528      $       795,653
                                                                     ===============      ===============

                            LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
  Accounts payable and accrued expenses                              $       100,009      $        78,392
  Accounts payable and accrued expenses - CEI                                 17,198               11,254
  Current portion of long-term debt - CEI                                     17,023                8,000
  Current portion of long-term debt                                           78,104               69,459
  Deferred revenue                                                            90,392               62,864
                                                                     ---------------      ---------------
     Total current liabilities                                               302,726              229,969

LONG-TERM DEBT - CEI, NET OF CURRENT PORTION                                 242,666              208,744

LONG-TERM DEBT, NET OF CURRENT PORTION                                       135,724              135,671

OTHER LIABILITIES                                                             78,417               59,837
                                                                     ---------------      ---------------

     Total liabilities                                                       759,533              634,221
                                                                     ---------------      ---------------

MINORITY INTERESTS                                                           174,528              181,954
                                                                     ---------------      ---------------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.01 par value, 10,000 shares authorized,
        no shares issued or outstanding                                           --                   --
Common stock, $.01 par value, 22,500 shares authorized,
      11,443 and 11,415 shares issued, respectively                              114                  114
Additional paid-in capital                                                    17,754               17,714
Deferred compensation on restricted shares                                      (177)                (198)
Accumulated comprehensive income (loss)                                       (9,509)             (10,127)
Accumulated deficit                                                          (27,409)             (23,719)
Treasury stock at cost, 1,103 shares                                          (4,306)              (4,306)
                                                                     ---------------      ---------------
     Total shareholders' equity (deficit)                                    (23,533)             (20,522)
                                                                     ---------------      ---------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)                 $       910,528      $       795,653
                                                                     ===============      ===============
</TABLE>

       See accompanying notes to the consolidated financial statements.





                                      F-8
<PAGE>   55







                           CRESCENT OPERATING, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                 (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>
                                                 For the                For the               For the
                                               Year Ended              Year Ended            Year Ended
                                            December 31, 2000      December 31, 1999      December 31, 1998
                                            -----------------      -----------------      -----------------


<S>                                         <C>                    <C>                    <C>
REVENUES
   Equipment sales & leasing                $         142,842      $         136,343      $          85,365
   Hospitality                                        272,157                246,763                229,491
   Land development                                   301,827                334,881                178,392
                                            -----------------      -----------------      -----------------

      Total revenues                                  716,826                717,987                493,248
                                            -----------------      -----------------      -----------------

OPERATING EXPENSES
   Equipment sales & leasing                          141,113                131,606                 79,011
   Hospitality                                        212,238                191,465                170,556
   Hospitality properties rent - CEI                   63,338                 54,012                 52,276
   Land development                                   276,285                324,432                178,372
   Corporate general and administrative                 4,224                  2,605                  3,147
                                            -----------------      -----------------      -----------------

      Total operating expenses                        697,198                704,120                483,362
                                            -----------------      -----------------      -----------------

INCOME FROM OPERATIONS                                 19,628                 13,867                  9,886

INVESTMENT INCOME                                      46,554                 20,939                 27,684

OTHER (INCOME) EXPENSE
   Interest expense                                    36,345                 30,775                 18,262
   Interest income                                     (4,271)                (4,046)                (3,876)
   Other                                                   33                    131                    182
                                            -----------------      -----------------      -----------------

      Total other (income) expense                     32,107                 26,860                 14,568
                                            -----------------      -----------------      -----------------

INCOME BEFORE INCOME TAXES
    AND MINORITY INTERESTS                             34,075                  7,946                 23,002

INCOME TAX PROVISION (BENEFIT)                         11,747                 (3,471)                 5,521
                                            -----------------      -----------------      -----------------

INCOME BEFORE MINORITY INTERESTS                       22,328                 11,417                 17,481

MINORITY INTERESTS                                    (26,018)               (14,112)               (16,340)
                                            -----------------      -----------------      -----------------

NET INCOME (LOSS)                           $          (3,690)     $          (2,695)     $           1,141
                                            =================      =================      =================

EARNINGS (LOSS) PER SHARE
   Basic                                    $           (0.36)     $           (0.26)     $            0.10
                                            =================      =================      =================
   Diluted                                  $           (0.36)     $           (0.26)     $            0.10
                                            =================      =================      =================

WEIGHTED AVERAGE SHARES OUTSTANDING
   Basic                                               10,326                 10,363                 11,206
                                            =================      =================      =================
   Diluted                                             10,326                 10,363                 11,943
                                            =================      =================      =================
</TABLE>

       See accompanying notes to the consolidated financial statements.






                                      F-9
<PAGE>   56





                            CRESCENT OPERATING, INC.
       CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
                             (AMOUNTS IN THOUSANDS)



<TABLE>
<CAPTION>

                                                     Common stock                   Treasury stock
                                                ------------------------       ------------------------       Additional
                                                 Shares          Amount         Shares          Amount      paid-in capital
                                                --------        --------       --------        --------     ---------------

<S>                                             <C>             <C>            <C>             <C>          <C>
DECEMBER 31, 1997                                 11,211        $    112             --        $     --        $ 14,255


Comprehensive income (loss):

     Net income                                       --              --             --              --              --

     Unrealized loss on Magellan warrants             --              --             --              --              --



Comprehensive income (loss)

Stock options exercised                               24              --             --              --              23

Common stock issued for acquisitions                 167               2             --              --           3,389

Amortization of restricted common stock               --              --             --              --              --

Purchase of treasury stock                            --              --           (700)         (2,852)             --
                                                --------        --------       --------        --------        --------

DECEMBER 31, 1998                                 11,402             114           (700)         (2,852)         17,667


Comprehensive income (loss):

     Net loss                                         --              --             --              --              --

     Unrealized loss on Magellan warrants             --              --             --              --              --



Comprehensive income (loss)

Stock options exercised                                7              --             --              --               7

Issuance of restricted common stock                    6              --             --              --              40

Amortization of restricted common stock               --              --             --              --              --

Purchase of treasury stock                            --              --           (403)         (1,454)             --
                                                --------        --------       --------        --------        --------

DECEMBER 31, 1999                                 11,415             114         (1,103)         (4,306)         17,714

Comprehensive income (loss):

     Net loss                                         --              --             --              --              --

     Unrealized gain on Magellan warrants             --              --             --              --              --


Comprehensive income (loss)


Issuance of restricted common stock                   28              --             --              --              40

Amortization of restricted common stock               --              --             --              --              --
                                                --------        --------       --------        --------        --------


DECEMBER 31, 2000                                 11,443        $    114         (1,103)       $ (4,306)       $ 17,754
                                                ========        ========       ========        ========        ========





<CAPTION>
                                                     Deferred
                                                  compensation     Accumulated
                                                  on restricted   comprehensive   Accumulated
                                                     shares       income (loss)     deficit          Total
                                                  -------------   -------------   -----------       --------

<S>                                                 <C>             <C>             <C>             <C>
DECEMBER 31, 1997                                   $   (262)       $     --        $(22,165)       $ (8,060)
                                                                                                    --------

Comprehensive income (loss):

     Net income                                           --              --           1,141           1,141

     Unrealized loss on Magellan warrants                 --          (9,763)             --          (9,763)
                                                                                                    --------

Comprehensive income (loss)                                                                           (8,622)

Stock options exercised                                   --              --              --              23

Common stock issued for acquisitions                      --              --              --           3,391

Amortization of restricted common stock                   52              --              --              52

Purchase of treasury stock                                --              --              --          (2,852)
                                                    --------        --------        --------        --------

DECEMBER 31, 1998                                       (210)         (9,763)        (21,024)        (16,068)
                                                                                                    --------

Comprehensive income (loss):

     Net loss                                             --              --          (2,695)         (2,695)

     Unrealized loss on Magellan warrants                 --            (364)             --            (364)
                                                                                                    --------

Comprehensive income (loss)                                                                           (3,059)

Stock options exercised                                   --              --              --               7

Issuance of restricted common stock                      (40)             --              --              --

Amortization of restricted common stock                   52              --              --              52

Purchase of treasury stock                                --              --              --          (1,454)
                                                    --------        --------        --------        --------

DECEMBER 31, 1999                                       (198)        (10,127)        (23,719)        (20,522)

Comprehensive income (loss):

     Net loss                                             --              --          (3,690)         (3,690)

     Unrealized gain on Magellan warrants                 --             618              --             618
                                                                                                    --------

Comprehensive income (loss)                                                                           (3,072)


Issuance of restricted common stock                       --              --              --              40

Amortization of restricted common stock                   21              --              --              21
                                                    --------        --------        --------        --------


DECEMBER 31, 2000                                   $   (177)       $ (9,509)       $(27,409)       $(23,533)
                                                    ========        ========        ========        ========
</TABLE>


        See accompanying notes to the consolidated financial statements.


                                      F-10
<PAGE>   57




                            CRESCENT OPERATING, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (AMOUNTS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                        For the              For the              For the
                                                                      Year Ended           Year Ended           Year Ended
                                                                   December 31, 2000    December 31, 1999    December 31, 1998
                                                                   -----------------    -----------------    -----------------

<S>                                                                <C>                  <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss)                                               $          (3,690)   $          (2,695)   $           1,141
   Adjustments to reconcile net income (loss)
     to net cash provided by (used in) operating activities:
       Depreciation                                                           25,863               21,388               13,675
       Amortization                                                           11,962               12,354                1,072
       Provision for deferred income taxes                                   (12,072)             (24,636)              (2,916)
       Equity in income of unconsolidated subsidiaries                       (25,980)             (18,963)             (27,684)
       Minority interests                                                     26,018               14,113               16,340
       Gain on sale of property and equipment                                 (3,421)              (4,491)              (2,887)
       Gain on sale of investments                                           (20,574)              (2,308)                  --
       Changes in assets and liabilities,
         net of effects from acquisitions:
           Accounts receivable                                               (13,676)             (13,075)              (4,684)
           Inventories                                                         6,107               (9,049)              (6,519)
           Prepaid expenses and current assets                               (11,442)              (1,610)              (1,821)
           Real estate                                                       (82,990)             (40,646)              (4,272)
           Other assets                                                        1,129                2,451                1,781
           Accounts payable and accrued expenses                              29,827               17,076                 (969)
           Accounts payable and accrued expenses - CEI                         5,929                3,463                  922
           Deferred revenue, current and noncurrent                           41,676               36,452               49,093
           Other liabilities                                                     978                  794                3,823
                                                                   -----------------    -----------------    -----------------
             Net cash provided by (used in) operating activities             (24,356)              (9,382)              36,095
                                                                   -----------------    -----------------    -----------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Acquisition of business interests, net of cash acquired                         --              (28,511)             (15,826)
  Acquisition of business interests by
      Controlled Subsidiaries, net of cash acquired                           (8,791)              (3,782)            (121,076)
  Purchases of property and equipment                                        (68,656)             (79,476)             (43,471)
  Proceeds from sale of investments                                           17,848               23,540                   --
  Proceeds from sale of property and equipment                                35,368               30,500                4,129
  Net proceeds from sale and collection of notes receivable                   10,665                8,322               30,602
  Net distributions from investments                                           3,706                1,640                5,985
  Distributions from investments of Controlled Subsidiaries                   33,524               23,962               17,915
  Contributions to investments of Controlled Subsidiaries                     (3,234)             (11,851)                  --
  Other                                                                           --                1,139                   --
                                                                   -----------------    -----------------    -----------------
             Net cash provided by (used in) investing activities              20,430              (34,517)            (121,742)
                                                                   -----------------    -----------------    -----------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds of long-term debt                                                 329,626              248,392              133,070
  Payments on long-term debt                                                (265,229)            (206,173)             (89,772)
  Proceeds of long-term debt - CEI                                             3,175               95,033               44,259
  Payments on long-term debt - CEI                                            (8,075)            (107,321)             (99,962)
  Capital contributions by minority interests                                 37,822               35,517              120,430
  Distributions to minority interests                                        (66,287)             (20,759)             (20,666)
  Purchase of treasury stock                                                      --               (1,455)              (2,852)
  Other                                                                       (4,045)              (3,128)                 549
                                                                   -----------------    -----------------    -----------------
             Net cash provided by financing activities                        26,987               40,106               85,056
                                                                   -----------------    -----------------    -----------------

NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS                                                            23,061               (3,793)                (591)

CASH AND CASH EQUIVALENTS,
  BEGINNING OF PERIOD                                                         39,017               42,810               43,401
                                                                   -----------------    -----------------    -----------------

CASH AND CASH EQUIVALENTS,
  END OF PERIOD                                                    $          62,078    $          39,017    $          42,810
                                                                   =================    =================    =================
</TABLE>

        See accompanying notes to the consolidated financial statements.




                                      F-11
<PAGE>   58


                            CRESCENT OPERATING, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   ORGANIZATION AND NATURE OF BUSINESS:

     Crescent Operating, Inc. ("Crescent Operating" or "COPI") was formed on
     April 1, 1997, by Crescent Real Estate Equities Company ("Crescent
     Equities" or "CEI") and its subsidiary Crescent Real Estate Equities
     Limited Partnership ("Crescent Partnership") to be the lessee and operator
     of certain assets owned or to be acquired by Crescent Partnership and
     perform an agreement ("Intercompany Agreement") between Crescent Operating
     and Crescent Partnership, pursuant to which each has agreed to provide the
     other with rights to participate in certain transactions. On May 8, 1997,
     Crescent Partnership contributed $14.1 million in cash to Crescent
     Operating. Effective June 12, 1997, Crescent Equities distributed shares of
     Crescent Operating common stock to shareholders of Crescent Equities and
     unit holders of Crescent Partnership of record on May 30, 1997.

     Crescent Operating is a diversified management company that, through
     various subsidiaries and affiliates (collectively with Crescent Operating,
     the "Company"), currently operates primarily in four business segments:
     Equipment Sales and Leasing, Hospitality, Temperature Controlled Logistics
     and Land Development. Through these segments, Crescent Operating does
     business throughout the United States.


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

     The accompanying consolidated financial statements of Crescent Operating
     include the accounts of the Company and all subsidiaries controlled by the
     Company after elimination of material intercompany accounts and minority
     interests. Subsidiaries not controlled by the Company, but for which the
     Company has the ability to exercise significant influence, are accounted
     for on the equity method.

     The financial results of the Company include the following:

     o    Subsidiaries which are wholly owned and consolidated:

          o    Crescent Machinery Company ("Crescent Machinery");

          o    Rosestar Management LLC ("Rosestar"); and

          o    COI Hotel Group, Inc. ("COI Hotel").

     o    Subsidiaries which are not wholly owned but the Company controls and
          therefore consolidates ("Controlled Subsidiaries"):

          o    A 5% economic interest in:

               -    The Woodlands Land Company, Inc. ("LandCo") which has a
                    42.5% general partner interest in The Woodlands Land
                    Development Company, L.P. ("Landevco");

               -    Desert Mountain Development Corporation ("Desert Mountain
                    Development") which consolidates its 93% general partner
                    interest in Desert Mountain Properties Limited Partnership
                    ("DMPLP"); and

               -    CRL Investments, Inc. ("CRL"), which beneficially owns
                    approximately 65% of CR Las Vegas, LLC ("CR Las Vegas") and
                    30% of CR License, LLC ("CR License").

          o    A 60% general partner interest in COPI Colorado, L.P. ("COPI
               Colorado") which owns 10% of Crescent Development Management
               Corp. ("CDMC"). The 10% interest in CDMC represents 100% of the
               voting stock, and therefore, CDMC is consolidated into COPI
               Colorado.





                                      F-12
<PAGE>   59



     o    Subsidiaries which the Company reports on the equity method of
          accounting:

          o    A 52.5% (42.5% in 1999) interest in the Woodlands Operating
               Company, L.P. ("Woodlands Operating" or "TWOC") which is
               controlled by a four member committee of which the Company
               controls two positions;

          o    A 40% interest in Vornado Crescent Logistics Operating
               Partnership ("AmeriCold Logistics");

          o    A direct 25% common membership interest in Charter Behavioral
               Health Systems, LLC ("CBHS") (sold in 2000);

          o    An indirect 65% common membership interest in CBHS held through a
               limited partner interest in COPI CBHS Holdings, L.P. (sold in
               2000); and

          o    A 1% interest in each of Crescent CS Holdings Corporation ("CS
               I") and Crescent CS Holdings II Corporation ("CS II"),
               (collectively, "Temperature Controlled Logistics Partnerships" or
               "TCLP") (sold in 2000).

     o    A 15.8% common and 21.1% preferred interest in Transportal Network,
          Inc. ("Transportal Holding"), which has a 76% interest in Transportal
          Network LLC ("Transportal"), all of which the Company reports on the
          cost method of accounting (abandoned during 2000).

     USE OF ESTIMATES

     The financial statements include estimates and assumptions made by
     management that affect the carrying amounts of assets and liabilities,
     reported amounts of revenues and expenses and the disclosure of contingent
     assets and liabilities. Actual results may differ from these estimates.

     CASH AND CASH EQUIVALENTS

     The Company considers all highly liquid investments with a maturity of
     three months or less to be cash equivalents. Cash of $11.2 million resides
     with certain subsidiaries and restrictions limit transfers to the parent
     company.

     INVENTORIES

     Inventories consist of new and used equipment held for sale, equipment
     parts, food, beverages and supplies, all of which are stated at the lower
     of cost or market using the first-in, first-out (FIFO) or specific
     identification methods.

     PROPERTY AND EQUIPMENT

     Property and equipment is recorded at cost. The Company uses the
     straight-line method of depreciation for financial statement purposes. The
     estimated useful lives used in computing depreciation are as follows:

<TABLE>
<S>                                                        <C>
Land improvements...............................           10-15 years
Rental equipment................................            2-10 years
Building and improvements.......................              30 years
Transportation equipment........................             3-5 years
Furniture, fixtures, and other equipment........            5-10 years
</TABLE>

     From time-to-time, Crescent Machinery offers its rental customers the
     opportunity to purchase rented equipment for a stated value at a future
     point in time. In such instances, Crescent Machinery depreciates the
     specific rental item in accordance with the contract. Expenditures for
     maintenance and repairs are charged to expense as incurred. Expenditures
     for renewals or betterments are capitalized. The cost of property replaced,
     retired, or otherwise disposed of is removed from the asset account along
     with the related accumulated depreciation.




                                      F-13
<PAGE>   60
     Long-lived assets are evaluated when indications of impairment are present,
     and provisions for possible losses are recorded when undiscounted cash
     flows estimated to be generated by those assets are less than the assets'
     carrying value. The Company did not recognize any losses from impairment
     during 1998, 1999 or 2000.

     REAL ESTATE

     Real estate represents raw land, developed land, homes constructed or under
     construction, repurchased lots, applicable capitalized interest, and
     applicable capitalized general and administrative costs. Real estate is
     recorded at cost.

     Interest is capitalized based on the estimated average yearly interest rate
     applied to cumulative capital expenditures for property under development.
     Approximately $11.3 million and $13.7 million of interest was capitalized
     for the years ended December 31, 2000 and 1999, respectively. Payroll and
     related costs associated with the development of a specific subdivision of
     land are capitalized. Once sales of property begin in a specific
     subdivision, capitalized costs are expensed as cost of sales.

     INTANGIBLE ASSETS

     Intangible assets consist of goodwill and membership intangibles. Goodwill
     represents the excess of the acquisition costs over the fair value of net
     identifiable assets of businesses acquired and is amortized on a
     straight-line basis over 6-30 years. Membership intangibles represent the
     purchase price values allocated to club memberships to be sold. Intangibles
     are evaluated periodically as events or circumstances indicate a possible
     inability to recover their carrying amounts. Such evaluation is based on
     various analyses, including cash flow and profitability projections. The
     analyses involve significant management judgment to evaluate the capacity
     of an acquired operation to perform within projections. Management believes
     that no significant impairment of goodwill or membership intangibles has
     occurred.

     DEFERRED COMPENSATION ON RESTRICTED SHARES

     Deferred compensation on restricted shares issued to employees is being
     amortized to expense over the vesting period of the restricted shares.

     REVENUE RECOGNITION

     Revenues from equipment rentals under operating leases are recognized as
     the revenue becomes earned according to the provisions of the lease.
     Revenues from full-service hotels and luxury health resorts are recognized
     as services are provided. Club initiation fees and membership conversion
     fees at Desert Mountain Development are deferred and recognized on a
     straight-line basis over the expected life of the membership. Deposits for
     future services are deferred and recognized as revenue in the period
     services are provided.

     MINORITY INTERESTS

     Minority Interests represent the non-voting interests owned by shareholders
     in LandCo, Desert Mountain Development, and CRL, as well as the limited
     partners of COPI Colorado.

     INCOME TAX PROVISION

     Income taxes are provided for the tax effects of transactions reported in
     the financial statements and consist of taxes currently due plus deferred
     taxes related primarily to differences between the treatment of certain
     items for financial statement purposes and the treatment of those items for
     tax purposes. The deferred tax assets and liabilities represent the future
     tax return consequences of those differences, which will either be taxable
     or deductible when the assets and liabilities are recovered or settled.

     RECLASSIFICATIONS

     Certain prior year information has been reclassified to conform to current
     year presentation.



                                      F-14
<PAGE>   61



     STOCK BASED COMPENSATION

     The Company measures compensation costs associated with the issue of share
     options using the intrinsic method under which compensation costs related
     to share options issued pursuant to compensatory plans are measured based
     on the difference between the quoted market price of the shares at the
     measurement date (originally the date of grant) and the exercise price and
     charged to expense over the periods during which the grantee performs the
     related services. All share options issued to date by the Company have
     exercise prices equal to the market price of the shares at the dates of
     grant.

     RECENT ACCOUNTING PRONOUNCEMENTS

     SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
     provides that all derivative instruments be recognized as either assets or
     liabilities depending on the rights or obligations under the contract and
     that all derivative instruments be measured at fair value. The Company is
     required to adopt SFAS No. 133, as amended by SFAS No. 138, effective
     January 1, 2001. Upon adoption, the Company will be required to record the
     net comprehensive loss related to the Magellan warrants as a charge in the
     statement of operations. Based on the value of the Magellan warrants at
     December 31, 2000, the impact on the Company's Statement of Operations on
     January 1, 2001 will be an expense of approximately $9.5 million. From
     January 1, 2000 forward, the Company will be required to record all changes
     in the fair value of the Magellan warrants as investment income (loss) in
     the statement of operations. See Note 14.

3.   ACQUISITIONS AND DISPOSITIONS:

     Equipment Sales & Leasing

     Effective December 1, 1997, Crescent Operating acquired certain assets of
     Preco Machinery Sales, Inc. ("Preco"), a company that is engaged in
     equipment sales, leasing and servicing, located in Houston, Texas. The
     purchase price of Preco was approximately $4.0 million and consisted of a
     cash payment of approximately $1.7 million and the issuance of 130,000
     restricted shares of Crescent Operating common stock. The transaction was
     structured such that Preco became a division of Crescent Machinery.

     Effective April 30, 1998, the Company acquired certain assets of Central
     Texas Equipment Co. ("Central Texas"), a company which is engaged in
     equipment sales, leasing and servicing, located in Austin, Texas. The
     purchase price of approximately $9.7 million was comprised of $3.0 million
     in cash, 128,551 shares of Crescent Operating common stock and the
     assumption of $4.1 million of liabilities.

     Effective June 8, 1998, the Company acquired all of the stock of Machinery,
     Inc., a company that is engaged in equipment sales, leasing and servicing,
     with locations in Tulsa and Oklahoma City, Oklahoma. The purchase price of
     approximately $2.8 million was comprised of $0.6 million in cash, 38,170
     shares of Crescent Operating common stock and the assumption of $1.5
     million of liabilities.

     Effective July 1, 1998, the Company acquired all of the stock of Western
     Traction Company ("Western Traction"), a company that is engaged in
     equipment sales, leasing and servicing, with locations in Sacramento,
     California, Union City, California, Fresno, California, Sparks, Nevada and
     Honolulu, Hawaii. The purchase price of approximately $52.0 million was
     comprised of $6.5 million in cash, a note payable of $7.5 million and the
     assumption of liabilities of $38.0 million.

     Effective July 31, 1998, the Company acquired all of the stock of Harvey
     Equipment Center, Inc. ("Harvey"), a company which is engaged in equipment
     sales, leasing and servicing, located in Van Wert, Ohio. The purchase price
     of approximately $8.4 million was comprised of $2.7 million in cash, notes
     payable of $1.2 million and the assumption of $4.5 million of liabilities.

     Effective July 31, 1998, the Company acquired certain assets of 4-K
     Equipment Company ("4-K"), a company which is engaged in equipment sales,
     leasing and servicing, located in Franklin, Indiana. The purchase price of
     $0.2 million was comprised of $0.1 million in cash and the assumption of
     $0.1 million of liabilities.




                                      F-15
<PAGE>   62

     Effective March 4, 1999, the Company acquired certain assets of Westco
     Tractor & Equipment, Inc. ("Westco"), a company engaged in equipment sales,
     leasing and servicing, located in Santa Rosa, California. The purchase
     price of approximately $2.6 million was comprised of $0.5 million cash and
     the assumption of liabilities of $2.1 million.

     Effective July 1, 1999, the Company acquired all of the stock of E. L.
     Lester and Company ("Lester"), a company engaged in equipment sales,
     leasing and servicing, located in Houston, Texas. The purchase price of
     approximately $17.2 million was comprised of $8.9 million cash, the
     issuance of notes payable by Crescent Operating in the amount of $6.0
     million and the assumption of liabilities of $2.3 million.

     Effective July 1, 1999, the Company acquired all of the stock of Solveson
     Crane Rental, Inc. ("Solveson"), a company engaged in equipment sales,
     leasing and servicing, located in Tracy, California. The purchase price of
     approximately $7.3 million was comprised of $3.0 million cash and the
     assumption of liabilities of $4.3 million.

     In January 2001, the Franklin, Indiana Crescent Machinery location was
     closed and its assets were transferred to other locations for utilization.

     Hospitality

     Effective July 31, 1997, Crescent Operating acquired for $2.0 million in
     cash the following assets: (i) 100% of the membership interests in Rosestar
     and (ii) all of the common stock, $.01 par value, of each of RSSW Corp. and
     RSCR Arizona Corp., affiliates of RoseStar. RoseStar and its subsidiaries
     are the lessees of 6 hotels owned by Crescent Equities or its affiliates.
     These hotels are the Denver Marriott City Center and the Hyatt Regency
     Beaver Creek in Colorado, the Hyatt Regency in Albuquerque, New Mexico,
     Canyon Ranch in Tucson, Arizona, Canyon Ranch in Lenox, Massachusetts and
     The Sonoma Mission Inn & Spa in California.

     On September 22, 1997, COI Hotel, became the lessee of the Four Seasons
     Hotel in Houston, Texas, which is owned by Crescent Equities. The lease is
     for a term of 10 years and provides for base rent and percentage rent.
     Additionally, on September 22, 1997, COI Hotel acquired for $2.4 million
     (i) a two-thirds interest in the Houston Center Athletic Club Venture
     ("HCAC"), a joint venture that owns the HCAC and (ii) a $5.0 million note
     receivable executed by the Houston Center Athletic Club Venture. The
     interest rate on the note was LIBOR plus one percent and interest is
     payable in arrears at the end of each twenty-eight (28) day period. The
     Company partially financed these transactions with proceeds of $1.8 million
     in loans from Crescent Partnership. The Company recorded the note on its
     books at its estimated fair value of $5.0 million. The note was collected
     during 1998.

     On January 23, 1998, a subsidiary of the Company signed a 10-year lease
     agreement with Crescent Partnership for the Austin Omni Hotel. The Austin
     Omni Hotel is a 314-room full-service hotel located approximately four
     blocks from the state capitol building in Austin, Texas. A subsidiary of
     the company and Crescent Partnership mutually agreed to terminate the
     Austin Omni Hotel lease effective December 31, 1998, and the Company
     received a $75,000 break-up fee in accordance with the terms of the lease.
     Effective January 1, 1999, the Company began providing limited asset
     management services related to the Austin Omni Hotel for $50,000 per year.
     Effective February 1, 2000, the agreement was terminated.

     Effective July 27, 1998, to enable the Company to invest in the future use
     of the "Canyon Ranch" name, the Company contributed $50,500 to obtain a 5%
     economic interest, representing all of the voting stock, of CRL.
     Immediately following such contribution, CRL exercised its purchase option
     by paying $1 million to obtain a 10% economic interest in CR License.
     Contemporaneously, CRL acquired a 50% interest in CR Las Vegas LLC, an
     entity that built a Canyon Ranch day spa in the Venetian Hotel in Las Vegas
     which opened on June 20, 1999. On July 23, 1999, CRL exercised its option
     to purchase an additional 10% economic interest in CR License by paying
     $2.0 million, bringing CRL's total economic interest in CR License to 20%.
     On July 27, 2000, CRL exercised its option to purchase an additional 10%
     economic interest in CR License by paying $3.0 million, bringing CRL's
     total economic interest in CR License to 30%. CR License is the entity
     which owns the rights to the future use of the "Canyon Ranch" name. Through
     CRL and CR License, the Company has an approximate 3.25% economic interest
     in the Canyon Ranch day spa project.




                                      F-16
<PAGE>   63

     Effective October 13, 1998, Wine Country Golf Club, Inc., a wholly-owned
     subsidiary of the Company, became the lessee of the Sonoma Golf Course in
     California, which is owned by Crescent Equities. This 18-hole championship
     golf course is a strategic amenity to the Sonoma Mission Inn and Spa, which
     will allow the Company to expand its marketing focus to the golf-oriented
     guest. The lease is for a term of 10 years and provides for base rent and
     percentage rent.

     Effective June 19, 1999, the Company entered into a lease with Crescent
     Real Estate Funding III, L.P. ("Funding III") for the 389-room Renaissance
     Hotel located in Houston, Texas. The lease is for a term of 10 years and
     provides for base rent and percentage rent. Under the lease, Funding III
     may terminate the lease, at its option, for a period of one year under
     certain conditions. The other terms of the lease are generally consistent
     with those in hospitality leases with Crescent Partnership.

     Effective January 31, 2000, Houston Center Athletic Club Venture ("HCAC")
     sold substantially all of its assets to an unrelated party. Through a
     wholly owned subsidiary, the Company received proceeds from the sale of
     $2.4 million resulting in an approximate $1.5 million gain which was
     recognized by Crescent Operating in the first quarter of 2000.

     On November 3, 2000, Crescent Equities completed the sale of the Four
     Seasons Hotel in Houston and, in connection therewith, exercised its right
     under the lease agreement to terminate the lease. As required under the
     lease agreement, Crescent Equities paid the Company the fair market value
     of the remaining term of the lease in the fourth quarter of 2000 which was
     agreed to be $16.6 million and resulted in a gain of $18.3 million (the
     difference primarily consisting of the elimination of the straight-line
     rent liability related to the lease).

     Temperature Controlled Logistics

     Effective October 31, 1997, Crescent Operating acquired, from Crescent
     Partnership, for approximately $8.0 million, 100% of the voting stock,
     representing a 5% equity interest, of CS I and CS II. CS I holds a 40%
     general partner interest in Vornado Crescent Atlanta Partnership ("Atlanta
     Partnership"), which owns URS Logistics, Inc., a company that operates and
     manages public refrigerated warehouses in the continental United States. CS
     II holds a 40% general partner interest in Vornado Crescent Portland
     Partnership ("Portland Partnership"), which owns AmeriCold Corporation, a
     company providing integrated logistics services for the frozen food
     industry, consisting of warehousing and transportation. The Atlanta
     Partnership and the Portland Partnership represent the business venture
     among Crescent Operating, Crescent Equities and Vornado Realty Trust
     ("Vornado") which owns and operates public refrigerated warehouses.

     On June 1, 1998, the Temperature Controlled Logistics Partnerships,
     acquired nine refrigerated storage properties from Freezer Services, Inc.
     for approximately $134.0 million, which required a capital contribution
     from Crescent Operating of $2.3 million. On July 1, 1998, the Temperature
     Controlled Logistics Partnerships acquired five refrigerated storage
     properties from Carmar Group, Inc. for approximately $158.0 million, which
     required a capital contribution from Crescent Operating of $2.7 million.
     These properties contain approximately 90 million cubic feet of
     refrigerated storage space.

     Effective March 12, 1999, the Company sold 80% of its 5% interest in the
     Temperature Controlled Logistics Partnerships to Crescent Partnership for
     $13.2 million and received the right to require Crescent Partnership to
     purchase the remaining 20% for approximately $3.4 million at any time
     during the next two years, subject to compliance with certain regulatory
     matters. This 5% interest represented a 2% interest in various corporations
     and limited liability companies owned by the Temperature Controlled
     Logistics Partnerships. Crescent Operating, through a wholly owned limited
     liability company, then became a 40% partner of AmeriCold Logistics, a
     newly formed partnership, the remaining 60% of which is owned by Vornado
     Operating, Inc. ("Vornado Operating"). This transaction required a capital
     contribution of approximately $15.5 million from Crescent Operating. As a
     result of the restructuring transaction, the operations formerly associated
     with the Temperature Controlled Logistics Partnerships are now conducted by
     AmeriCold Logistics.

     AmeriCold Logistics leases the refrigerated storage facilities used in its
     business. The leases, as amended, which commenced in March 1999, generally
     have a 15-year term with two five-year renewal options and provide for the
     payment of fixed base rent and percentage rent based on revenues AmeriCold
     Logistics receives





                                      F-17
<PAGE>   64

     from its customers. Fixed base rent was approximately $136.0 million in
     2000 and will be approximately $137.0 million per annum from 2001 through
     2003, $139.0 million per annum from 2004 through 2008 and $141.0 million
     per annum from 2009 through February 28, 2014. Percentage rent for each
     lease is based on a specified percentage of revenues in excess of a
     specified base amount. The aggregate base revenue amount under five of the
     six leases is approximately $350.0 million and the weighted average
     percentage rate is approximately 36% through 2003, approximately 38% for
     the period from 2004 through 2008 and approximately 40% for the period from
     2009 through February 28, 2014. The aggregate base revenue amount under the
     sixth lease is approximately $32.0 million through 2001, and approximately
     $26.0 million for the period from 2002 through February 28, 2014, and the
     percentage rate is 24% through 2001, 37.5% for the period from 2002 through
     2006, 40% from 2007 through 2011 and 41% from 2012 through February 28,
     2014. AmeriCold Logistics recognized $164.5 million and $133.1 million of
     rent expense for the year ended December 31, 2000 and from March 11, 1999
     (acquisition date) through December 31, 1999, respectively. AmeriCold
     Logistics is required to pay for all costs arising from the operation,
     maintenance and repair of the properties, including all real estate taxes
     and assessments, utility charges, permit fees and insurance premiums, as
     well as property capital expenditures in excess of $5.0 million annually.
     AmeriCold Logistics has the right to defer the payment of 15% of the fixed
     base rent and all percentage rent for up to three years beginning on March
     11, 1999 to the extent that available cash, as defined in the leases, is
     insufficient to pay such rent. AmeriCold Logistics deferred rent
     obligations were $24.4 million and $5.4 million as of December 31, 2000 and
     December 31, 1999, respectively.

     Under the terms of the partnership agreement for AmeriCold Logistics,
     Vornado Operating, Inc. ("Vornado Operating") has the right to make all
     decisions relating to the management and operations of AmeriCold Logistics
     other than certain major decisions that require the approval of both the
     Company and Vornado Operating. Vornado Operating must obtain Crescent
     Operating's approval for specified matters involving AmeriCold Logistics,
     including approval of the annual budget, requiring specified capital
     contributions, entering into specified new leases or amending existing
     leases, selling or acquiring specified assets and any sale, liquidation or
     merger of AmeriCold Logistics. If the partners fail to reach an agreement
     on such matters during the period from November 1, 2000 through October 30,
     2007, Vornado Operating may set a price at which it commits to either buy
     Crescent Operating's investment, or sell its own, and Crescent Operating
     will decide whether to buy or sell at that price. If the partners fail to
     reach agreement on such matters after October 30, 2007, either party may
     set a price at which it commits to either buy the other party's investment,
     or sell its own, and the other party will decide whether to buy or sell at
     that price. Neither partner may transfer its rights or interest in the
     partnership without the consent of the other partner. The partnership will
     continue for a term through October 30, 2027, except as the partners may
     otherwise agree.

     During the second quarter of 2000, the Company restructured its business
     venture with Vornado Operating, Inc. and Crescent Equities to pursue a
     business-to-business internet opportunity relating to the Temperature
     Controlled Logistics business. As a result of the restructuring, the
     Company was relieved of its previously reported obligation to fund initial
     startup costs previously reported, which resulted in net investment income
     of $1.2 million during the second quarter of 2000 and left no basis in the
     investment. In October 2000, operations were ceased after Transportal
     failed to secure outside funding. The closure has no impact on the
     financial statements of Crescent Operating, and the Company has no
     obligation for future cash funding.

     On December 1, 2000, the Company exercised a preexisting put option to sell
     the remaining 20% of its 5% interest in the Temperature Controlled
     Logistics Partnerships to Crescent Partnership for $4.1 million, which
     resulted in a gain of $0.7 million recognized in the fourth quarter of
     2000.

     On February 22, 2001, the AmeriCold Logistics leases were restructured to,
     among other things, (i) reduce 2001's contractual rent to $146.0 million
     ($14.5 million less than 2000's contractual rent), (ii) reduce 2002's
     contractual rent to $150.0 million (plus contingent rent in certain
     circumstances), (iii) increase the Landlord's share of annual maintenance
     capital expenditures by $4.5 million to $9.5 million effective January 1,
     2000 and (iv) extend the deferred rent period to December 31, 2003 from
     March 11, 2002.



                                      F-18
<PAGE>   65


     Land Development

     On July 31, 1997, Crescent Operating, through its newly-formed subsidiary,
     WOCOI, acquired for $0.4 million, a 42.5% general partner interest in
     Woodlands Operating. Woodlands Operating was formed to provide management,
     advisory, landscaping and maintenance services to entities affiliated with
     the Company and Crescent Equities. Woodlands Operating is reimbursed for
     the costs it incurs plus a 3% management fee, depending on the type of
     service provided.

     On September 29, 1997, Crescent Operating acquired 100% of the voting
     stock, representing a 5% equity interest, of Desert Mountain Development
     for $2.2 million. Desert Mountain Development is the sole general partner
     of DMPLP. DMPLP owns Desert Mountain, a master planned, luxury residential
     and recreational community in northern Scottsdale, Arizona. DMPLP also owns
     and operates The Desert Mountain Club that offers five Jack Nicklaus
     signature 18 hole golf courses, including Cochise, site of the Senior PGA
     Tour's The Tradition tournament.

     On September 29, 1997, Crescent Operating acquired 100% of the voting
     stock, representing a 5% equity interest, of LandCo, for approximately $1.9
     million. LandCo is a residential development corporation which formerly was
     owned by Crescent Equities. LandCo holds a 42.5% general partner interest
     in, and is the managing general partner of, Landevco.

     Effective September 11, 1998, the Company and Gerald W. Haddock, John C.
     Goff and Harry H. Frampton, III (collectively, the "CDMC Sellers") entered
     into a partnership agreement (the "Partnership Agreement") to form COPI
     Colorado. COPI Colorado's purpose is to hold and manage the voting stock of
     CDMC (and, consequently, to manage CDMC) and to invest in shares of
     Crescent Operating common stock. In September, 1998, the Company
     contributed to COPI Colorado $9.0 million in cash in exchange for a 50%
     general partner interest in COPI Colorado, and each CDMC Seller contributed
     to COPI Colorado approximately 667 shares of CDMC voting stock, which the
     CDMC Sellers owned individually, in exchange for an approximately 16.67%
     limited partner interest in COPI Colorado; as a result and until January
     2000, the Company owned a 50% managing interest in COPI Colorado and the
     CDMC Sellers collectively owned a 50% investment interest in COPI Colorado.

     In accordance with an agreement between Gerald Haddock and the Company,
     COPI Colorado redeemed the limited partnership interest of Mr. Haddock, the
     Company's former Chief Executive Officer and President, in January 2000,
     COPI Colorado paid Mr. Haddock approximately $2.6 million for his
     approximate 16.67% limited partner interest (determined from an independent
     appraisal of the value of COPI Colorado). See Note 15.

     On April 29, 1999, a partnership in which CDMC has a 64% economic interest
     finalized the purchase of Riverfront Park (previously known as "The
     Commons"), a master planned residential development on 23 acres in the
     Central Platte Valley near downtown Denver, Colorado, for approximately
     $25.0 million. The acreage is in close proximity to several major
     entertainment and recreational facilities, including, Coors Field (home to
     the Major League Baseball's Colorado Rockies), Elitch Gardens (an amusement
     park), the new Pepsi Center (home to the National Hockey League's Colorado
     Avalanche and the National Basketball Association's Denver Nuggets) and the
     new downtown Commons Park. An adjacent 28 acres is expected to be
     commercially developed by another company, thus providing a major mixed-use
     community adjacent to the lower downtown area of Denver.

     On August 27, 1999 and October 27, 1999, the Company sold its investments
     in Hillwood and Corporate Arena, respectively, for an aggregate sales price
     of approximately $1.4 million. Together, the sales resulted in an
     approximate $0.2 million gain in 1999.

     On September 22, 2000, a limited partnership in which CDMC is a majority
     limited partner acquired a majority interest in the Northstar-at-Tahoe
     resort, a premier, up-scale ski resort located in North Lake Tahoe,
     California. The development is expected to span ten years and include an
     enhanced core village with new restaurants and





                                      F-19
<PAGE>   66

     retail shops, hotels and spas, and an extensive residential product mix of
     over 2,000 condominium and townhome units.

     In December 2000, CDMC transferred its investment in a real estate company
     that specializes in the management of resort properties in Colorado, Utah,
     South Carolina and Montana to CDMC II. CDMC II is a newly formed entity
     having the same owners, board of directors and officers as CDMC. In
     connection with that transfer, CDMC II assumed the indebtedness of CDMC
     incurred in connection with that investment, all of which is owed to
     Crescent Partnership.

     Healthcare

     On June 17, 1997, Crescent Operating acquired, for $5.0 million, a 50%
     member interest in CBHS and issued warrants to acquire 282,508 shares of
     Crescent Operating common stock with an exercise price of $18.29 per share
     to Magellan Health Services, Inc. ("Magellan"). As required by CBHS'
     operating agreement, the Company contributed an additional $2.5 million to
     CBHS. CBHS operates approximately 90 behavioral healthcare facilities
     throughout the United States. Crescent Operating also purchased as part of
     this acquisition warrants to acquire 1,283,311 shares of Magellan common
     stock for $12.5 million. The exercise price of the Magellan warrants is $30
     per share, exercisable in varying increments beginning on May 31, 1998 and
     ending on May 31, 2009. In August and September of 1997, Crescent Operating
     made loans (evidenced by promissory notes) to CBHS in the aggregate
     principal amount of $17.5 million (the "Initial Amount"). On November 16,
     1997, effective September 30, 1997, each of the promissory notes was
     exchanged for cumulative redeemable preferred interests (the "Redeemable
     Preferred Interests") in CBHS. The Redeemable Preferred Interest entitles
     its holder to a preferred return on the profits of CBHS, which is to be
     calculated at the rate of 10% per annum of the Initial Amount, compounded
     monthly. CBHS, upon approval of at least 80% of the members of its
     Governing Board, may redeem all, but not less than all, of the Redeemable
     Preferred Interests, at its option, on or after April 1, 1998, for cash or
     promissory notes, or a combination thereof.

     On September 9, 1999, Crescent Operating, Magellan, Crescent Partnership
     and CBHS completed a recapitalization of CBHS and restructuring of the
     relationships among the parties. In connection with the restructuring,
     Magellan transferred its remaining hospital-based assets (including Charter
     Advantage, Charter Franchise Services, LLC, the call center assets, the
     Charter name and related intellectual property and certain other assets) to
     CBHS, and released CBHS from all accrued and future franchise fees. As a
     result of the transfer, Magellan is no longer obligated to provide
     franchise services to CBHS. Magellan also transferred 80% of its CBHS
     common membership interest and all of its CBHS preferred membership
     interest to CBHS, leaving Magellan with a 10% common membership interest.
     Simultaneously, Crescent Operating reorganized its holdings leaving
     Crescent Operating with a 25% common membership interest and 100% of the
     preferred membership interest in CBHS, and a limited partnership controlled
     by individual officers of Crescent Operating and in which Crescent
     Operating owns 100% of the economic interests, with a 65% common membership
     interest in CBHS. Prior to the restructuring, Crescent Operating and
     Magellan each held a 50% common membership interest, and a 50% preferred
     membership interest in CBHS.

     On February 16, 2000, CBHS petitioned for relief under Chapter 11 of the
     United States Bankruptcy Code. Under the protection of the bankruptcy
     court, CBHS is engaged in efforts to sell and liquidate, in a controlled
     fashion, all of its ongoing business. On April 16, 2000, the asset purchase
     agreement to which a newly formed, wholly-owned subsidiary of Crescent
     Operating had agreed to acquire, for $24.5 million, CBHS's core business
     assets used in the operation of 37 behavioral healthcare facilities,
     subject to certain conditions, terminated by its own terms because not all
     of the conditions precedent to closing had been met by that date.

     On December 29, 2000 the Company sold its 25% common interest and its 100%
     preferred membership interest in CBHS, and COPI CBHS Holdings sold its 65%
     common interest in CBHS, to The Rockwood Financial Group, Inc. ("Rockwood")
     for a nominal sum. As a result of the liquidation of CBHS through
     bankruptcy, the equity investment in CBHS became worthless. Rockwood is
     wholly owned by Jeffrey L. Stevens, the Company's Executive Vice President
     and Chief Operating Officer and a Director. The sale of CBHS to Rockwood
     was effected as part of the Company's tax planning strategy.



                                      F-20
<PAGE>   67



     Other

     On March 31, 1999, the Company sold its investment in Hicks-Muse Tate &
     Furst II, LP for $8.1 million to an unrelated party. The sale resulted in a
     $0.3 million gain which was recognized in the first quarter of 1999.

     All of the acquisitions were accounted for as purchases and operations have
     been included in the consolidated financial statements of the Company from
     the date that management took over the operational control of the acquired
     entity.

4.   PROPERTY & EQUIPMENT, NET:

     Property and equipment consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                     December 31, 2000    December 31, 1999
                                                     -----------------    -----------------

<S>                                                  <C>                  <C>
Rental equipment (Crescent Machinery) ............   $         124,818    $         115,022
Land and improvements ............................              65,884               64,291
Buildings and improvements .......................              35,813               31,729
Furniture, fixtures, and other equipment .........              26,756               20,421
Construction in progress (DMPLP) .................               8,650                9,231
Transportation equipment .........................               7,390                7,113
                                                     -----------------    -----------------
                                                               269,311              247,807
Less accumulated depreciation ....................             (49,572)             (32,043)
                                                     -----------------    -----------------
                                                     $         219,739    $         215,764
                                                     =================    =================
</TABLE>

5.   INVESTMENTS:

     Investments consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                December 31, 2000   December 31, 1999
                                                -----------------   -----------------

<S>                                             <C>                 <C>
Investment in Landevco ......................   $          44,027   $          39,966
Investment in CDMC projects .................               8,170              11,254
Investment in CR License ....................               5,485               2,797
Investment in CR Las Vegas ..................               5,305               8,356
Investment in AmeriCold Logistics ...........               4,417              11,791
Investment in Magellan warrants .............               2,992               2,374
Investment in TCLP ..........................                  --               3,068
Investment in HCAC ..........................                  --                 864
                                                -----------------   -----------------
                                                $          70,396   $          80,470
                                                =================   =================
</TABLE>




                                      F-21
<PAGE>   68



Investment income (loss) consisted of the following (in thousands):

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

<S>                                                  <C>                  <C>                  <C>
Equity in income of Landevco .....................   $          28,250    $          19,351    $          19,200
Gain on sale of Four Seasons .....................              18,289                   --                   --
Equity in income of CDMC Projects ................               2,217                3,431                5,537
Equity in income of TWOC .........................               4,485                  886                1,121
Gain on sale of HCAC .............................               1,563                   --                   --
Gain on sale of CSI and CSII .....................                 722                1,493                   --
Equity in income (loss) of Transportal
   Network .......................................                 375                 (395)                  --
Equity in income of TCLP .........................                  40                  325                3,961
Equity in income of HCAC .........................                   7                  296                  130
Hicks-Muse income ................................                  --                  239                3,125
Gain on sale of Corporate Arena ..................                  --                  158                   --
Equity in loss of CBHS ...........................                  --                   --               (5,390)
Equity in loss of CR License .....................                (311)                (203)                  --
Equity in loss of CR Las Vegas, LLC ..............              (1,709)                (944)                  --
Equity in loss of AmeriCold Logistics ............              (7,374)              (3,698)                  --
                                                     -----------------    -----------------    -----------------
                                                     $          46,554    $          20,939    $          27,684
                                                     =================    =================    =================
</TABLE>

6.   INTANGIBLE ASSETS:

Intangible assets consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                December 31, 2000   December 31, 1999
                                                -----------------   -----------------

<S>                                             <C>                 <C>
Goodwill, net - Crescent Machinery ..........   $          14,011   $          13,925
Goodwill, net - RoseStar ....................               1,202               1,417
Goodwill, net - COPI Colorado / CDMC ........              45,077              41,798
Membership intangible, net - DMPLP ..........              28,550              34,937
                                                -----------------   -----------------
                                                $          88,840   $          92,077
                                                =================   =================
</TABLE>

     Accumulated amortization as of December 31, 2000 and 1999 was $39,135 and
$30,151, respectively.

7.   ACCOUNTS PAYABLE AND ACCRUED EXPENSES:

     Accounts payable and accrued expenses consisted of the following (in
thousands):

<TABLE>
<CAPTION>
                                                December 31, 2000   December 31, 1999
                                                -----------------   -----------------

<S>                                             <C>                 <C>
Accounts payable ............................   $          54,195   $          36,543
Accrued taxes ...............................              13,948              10,567
Accrued interest ............................               3,027               3,857
Accrued salaries and bonuses ................               9,139               8,752
Deferred liabilities ........................               4,180               2,742
Property management payable .................               3,947               3,046
Land development construction accrual .......               1,987               6,966
Other accrued expenses ......................               9,586               5,919
                                                -----------------   -----------------
                                                $         100,009   $          78,392
                                                =================   =================
</TABLE>




                                      F-22
<PAGE>   69


8.   OTHER LIABILITIES:

     Other liabilities consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                     December 31, 2000   December 31, 1999
                                                     -----------------   -----------------

<S>                                                  <C>                 <C>
Deferred revenue .................................   $          69,265   $          50,964
Straight line hospitality rent adjustment ........               3,677               4,698
Other ............................................               5,475               4,175
                                                     -----------------   -----------------
                                                     $          78,417   $          59,837
                                                     =================   =================
</TABLE>

9.   LONG-TERM DEBT:

     The Company's long-term debt facilities are composed of (i) corporate and
     wholly owned debt, and (ii) non wholly owned debt. Corporate and wholly
     owned debt relates to debt facilities at the Crescent Operating level or
     owed by entities which are owned 100% by Crescent Operating. Non wholly
     owned debt represents non-recourse debt owed by entities which are
     consolidated in the Company's financial statements but are not 100% owned
     by the Company; the Company's economic investment in these entities is 6%
     or less. Following is a summary of the Company's debt financing (amounts in
     thousands):

<TABLE>
<CAPTION>
                                                                                      December 31, 2000   December 31, 1999
                                                                                      -----------------   -----------------

<S>                                                                                   <C>                 <C>
 LONG-TERM DEBT - CORPORATE AND WHOLLY OWNED SUBSIDIARIES

 Equipment notes payable to finance companies due 2001 through 2011,
 payments of principal and interest due monthly, bear interest from 7.0% to
 11.5%, collateralized by equipment (Crescent Machinery) ...........................   $        115,091   $         102,539

 Floor plan debt payable, three to twelve month terms at 0%
 interest (Crescent Machinery) ....................................................              12,632              21,556

 Line of credit in the amount of $19.5 million payable to Crescent
 Partnership due May 2002, bears interest at 9%, payments of interest only
 due quarterly, cross collateralized and cross-defaulted with the Company's
 other borrowing from Crescent Partnership (Crescent Operating) ...................              19,949              19,500

 Line of credit in the amount of $17.2 million payable to Crescent
 Partnership due the later of May 2002 or five years after the last draw
 (in no event shall the maturity date be later than June 2007), bears
 interest at 12%, payments of interest only due quarterly, collateralized,
 to the extent not prohibited by pre-existing arrangements, by a first lien
 on the assets which the Company now owns or may acquire in the
 future (Crescent Operating) ......................................................              17,727              17,200

 Line of credit in the amount of $15.0 million payable to Bank of America
 due August 2001, bears interest at LIBOR plus 1% (7.0% and 7.5% at December
 31, 2000 and December 31, 1999, respectively), payments of interest only
 due monthly (Crescent Operating) ..................................................             15,000              15,000

 Note payable to Crescent Partnership due May 2002, bears interest at 12%,
 payments of principal and interest due quarterly, collateralized, to the
 extent not prohibited by pre-existing arrangements, by a first lien on the
 assets which the Company now owns or may acquire in the future (Crescent
 Operating) .......................................................................              14,247              13,824
</TABLE>






                                      F-23
<PAGE>   70

<TABLE>
<S>                                                                                   <C>                 <C>
 Note payable to Crescent Partnership due May 2002, bears interest at 12%,
 payments of interest only due quarterly, collateralized by a first lien on
 the assets which the Company now owns or may acquire in the future
 (Crescent Operating) .............................................................               9,276               9,000

 Notes payable to the sellers of E. L. Lester and Company due
 July 1, 2003, bear interest at 7.5%, payments of principal and
 interest due semi-annually, collateralized by stock of Lester
 (Crescent Operating) .............................................................               3,957               5,345

 Note payable to Crescent Partnership maturing August 2003, bears interest
 at 10.75%, payments of principal and interest due monthly, collateralized
 by a deed of trust for certain personal property and certain real property
 (RoseStar) .......................................................................               1,106               1,483

 Notes payable to the sellers of Harvey Equipment due July 31, 2002, bear
 interest at 8%, payments of principal and interest due semi-annually
 (Crescent Operating) .............................................................                 625                 902

 Note payable to Crescent Partnership maturing August 2003, bears interest
 at 10.75%, payments of principal and interest due monthly, collateralized
 by a deed of trust in certain real property and certain personal property
 (RoseStar) .......................................................................                 299                 401

 Note payable to Crescent Partnership due November 2006, bears interest at
 7.5%, payments of interest only due annually (RoseStar) ..........................                 191                 191

 Note payable to the sellers of Western Traction due March 31, 2000, bears
 interest at 8.5%, payments of principal and interest due monthly,
 collateralized by stock of Western Traction (Crescent Operating) .................                  --               1,008

 Note payable to Crescent Partnership maturing September 2002, bears
 interest at 8.5%, payments of principal and interest due monthly,
 collateralized by the Company's 2/3 interest in HCAC
 (COI Hotel) ......................................................................                  --                 496
                                                                                      -----------------   -----------------

      Total debt - corporate and wholly owned subsidiaries ........................             210,100             208,445
                                                                                      -----------------   -----------------

LONG-TERM DEBT - NON WHOLLY OWNED SUBSIDIARIES

Construction loans for various East West Resort Development partnership
projects, maturing through 2005, bear interest from 8.0% to 15.0%, payments
of principal and interest or interest only payable monthly, collateralized
by deeds of trust, security agreements and a first lien on the related assets
(CDMC) ............................................................................              62,316              45,024

Junior note payable to Crescent Partnership maturing December 2010, bears
interest at 14%, payments of principal and interest due quarterly based on
sales proceeds from DMPLP, collateralized by land, improvements and
equipment owned by DMPLP (DMPLP) ..................................................              59,000              60,000
</TABLE>




                                      F-24
<PAGE>   71

<TABLE>
<S>                                                                                   <C>                 <C>
Line of credit in the amount of $56.2 million payable to Crescent
Partnership due August 2004, bears interest at 11.5% with principal and
interest payments due as distributions from projects are received, as
defined by the applicable credit agreement, collateralized by CDMC's
interests in East West Resort Development partnerships, East West Resorts,
LLC, and other CDMC property (CDMC) ...............................................              39,342              49,357

Line of credit in the amount of $40.0 million payable to Crescent
Partnership due December 2006, bears interest at 11.5% with principal and
interest payments due as distributions from projects are received, as
defined by the applicable credit agreement, collateralized by CDMC's
interests in East West Resort Development partnerships, East West Resorts
LLC, and other CDMC property (CDMC) ...............................................              33,903              14,459

Line of credit in the amount of $32.0 million payable to Crescent
Partnership, due September 2008, bearing interest at 11.5%, principal and
interest payments due as distributions are received, collateralized by
CDMC's interests in East West Resort Development partnerships, East West
Resorts LLC, and other CDMC property (CDMC) .......................................              32,155                  --

Line of credit in the amount of $22.9 million payable to Crescent
Partnership due January 2003, bears interest at 12.0%, principal and
interest payments due as distributions from projects are received, as
defined by the applicable credit agreement, collateralized by CDMC's
interests in East West Resort Development partnerships, East West Resorts
LLC, and other CDMC property  (CDMC) ..............................................              17,379              16,418

Line of credit in the amount of $40.0 million payable to National Bank of
Arizona due June 2001, bears interest at rates from prime to prime plus 1%
(9.5% to 10.5% and 8.5% to 9.5% at December 31, 2000 and 1999,
respectively), payments of interest only due monthly, collateralized by
certain land owned by DMPLP, deeds of trusts on lots sold and home
construction (DMPLP) ..............................................................               9,808              13,756

Line of credit in the amount of $7.0 million payable to Crescent
Partnership due August 2003, bears interest at 12% with principal and
interest payments due as distributions are received, collateralized by a
first lien on the assets which the Company now owns or may acquire in the
future (CRL) ......................................................................               7,000               5,666

Note payable to Crescent Partnership maturing June 2005, bears interest at
12%, with payments of interest only due quarterly and payments of principal
payable annually in accordance with an increasing amortization schedule,
collateralized by CDMC's interests in East West Resort Development
partnerships, East West Resorts LLC and other CDMC property (CDMC) ................               2,348               2,649

Term note in the amount of $0.2 million payable to Crescent Partnership,
due August 2003, bears interest at 12% with principal and interest payments
due as distributions are received, collateralized by a first lien on the
assets which the Company now owns or may acquire in the future (CRL) ..............                 166                  --
</TABLE>



                                      F-25
<PAGE>   72

<TABLE>
<S>                                                                                   <C>                 <C>
Senior note payable to Crescent Partnership maturing December 2005, bears
interest at 10%, payments of principal and interest due quarterly based on
sales proceeds from DMPLP, collateralized by land, improvements and
equipment owned by DMPLP (DMPLP) ..................................................                  --               6,100
                                                                                      -----------------   -----------------

          Total debt - non wholly owned subsidiaries ..............................             263,417             213,429
                                                                                      -----------------   -----------------

          Total long-term debt ....................................................   $         473,517   $         421,874
                                                                                      =================   =================

Current portion of long-term debt - CEI ...........................................   $          17,023   $           8,000

Current portion of long-term debt .................................................              78,104              69,459

Long-term debt - CEI, net of current portion ......................................             242,666             208,744

Long-term debt, net of current portion ............................................             135,724             135,671
                                                                                      -----------------   -----------------

          Total long-term debt ....................................................   $         473,517   $         421,874
                                                                                      =================   =================
</TABLE>

    The weighted average interest rate on long-term debt at December 31, 2000
    was approximately 10.6%. Substantially all of the Company's assets are
    pledged as collateral under various debt agreements. Payment of dividends on
    Crescent Operating common stock is prohibited under certain of the debt
    agreements. The debt agreements contain certain reporting requirements and
    financial covenants, including requirements that the Company maintain
    certain financial ratios. As of December 31, 2000, the Company had complied
    with all debt covenants. The Company has modified certain debt agreements
    with Crescent Equities extending the timing of principal and interest
    payments until April 20, 2001. Interest payments accrued but deferred as of
    December 31, 2000 of $5.1 million is included in Accounts payable and
    accrued expenses - CEI within the Company's consolidated financial
    statements.

    As of December 31, 2000, combined aggregate principal maturities of all
    long-term debt were as follows (in thousands):

<TABLE>
<S>                                      <C>
2001................................     $  95,127
2002................................       111,402
2003................................        62,339
2004................................        63,944
2005................................        19,302
Thereafter..........................       121,403
                                         ---------
    Total                                $ 473,517
                                         =========
</TABLE>

10.  SHAREHOLDERS' EQUITY:

     Common Stock

     The Company's authorized capital stock consists of 10.0 million shares of
     preferred stock, par value $0.01 per share and 22.5 million shares of
     common stock, par value $0.01 per share. As of December 31, 2000, there
     were 11,442,791 shares of common stock issued and no shares of preferred
     stock issued.

     Preferred Share Purchase Rights

     The Board of Directors has adopted a rights plan that provides that each
     holder of Crescent Operating common stock also receives a right to purchase
     from the Company one-hundredth of a share of Series A Junior Preferred
     Stock, par value $0.01, at a price of $5.00 per share, subject to
     adjustment. These rights can only be exercised in







                                      F-26
<PAGE>   73

     certain events and are intended to provide the Company certain
     anti-takeover protection. The Company had reserved 225,000 shares of Series
     A Junior Preferred Stock for this plan.

     Warrants

     In conjunction with the acquisition of a 50% member interest in CBHS, the
     Company issued warrants to acquire 282,508 shares of Crescent Operating
     common stock at an exercise price of $18.29 per share.

     Treasury Stock

     As of December 31, 2000, COPI Colorado had purchased 1,102,530 million
     shares of Crescent Operating common stock, which has been recorded as
     treasury stock, at a total purchase price of approximately $4.3 million.
     The average price paid, including broker commissions, was $3.88 per share.

11.  STOCK OPTION PLANS:

     The Company has two stock incentive plans, the 1997 Amended Stock Incentive
     Plan (the "Amended Plan") and the 1997 Management Stock Incentive Plan (the
     "Management Plan").

     The Amended Plan, effective May 8, 1997, initially established the maximum
     number of options and/or shares of restricted stock that the Company may
     grant at 1.0 million shares. The maximum aggregate number of shares
     issuable under the Amended Plan shall increase automatically on January 1
     of each year by an amount equal to 8.5% of the increase in the number of
     shares of common stock outstanding since January 1 of the preceding year,
     subject to certain adjustment provisions. As of December 31, 2000, the
     number of shares the Company may have outstanding under the Amended Plan is
     1,019,694.

     On May 13, 1997, each holder of shares of restricted stock in Crescent
     Equities or options in Crescent Equities or Crescent Partnership was
     granted an equivalent number of shares of restricted stock or options in
     Crescent Operating, based on a ratio of one share of restricted stock or
     option to purchase Crescent Operating common stock for each 10 shares of
     restricted stock in Crescent Equities or options for Crescent Equities
     common shares, and one option to purchase Crescent Operating common stock
     for each 5 options for units in Crescent Partnership. Under the Amended
     Plan, the Company has granted 859,195 options and 10,000 restricted shares,
     net of forfeitures, through December 31, 2000.

     The Management Plan provides that the maximum number of options and/or
     shares of restricted stock that the Company may grant to employees,
     officers, directors or consultants is 1.0 million shares. Under the
     Management Plan, the Company has granted 537,000 options and 34,104
     restricted shares, net of forfeitures through December 31, 2000.

     Under both Plans, options are granted at a price no less than the market
     value of the shares on the date of grant, vest over a period determined by
     the Board of Directors, and expire ten years from the date of grant. The
     Company has reserved 579,395 shares for future options, warrants and
     restricted shares.

     A summary of the stock option status of the Company's Amended and
     Management Plans as of December 31, 2000 and changes during the periods
     then ended is presented in the table below:





                                      F-27
<PAGE>   74



<TABLE>
<CAPTION>
                                                                      Weighted Average
                                                     Options           Exercise Price
                                                -----------------    -----------------

<S>                                             <C>                  <C>
Outstanding as of December 31, 1997 .........             847,579    $            1.16
   Granted ..................................              60,600                20.42
   Exercised ................................             (23,662)                0.99
   Forfeited ................................             (20,173)                0.99
                                                -----------------    -----------------
Outstanding as of December 31, 1998 .........             864,344                 2.52
   Granted ..................................             615,400                 3.13
   Exercised ................................              (7,210)                 .99
   Forfeited ................................            (126,342)                2.20
                                                -----------------    -----------------
Outstanding as of December 31, 1999 .........           1,346,192                 2.84
   Granted ..................................                  --                   --
   Exercised ................................                  --                   --
   Forfeited ................................             (26,358)                3.92
                                                -----------------    -----------------
Outstanding as of December 31, 2000 .........           1,319,834    $            2.81
                                                =================    =================

Exercisable as of December 31, 2000 .........             824,504    $            2.20
</TABLE>

     Exercise prices, number of shares and the weighted-average remaining
     contractual life ("Average Life") at December 31, 2000 were as follows:

<TABLE>
<CAPTION>
                                            Options Outstanding                      Options Exercisable
                                   --------------------------------------    ------------------------------------
         Exercise Price                 Number            Average Life            Number           Average Life
   ----------------------------    -----------------    -----------------    -----------------    ---------------
<S>                                <C>                  <C>                  <C>                  <C>
          $ 0.99                        712,234              4 years              623,584            4 years
          $ 2.50 - 5.44                 537,000              9 years              170,680            8 years
          $ 15.50 - 20.50                70,600              7 years               30,240            7 years
</TABLE>

     The Company applies APB No. 25 in accounting for options granted pursuant
     to the Amended Plan and the Management Plan (collectively, the "Plans").
     Accordingly, no compensation cost has been recognized for the Plans. Had
     compensation cost for the Plans been determined based on the fair market
     value at the grant dates for awards under the Plans consistent with SFAS
     No. 123, the Company's net income (loss) and earning (loss) per share would
     have been the following pro forma amounts (in thousands). The following pro
     forma amounts may not be representative of the effects on reported net
     income for future years.

<TABLE>
<CAPTION>
                                                As Reported                              Proforma
                                               ------------        ----------------------------------------------------
                                                   2000                2000                1999                1998
                                               ------------        ------------        ------------        ------------

<S>                                            <C>                 <C>                 <C>                 <C>
Net income (loss) (in thousands) .......       $     (3,690)       $     (3,924)       $     (3,004)       $        837
Earnings (loss) per share ..............       $      (0.36)       $      (0.38)       $      (0.29)       $       0.07
</TABLE>

     The Company did not grant any options during the year ended December 31,
     2000. For the years ended December 31, 1999 and 1998, the weighted average
     grant date fair value of each option granted was $2.29 and $14.66,
     respectively.

     The fair value of each option was estimated at the date of grant using the
     Black-Scholes option-pricing model with the following weighted average
     assumptions for 1999 and 1998, respectively: risk-free interest rates of
     5.6% and 5.4%; expected volatility of 91.6% and 88.3%; expected dividend
     yields of 0%; expected lives of five years.



                                      F-28
<PAGE>   75



12.  EARNINGS PER SHARE:

     Earnings (loss) per share ("EPS") is calculated as follows (in thousands,
except per share data):

<TABLE>
<CAPTION>
                                Year ended                            Year ended                         Year ended
                             December 31, 2000                     December 31, 1999                   December 31, 1998
                    ----------------------------------    ----------------------------------    ---------------------------------
                       Net       Wtd. avg.   Per share      Net        Wtd. avg.   Per share      Net       Wtd. avg.   Per share
                      Loss        shares      amount        Loss         shares      Amount      Income       Shares     Amount
                    ---------    ---------   ---------    ---------    ---------   ---------    ---------   ---------   ---------

<S>                 <C>          <C>         <C>          <C>          <C>         <C>          <C>         <C>         <C>
Basic EPS .......   $  (3,690)      10,326   $   (0.36)   $  (2,695)      10,363   $   (0.26)   $   1,141      11,206   $    0.10

Effect of
Dilutive
Securities:
Stock Options ...          --           --                       --           --                       --         737
                    ---------    ---------   ---------    ---------    ---------   ---------    ---------   ---------   ---------

Diluted EPS .....   $  (3,690)      10,326   $   (0.36)   $  (2,695)      10,363   $   (0.26)   $   1,141      11,943   $    0.10
                    =========    =========   =========    =========    =========   =========    =========   =========   =========
</TABLE>

     The Company had 1,319,834, 1,344,792 and 70,600 options in 2000, 1999 and
     1998, respectively, which were not included in the calculation of diluted
     EPS as they were anti-dilutive.

13.  INCOME TAXES:

     The components of the Company's income tax provision (benefit) were as
follows (in thousands):

<TABLE>
<CAPTION>
                                                         Year Ended          Year Ended           Year Ended
                                                     December 31, 2000    December 31, 1999    December 31, 1998
                                                     -----------------    -----------------    -----------------
<S>                                                  <C>                  <C>                  <C>
Current:
   Federal .......................................   $          21,394    $          18,706    $           6,543
   State .........................................               2,551                2,459                  935
                                                     -----------------    -----------------    -----------------
                                                                23,945               21,165                7,478
                                                     -----------------    -----------------    -----------------
Deferred:
   Federal .......................................             (10,673)             (21,556)              (1,712)
   State .........................................              (1,525)              (3,080)                (245)
                                                     -----------------    -----------------    -----------------
                                                               (12,198)             (24,636)              (1,957)
                                                     -----------------    -----------------    -----------------
    Total income tax provision (benefit) .........   $          11,747    $          (3,471)   $           5,521
                                                     =================    =================    =================
</TABLE>


     Reconciliations of the federal statutory income tax rate to the effective
tax rate were as follows:

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

<S>                                                  <C>                   <C>                   <C>
Federal statutory income tax rate ................                35.0%                 35.0%                 35.0%
State income taxes, net of federal tax benefit ...                 5.0                   5.0                   5.0
Minority interests ...............................                (6.8)                (23.1)                (12.1)
Change in valuation allowance ....................                  --                 (47.1)                 (6.5)
Net operating loss benefit .......................                  --                  (8.5)                   --
Other, net .......................................                 1.3                  (5.0)                  2.6
                                                     -----------------     -----------------     -----------------
    Effective tax rate ...........................                34.5%                (43.7)%                24.0%
                                                     =================     =================     =================
</TABLE>




                                      F-29
<PAGE>   76



     Significant components of the Company's deferred tax assets and liabilities
were as follows (in thousands):

<TABLE>
<CAPTION>
                                                             December 31,
                                                --------------------------------------
                                                      2000                  1999
                                                -----------------    -----------------
<S>                                             <C>                  <C>
Deferred tax assets:
   Equity in losses of subsidiaries .........   $             817    $           8,936
   Deferred revenue/rentals .................              33,680               25,926
   Accrued expenses .........................               3,559                  814
   Inventories ..............................                 894                  794
   Net operating loss carryforwards .........              26,281                4,049
   Other ....................................                  83                  132
                                                -----------------    -----------------
      Deferred tax assets ...................              65,314               40,651
                                                -----------------    -----------------

Deferred tax liabilities:
   Prepaid expenses .........................              (1,094)              (1,048)
   Depreciable property and equipment .......             (20,181)              (8,326)
   Real estate ..............................              (9,650)              (9,086)
                                                -----------------    -----------------
      Deferred tax liabilities ..............             (30,925)             (18,460)
                                                -----------------    -----------------

Valuation allowance .........................                (406)                (406)
                                                -----------------    -----------------
      Net deferred tax assets ...............   $          33,983    $          21,785
                                                =================    =================

Current deferred tax assets .................   $           3,306    $             414
Noncurrent deferred tax assets ..............              30,677               21,371
                                                -----------------    -----------------
      Net deferred tax assets ...............   $          33,983    $          21,785
                                                =================    =================
</TABLE>

     At December 31, 2000, the Company had net operating loss carryforwards
     ("NOL") of approximately $65.5 million, which will expire after years 2001
     through 2020. A portion of this NOL was acquired subject to restrictive tax
     limitations. The Company has reserved $0.4 million of the future tax
     benefit of acquired NOL's which are subject to the tax law limitations and
     may not be realized. Management believes that the deferred tax asset will
     be realized due to tax planning strategies associated with an anticipated
     restructure (See Note 20 - Restructuring of Crescent Operating). The
     investments held by the Company that are considered to be Controlled
     Subsidiary Transactions have entered into agreements to elect to become
     Taxable REIT Subsidiaries ("TRS") of Crescent Equities for federal income
     tax reporting purposes effective January 1, 2001.

14.  MAGELLAN WARRANTS:

     In connection with the transaction in which Crescent Operating acquired its
     50% membership interest in CBHS, the Company purchased, for $12.5 million,
     warrants to acquire 1,283,311 shares of Magellan common stock for an
     exercise price of $30.00 per share. The Magellan warrants are exercisable
     in varying increments over the period which began on May 31, 1998 and ends
     on May 31, 2009. The fair value of the warrants, using the Black-Scholes
     pricing model, was $3.0 million at December 31, 2000. As a result, the $9.5
     million difference between the cost and the estimated fair value of the
     warrants has been included in the consolidated financial statements as
     accumulated comprehensive income (loss) as of December 31, 2000. See Note 2
     for the discussion of the change in accounting for the Magellan warrants
     effective January 1, 2001 as required under SFAS No. 133.



                                      F-30
<PAGE>   77



15.  COMMITMENTS AND CONTINGENCIES:

     Lease Commitments

     The Hospitality segment leases eight hotel and resort properties (the
     "Hospitality Properties") from Crescent Equities. Generally, the leases are
     on a triple net basis during 120-month terms and expire from December 2004
     to October 2008. The leases provide for the payment to Crescent Partnership
     or its subsidiaries of (i) base rent, with periodic rent increases, (ii)
     percentage rent based on a percentage of gross room revenues above a
     specified amount, and (iii) a percentage of gross food and beverage
     revenues above a specified amount. Base rental expense under the leases is
     recognized on a straight-line basis over the terms of the respective
     leases. The Land Development segment leases office space, model homes,
     housekeeping and laundry facilities and certain equipment. The Equipment
     Sales and Leasing segment leases rental delivery and service trucks and
     land and buildings at various locations.

     Total lease expense for all segments during the periods ended December 31,
     2000, 1999 and 1998 was approximately $74.2 million, $62.5 million and
     $55.4 million, respectively. Included in lease expense was percentage rent
     for the Hospitality Properties for the periods ended December 31, 2000,
     1999 and 1998 of $19.0 million, $14.7 million and $13.8 million,
     respectively. Future minimum lease payments due under such leases as of
     December 31, 2000, were as follows (in thousands):

               <TABLE>
               <S>                               <C>
               2001....................          $         47,560
               2002....................                    46,786
               2003....................                    46,513
               2004....................                    46,401
               2005....................                    38,209
               Thereafter..............                    55,154
                                                 ----------------
                                                 $        280,623
                                                 ================
</TABLE>

     Contingencies

     CBHS became the subject of Chapter 11 bankruptcy proceedings by filing a
     voluntary petition on February 16, 2000, in United States Bankruptcy Court
     for the District of Delaware. Although CBHS is not a subsidiary of Crescent
     Operating, Crescent Operating did own a majority (90%) economic interest in
     CBHS, until December 29, 2000. Crescent Operating's claims against the
     estate of CBHS include (i) its interests as a direct and indirect equity
     holder of CBHS and (ii) its claim for indemnification or contribution
     against third party lawsuits and claims where Crescent Operating is a named
     defendant with CBHS, such as lawsuits based upon alleged WARN Act
     violations purported to have been committed by CBHS and/or its subsidiaries
     in closing behavioral health care facilities in 1999 and 2000. Crescent
     Operating has filed proofs of claim against CBHS with regard to these
     claims; however, the Company now believes that there exists substantial
     doubt whether any of its claims will be collectible, due to the
     presumptively insolvent nature of the debtors' estate.

     Another claimant in the CBHS bankruptcy is Crescent Partnership (together
     with its parent, Crescent Equities), which is the owner of certain
     facilities leased to and operated by CBHS and its subsidiaries and is also
     the secured lender of $10 million to CBHS. CBHS has an arrearage on its
     lease payments owed to Crescent Partnership accrued prior to the
     commencement of bankruptcy. While the claims of Crescent Partnership
     against CBHS are not necessarily adverse to the interests of Crescent
     Operating, the interests of Crescent Partnership are separate,
     distinguishable and at least nominally in conflict with the competing
     interests and claims of all other interested parties in the bankruptcy,
     including Crescent Operating. To the Company's knowledge, none of the
     directors, officers or security holders of Crescent Operating has, in his
     or its individual capacity, an interest adverse to Crescent Operating in
     connection with the CBHS bankruptcy; however, in their capacities as
     directors, officers and/or security holders of Crescent Partnership or
     Crescent Equities, certain persons may be deemed to hold interests adverse
     to the Company's interest in connection with the CBHS bankruptcy.



                                      F-31
<PAGE>   78

     To date, several lawsuits, all of which seek class action certification,
     have been filed against CBHS alleging violations of the WARN Act in the
     closing of certain healthcare facilities. Of those lawsuits, three also
     named Crescent Operating as a defendant, but two of those suits have since
     been dismissed. An additional suit seeking similar relief was also filed
     against Crescent Operating and other parties, but not CBHS, leaving two
     WARN Act suits pending against Crescent Operating. Under the automatic stay
     provisions of federal bankruptcy law, lawsuits against CBHS or its
     subsidiaries are stayed unless otherwise directed by the bankruptcy court,
     but the lawsuits against other defendants, including Crescent Operating,
     are not stayed automatically. The Company anticipates that other similar
     lawsuits may be filed due to the closing of the CBHS facilities or that
     COPI may be named in existing lawsuits against CBHS. With respect to the
     pending suits and possible future claims against Crescent Operating based
     on the closure by CBHS of facilities in 1999 and 2000, the Company believes
     that such actions are without basis under the WARN Act and should be
     dismissed; however, no assurance can be given that Crescent Operating will
     prevail.

     In accordance with an agreement between Gerald Haddock and the Company,
     COPI Colorado redeemed the limited partnership interest of Mr. Haddock, the
     Company's former Chief Executive Officer and President, in January 2000,
     COPI Colorado paid Mr. Haddock approximately $2.6 million for his
     approximate 16.67% limited partner interest (determined from an independent
     appraisal of the value of COPI Colorado). Mr. Haddock has challenged the
     valuation performed by the independent appraiser and the procedures
     followed by the Company with respect to the redemption and valuation
     process. The Company believes that it has complied with all terms of the
     agreement as it relates to the liquidation of Mr. Haddock from the
     partnership. In February 2001, the Company filed a lawsuit seeking a
     declaratory judgment to assist in resolution of the Company's dispute with
     Mr. Haddock.

     The Company is a party to other legal actions related to certain of its
     investments. Material losses related to such cases have not been deemed
     probable by management after consultation with outside counsel, and no
     financial statement accruals have been made. Based on the status of the
     cases, the Company is unable to determine a range of possible losses, if
     any, that might be incurred in connection with this litigation. The Company
     believes it is not probable that the ultimate resolution of this litigation
     will have a material adverse effect on its financial position and results
     of operations.

16.  SUPPLEMENTAL CASH FLOW INFORMATION:

     Supplemental cash flow information is summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                                              December 31,
                                                               -------------------------------------------
                                                                   2000           1999            1998
                                                               ------------   ------------    ------------

<S>                                                            <C>            <C>             <C>
Interest paid, net of amounts capitalized ..................   $     29,729   $     27,422    $     23,360
                                                               ============   ============    ============
Taxes paid .................................................   $     17,293   $     24,755    $      4,345
                                                               ============   ============    ============

 Non-cash investing and financing activities:
    In conjunction with the acquisitions by the
    Company, liabilities were assumed as follows:
         Fair value of assets acquired .....................   $         --   $     43,178    $     84,892
         Stock issued for the acquisitions .................             --             --          (3,391)
         Notes payable issued for acquisitions .............             --         (6,000)         (8,659)
         Cash paid for the acquisitions ....................             --        (28,511)        (26,300)
                                                               ------------   ------------    ------------
             Liabilities assumed ...........................   $         --   $      8,667    $     46,542
                                                               ============   ============    ============

    Decrease in intangible and deferred income for
    amount associated with sales of club memberships .......   $      6,387   $      7,172    $     11,084
                                                               ============   ============    ============
</TABLE>




                                      F-32
<PAGE>   79



17.  FAIR VALUES OF FINANCIAL INSTRUMENTS:

     The carrying amount of cash and cash equivalents, accounts receivable,
     inventories, notes receivable, prepaid expenses and other current assets,
     and accounts payable and accrued expenses approximates fair value as of
     December 31, 2000 because of the short maturity of these instruments.
     Similarly, the carrying value of line of credit borrowings approximates
     fair value as of that date because the applicable interest rates fluctuate
     based on published market rates. In the opinion of management, without
     consideration of the financial position of the Company, the interest rates
     associated with the long-term debt approximates the market interest rates
     for this type of instrument, and as such, the carrying values approximate
     fair value at December 31, 2000.

18.  BUSINESS SEGMENT INFORMATION:

     Crescent Operating's assets and operations are located entirely within the
     United States and are comprised of four business segments: (i) Equipment
     Sales and Leasing, (ii) Hospitality, (iii) Temperature Controlled Logistics
     and (iv) Land Development. In addition to these four business segments, the
     Company has grouped its investment in Magellan warrants, its previous
     investment in CBHS, interest expense on corporate debt and general
     corporate overhead costs such as legal and accounting costs, insurance
     costs and corporate salaries as "Other" for segment reporting purposes.
     Because the Company sold its investment in CBHS in 2000 and did not
     recognize income or loss from CBHS in 1999 or 2000, the Company no longer
     reports its operations related to CBHS as a separate segment. The Company
     uses net income as the measure of segment profit or loss.

     The Equipment Sales and Leasing segment is engaged in the sale, leasing and
     service of construction equipment and accessories to the construction and
     utility industries located primarily in seven states. Crescent Machinery's
     leasing activities consist principally of leasing construction equipment
     and accessories under various leases, which are primarily short-term
     operating leases.

     The Hospitality segment generally consists of the operations of the
     Hospitality Properties. Each of such properties is owned by Crescent
     Partnership or its affiliates and all are leased to subsidiaries of the
     Company under long term leases. In addition to these properties, the
     Company also has other investments in CRL.

     The Temperature Controlled Logistics segment consists primarily of a 40%
     interest in the operations of AmeriCold Logistics. Prior to reorganization
     of this segment effective March 12, 1999, this segment consisted of a 2%
     economic interest in the operations of The Temperature Controlled Logistics
     Partnerships. AmeriCold Logistics is the largest operator of public
     refrigerated storage space in the country in terms of public storage space
     operated.

     The Land Development segment consists of (i) a 4.65% economic interest in
     Desert Mountain, a master planned, luxury residential and recreational
     community in northern Scottsdale, Arizona, (ii) a 52.5% general partner
     interest in Woodlands Operating, which provides management, advisory,
     landscaping and maintenance services to entities affiliated with Crescent
     Operating and Crescent Equities, (iii) a 2.125% economic interest in
     Landevco, which owns approximately 6,500 acres for commercial and
     residential development as well as a realty office, an athletic center, and
     an interest in a title company and (iv) a 6% economic interest in CDMC,
     whose operations consist principally of investing in partnerships and other
     entities that directly or indirectly develop and manage residential and
     resort properties (primarily in Colorado) or provide related services.





                                      F-33
<PAGE>   80



     Business segment information is summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                    For the Year Ended   For the Year Ended   For the Year Ended
                                                     December 31, 2000    December 31, 1999    December 31, 1998
                                                    ------------------   ------------------   ------------------
<S>                                                  <C>                  <C>                  <C>
Revenues:
   Equipment Sales and Leasing ...................   $         142,842    $         136,343    $          85,365
   Hospitality ...................................             272,157              246,763              229,491
   Land Development ..............................             301,827              334,881              178,392
   Temperature Controlled Logistics ..............                  --                   --                   --
   Other .........................................                  --                   --                   --
                                                     -----------------    -----------------    -----------------
   Total revenues ................................   $         716,826    $         717,987    $         493,248
                                                     =================    =================    =================

Income (loss) from operations:
   Equipment Sales and Leasing ...................   $           1,729    $           4,737    $           6,354
   Hospitality ...................................              (3,419)               1,286                6,659
   Land Development ..............................              25,542               10,449                   20
   Temperature Controlled Logistics ..............                 (27)                  (2)                 (88)
   Other .........................................              (4,197)              (2,603)              (3,059)
                                                     -----------------    -----------------    -----------------
   Total income (loss) from operations ...........   $          19,628    $          13,867    $           9,886
                                                     =================    =================    =================

Depreciation and amortization:
   Equipment Sales and Leasing ...................   $          18,254    $          15,041    $           8,222
   Hospitality ...................................               1,356                1,023                  802
   Land Development ..............................              18,286               17,811                5,695
   Temperature Controlled Logistics ..............                  --                   --                   10
   Other .........................................                 (71)                (133)                  18
                                                     -----------------    -----------------    -----------------
   Total depreciation and amortization ...........   $          37,825    $          33,742    $          14,747
                                                     =================    =================    =================

Investment income (loss):
   Equipment Sales and Leasing ...................   $              --    $              --    $              --
   Hospitality ...................................              17,839                 (851)                 130
   Land Development ..............................              34,952               23,825               25,858
   Temperature Controlled Logistics ..............              (6,237)              (2,275)               3,961
   Other .........................................                  --                  240               (2,265)
                                                     -----------------    -----------------    -----------------
     Total investment income (loss) ..............   $          46,554    $          20,939    $          27,684
                                                     =================    =================    =================

Interest expense, net:
   Equipment Sales and Leasing ...................   $          10,585    $           6,747    $           2,942
   Hospitality ...................................                 805                  618                   54
   Land Development ..............................              12,672               11,326                4,335
   Temperature Controlled Logistics ..............                  --                   --                   --
   Other .........................................               8,012                8,038                7,055
                                                     -----------------    -----------------    -----------------
   Total interest expense, net ...................   $          32,074    $          26,729    $          14,386
                                                     =================    =================    =================

Income tax expense (benefit)
   Equipment Sales and Leasing ...................   $          (3,763)   $          (1,081)   $           1,539
   Hospitality ...................................               5,010                  (50)               2,724
   Land Development ..............................              17,888                7,293                7,465
   Temperature Controlled Logistics ..............              (2,506)                (911)                  --
   Other .........................................              (4,882)              (8,722)              (6,207)
                                                     -----------------    -----------------    -----------------
   Total income tax expense (benefit) ............   $          11,747    $          (3,471)   $           5,521
                                                     =================    =================    =================

Capital expenditures:
   Equipment Sales and Leasing ...................   $          48,228    $          58,107    $          28,607
   Hospitality ...................................               1,964                2,388                1,635
   Land Development ..............................              18,427               18,930               13,183
   Temperature Controlled Logistics ..............                  --                   --                   --
   Other .........................................                  37                   51                   46
                                                     -----------------    -----------------    -----------------
   Total capital expenditures ....................   $          68,656    $          79,476    $          43,471
                                                     =================    =================    =================

Investment in unconsolidated subsidiaries:
   Equipment Sales and Leasing ...................   $              --    $              --    $              --
   Hospitality ...................................              10,790               12,017                2,011
   Land Development ..............................              52,197               51,220               60,687
   Temperature Controlled Logistics ..............               4,417               14,859              293,868
   Other .........................................               2,992                2,374               10,539
                                                     -----------------    -----------------    -----------------
   Total investment in
          unconsolidated subsidiaries ............   $          70,396    $          80,470    $         367,105
                                                     =================    =================    =================

Identifiable assets:
   Equipment Sales and Leasing ...................   $         192,151    $         184,964    $         127,215
   Hospitality ...................................              44,810               44,805               38,536
   Land Development ..............................             643,514              535,911              464,634
   Temperature Controlled Logistics ..............               8,829               16,337              293,780
   Other .........................................              21,224               13,636               13,168
                                                     -----------------    -----------------    -----------------
   Total identifiable assets .....................   $         910,528    $         795,653    $         937,333
                                                     =================    =================    =================
</TABLE>



                                      F-34
<PAGE>   81


19.  RELATED PARTY TRANSACTIONS:

     INTERCOMPANY AGREEMENT

     Generally, Crescent Operating is involved with Crescent Equities in two
     types of transactions: "Lessee Transactions" and "Controlled Subsidiary
     Transactions". Lessee Transactions are those in which Crescent Operating
     enters into a transaction to lease and operate real property that is owned
     by Crescent Partnership but which cannot be operated by Crescent
     Partnership due to Crescent Equities status as a REIT. Controlled
     Subsidiary Transactions are those in which Crescent Operating invests
     alongside Crescent Partnership in acquisitions where Crescent Operating
     owns all of the voting stock, and Crescent Partnership owns all of the
     non-voting stock of a corporate acquisition vehicle which in turn acquires
     a target business which cannot be operated by Crescent Partnership due to
     Crescent Equities' status as a REIT. The voting stock represents the
     control of the entity being purchased and due to its status as a REIT, up
     until the REIT Modernization Act which became effective January 1, 2001,
     Crescent Equities could not have such ownership.

     Crescent Operating and Crescent Partnership have entered into the
     Intercompany Agreement to provide each other with rights to participate in
     the types of transactions mentioned above. The Intercompany Agreement
     provides, subject to certain terms, that Crescent Partnership will provide
     Crescent Operating with a right of first refusal to become the lessee of
     any real property acquired by Crescent Partnership if Crescent Partnership
     determines that, consistent with Crescent Equities' status as a REIT, it is
     required to enter into a "master" lease arrangement. Crescent Operating's
     right of first refusal under the Intercompany Agreement is conditioned upon
     the ability of Crescent Operating and Crescent Partnership to negotiate a
     mutually satisfactory lease arrangement and the determination of Crescent
     Partnership, in its sole discretion, that Crescent Operating is qualified
     to be the lessee. In general, a master lease arrangement is an arrangement
     pursuant to which an entire property or project (or a group of related
     properties or projects) is leased to a single lessee. If a mutually
     satisfactory agreement cannot be reached within a 30-day period (or such
     longer period to which Crescent Operating and Crescent Partnership may
     agree), Crescent Partnership may offer the opportunity to others.

     Under the Intercompany Agreement, Crescent Operating has agreed not to
     acquire or make (i) investments in real estate which, for purposes of the
     Intercompany Agreement, includes the provision of services related to real
     estate and investment in hotel properties, real estate mortgages, real
     estate derivatives or entities that invest in real estate assets or (ii)
     any other investments that may be structured in a manner that qualifies
     under the federal income tax requirements applicable to REITs. Crescent
     Operating has agreed to notify Crescent Partnership of, and make available
     to Crescent Partnership, investment opportunities developed by Crescent
     Operating, or of which Crescent Operating becomes aware but is unable or
     unwilling to pursue.




                                      F-35
<PAGE>   82


     OTHER TRANSACTIONS

     The Company leases full service hotels and destination health and fitness
     resorts from Crescent Partnership, or other subsidiaries of Crescent
     Equities, under operating leases. Crescent Partnership has agreed to fund
     all capital expenditures relating to furniture, fixtures and equipment
     reserves required under applicable management agreements on all properties
     except for Canyon Ranch-Tucson. Total rent expense related to these leases
     totaled approximately $63.3 million, $54.0 million and $52.3 million for
     the years ended December 31, 2000, 1999 and 1998, respectively.

     The Company has various debt instruments payable to Crescent Partnership
     with an aggregate amount outstanding at December 31, 2000 and 1999 of
     $259.7 million and $216.7 million, respectively. See Note 9 for additional
     information.

     Included in notes receivable is a note from Landevco payable to Landco in
     the amount of $10.6 million as of December 31, 2000. The note bears
     interest at 15.0% per annum with quarterly interest payments and principal
     due upon maturity of July 2007. Interest income recognized for the years
     ended December 31, 2000, 1999 and 1998 was $1.6 million, $1.7 million and
     $0.7 million, respectively.

     Effective February 1, 2000, The Varma Asset Management Agreements were
     terminated by mutual agreement of the parties; at the same time, Crescent
     Operating and its hospitality subsidiaries entered into a Master Asset
     Management and Administrative Services Agreement with the Sonoma Management
     Company ("SMC") to manage the Hyatt Albuquerque, the Four Seasons Hotel
     Houston, the Renaissance Hotel Houston and the Denver City Center Marriott.
     At the same time, the Company's hospitality subsidiaries accepted
     assignment from the owners of the Sonoma Mission Inn and Spa, the Sonoma
     Mission Inn Golf and Country Club and the Ventana Inn and Spa of its
     property management agreements with SMC. The principals of SMC are Sanjay
     and Johanna Varma and Crescent Equities is an equity owner in SMC. Payment
     of obligations under the Master Asset Management and Administrative
     Services Agreement are guaranteed by the Company. For each property for
     which it provides asset management services, SMC will receive a base fee
     equal to 0.85% of gross revenues of the property managed plus an incentive
     fee of 50% of actual net income in excess of budgeted net income. For each
     property for which it provides property management services, SMC will
     receive a base fee equal to 2.0% of gross revenues of the property plus an
     incentive fee of 20% of net operating income in excess of 12% annual return
     on investment to owner.

20.  RESTRUCTURING OF CRESCENT OPERATING:

     On December 17, 1999, President Clinton signed into law the REIT
     Modernization Act, which became effective on January 1, 2001, and contains
     a provision that permits real estate investments trusts ("REITS"), such as
     Crescent Equities, to own and operate certain types of investments that are
     currently owned and operated by Crescent Operating, specifically the
     Hospitality and Land Development segments. As a consequence, Crescent
     Equities can retain business opportunities it would otherwise offer to the
     Company pursuant to the Intercompany Agreement. Crescent Operating is
     considering corporate restructuring alternatives which include the
     potential sale of the Company's Hospitality and Land Development segments
     to Crescent Equities.



                                      F-36
<PAGE>   83
If a successful restructuring is not completed and/or significant new equity is
not obtained, it is likely that the Company would be unable to meet its
financial obligations in a timely manner. The Company has extended certain
payment obligations by reaching agreements with Crescent Equities to defer until
April 20, 2001 payments on certain of Crescent Operating's obligations to
Crescent Equities otherwise due. Interest payments and rent payments accrued but
deferred as of December 31, 2000 totaled approximately $5.1 million and $5.8
million, respectively. If a restructuring of the Company as now contemplated by
the Company's management and/or a significant infusion of equity is successfully
completed, the Company believes that it will be able to meet its capital
requirements during 2001. If a successful restructuring is not completed and/or
significant new equity is not obtained, the Company will not have adequate
capital to meet its needs.

21.  QUARTERLY FINANCIAL INFORMATION (UNAUDITED):

     Amounts in thousands, except per share amounts:

<TABLE>
<CAPTION>
                                                                         Year Ended December 31, 2000
                                                               ------------------------------------------------
                                                                 First       Second        Third       Fourth
                                                               ---------    ---------    ---------    ---------

<S>                                                            <C>          <C>          <C>          <C>
Revenues ...................................................   $ 167,551    $ 176,397    $ 182,133    $ 190,745
Income (loss) from operations ..............................       7,973        5,582        6,557         (484)
Income (loss) before minority interests and income taxes ...       6,237         (684)       3,440       25,082
Minority interests .........................................      (6,731)      (2,954)      (6,660)      (9,673)
Income tax provision (benefit) .............................       1,488         (226)         950        9,535
Net income (loss) ..........................................      (1,982)      (3,412)      (4,170)       5,874
Basic income (loss) per share ..............................        (.19)        (.33)        (.40)         .56
Diluted income (loss) per share ............................        (.19)        (.33)        (.40)         .56
</TABLE>


<TABLE>
<CAPTION>
                                                                         Year Ended December 31, 1999
                                                               ------------------------------------------------
                                                                 First       Second        Third       Fourth
                                                               ---------    ---------    ---------    ---------

<S>                                                            <C>          <C>          <C>          <C>
Revenues ...................................................   $ 136,748    $ 173,393    $ 175,602    $ 232,244
Income (loss) from operations ..............................       4,295        8,751        2,946       (2,125)
Income (loss) before minority interests and income taxes ...       9,001        6,293       (2,282)      (5,066)
Minority interests .........................................      (5,215)      (5,167)      (1,465)      (2,265)
Income tax provision (benefit) .............................         372          972       (1,284)      (3,531)
Net income (loss) ..........................................       3,414          154       (2,463)      (3,800)
Basic income (loss) per share ..............................         .32          .01         (.24)        (.35)
Diluted income (loss) per share ............................         .31          .01         (.24)        (.34)
</TABLE>





                                      F-37
<PAGE>   84




                          INDEPENDENT AUDITORS' REPORT




To the Partners
Vornado Crescent Logistics Operating Partnership and Subsidiary:

We have audited the accompanying consolidated balance sheets of Vornado Crescent
Logistics Operating Partnership and Subsidiary (the "Partnership") as of
December 31, 2000 and 1999, and the related consolidated statements of
operations, partners' capital, and cash flows for the year ended December 31,
2000 and for the period from March 11, 1999 (date of inception) to December 31,
1999. These financial statements are the responsibility of the Partnership'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 of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the consolidated financial position of Vornado Crescent Logistics
Operating Partnership and Subsidiary at December 31, 2000 and 1999, and their
consolidated results of operations and cash flows for the year ended December
31, 2000 and for the period from March 11, 1999 (date of inception) to December
31, 1999 in conformity with accounting principles generally accepted in the
United States of America.


DELOITTE & TOUCHE LLP

February 27, 2001






                                      F-38
<PAGE>   85







VORNADO CRESCENT LOGISTICS OPERATING
PARTNERSHIP AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2000 AND 1999
(AMOUNTS IN THOUSANDS)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
ASSETS                                                                          2000                1999

<S>                                                                           <C>                 <C>
CURRENT ASSETS:
  Cash and cash equivalents                                                   $   6,215           $   7,988
  Restricted cash                                                                14,736              16,887
  Trade accounts receivable, net of allowance for doubtful
     accounts of $3,502 and $2,036, respectively                                 77,889              77,010
  Other current assets                                                            6,821               7,891
  Working capital to be collected on behalf of Real Estate Companies             (7,507)            (12,951)
                                                                              ---------           ---------

                                                                                 98,154              96,825

PROPERTY, PLANT, AND EQUIPMENT:
  Land                                                                           18,533              18,442
  Buildings and improvements                                                      2,476               1,517
  Machinery and equipment                                                        44,131              33,127
                                                                              ---------           ---------

                                                                                 65,140              53,086

  Less accumulated depreciation                                                 (10,722)             (4,230)
                                                                              ---------           ---------

      Property, plant, and equipment, net                                        54,418              48,856

OTHER ASSETS                                                                      9,108               7,831
                                                                              ---------           ---------

                                                                              $ 161,680           $ 153,512
                                                                              =========           =========
</TABLE>

                                                                     (Continued)





                                      F-39
<PAGE>   86




VORNADO CRESCENT LOGISTICS OPERATING
PARTNERSHIP AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2000 AND 1999
(AMOUNTS IN THOUSANDS)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                            2000               1999

<S>                                                                      <C>                 <C>
LIABILITIES AND PARTNERS' CAPITAL

CURRENT LIABILITIES:
  Accounts payable                                                       $  23,277           $  28,350
  Accrued expenses                                                          43,653              44,570
  Current portion of long-term debt                                            577                  --
  Unearned revenue                                                           9,242               9,630
  Due to Real Estate Companies                                              27,074              29,232
                                                                         ---------           ---------

      Total current liabilities                                            103,823             111,782
                                                                         ---------           ---------

LONG-TERM DEBT                                                               6,360                  --

DEFERRED RENT OBLIGATIONS TO REAL ESTATE
  COMPANIES                                                                 24,411               5,400

STRAIGHT-LINE RENT LIABILITY                                                 6,762               3,089

OTHER LIABILITIES                                                            4,111               3,762
                                                                         ---------           ---------

        Total liabilities                                                  145,467             124,033

COMMITMENTS

PARTNERS' CAPITAL:
  Partners' capital                                                         48,723              38,723
  Accumulated deficit                                                      (27,680)             (9,244)
  Accumulated other comprehensive loss - minimum pension charge               (830)                 --
                                                                         ---------           ---------

Less: capital contribution receivable                                       (4,000)                 --
                                                                         ---------           ---------

        Total partners' capital                                             16,213              29,479
                                                                         ---------           ---------

                                                                         $ 161,680           $ 153,512
                                                                         =========           =========
</TABLE>

                                                                     (Concluded)

See notes to consolidated financial statements.





                                      F-40
<PAGE>   87





VORNADO CRESCENT LOGISTICS OPERATING
PARTNERSHIP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000 AND FOR THE PERIOD
FROM MARCH 11, 1999 (DATE OF INCEPTION) TO DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                               2000                1999

<S>                                                          <C>                 <C>
REVENUES                                                     $ 676,158           $ 557,708

OPERATING EXPENSES:
  Cost of operations                                           478,809             399,615
  Rent expense on leases with Real Estate Companies            170,640             135,811
  General and administrative                                    35,933              26,542
  Depreciation and amortization                                  7,803               4,789
                                                             ---------           ---------
      Total operating expenses                                 693,185             566,757
                                                             ---------           ---------

OPERATING LOSS                                                 (17,027)             (9,049)

OTHER INCOME (EXPENSE):
  Interest expense                                              (2,136)               (534)
  Other income                                                     727                 339
                                                             ---------           ---------
NET LOSS                                                     $ (18,436)          $  (9,244)
                                                             =========           =========
</TABLE>

See notes to consolidated financial statements.






                                      F-41
<PAGE>   88







VORNADO CRESCENT LOGISTICS OPERATING PARTNERSHIP
AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 2000 AND FOR THE PERIOD FROM
MARCH 11, 1999 (DATE OF INCEPTION) TO DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                               ACCUMULATED
                                                                                  OTHER
                                                                              COMPREHENSIVE        CAPITAL
                                               PARTNERS'      ACCUMULATED     LOSS - MINIMUM    CONTRIBUTION
                                                CAPITAL         DEFICIT       PENSION CHARGE      RECEIVABLE        TOTAL


<S>                                           <C>             <C>              <C>              <C>              <C>
Capital contribution                          $     38,723    $         --     $         --     $         --     $     38,723

  Net loss                                              --          (9,244)              --               --           (9,244)
                                              ------------    ------------     ------------     ------------     ------------

BALANCE - December 31, 1999                         38,723          (9,244)              --               --           29,479

Capital contribution                                10,000              --               --           (4,000)           6,000

COMPREHENSIVE LOSS:

  Net loss                                              --         (18,436)              --               --          (18,436)

  Adjustment for minimum pension liability              --              --             (830)              --             (830)
                                              ------------    ------------     ------------     ------------     ------------
                                                                                                                      (19,266)
                                                                                                                 ------------

BALANCE - December 31, 2000                   $     48,723    $    (27,680)    $       (830)    $     (4,000)    $     16,213
                                              ============    ============     ============     ============     ============
</TABLE>


See notes to consolidated financial statements.




                                      F-42
<PAGE>   89




VORNADO CRESCENT LOGISTICS OPERATING
PARTNERSHIP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2000 AND FOR THE PERIOD FROM
 MARCH 11, 1999 (DATE OF INCEPTION) TO DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                 2000         1999

<S>                                                            <C>          <C>
OPERATING ACTIVITIES:
  Net loss                                                     $(18,436)    $ (9,244)
  Adjustments to reconcile net loss
    to net cash provided by operating activities:
    Provision for bad debts                                       1,645        1,685
    Depreciation and amortization                                 7,803        4,789
    Straight lining of rent expense                               3,673        3,089
    Gain on settlement and curtailment of benefit plan               --       (1,363)
    Changes in assets and liabilities, net of acquisitions:
      Restricted cash                                             2,151           --
      Trade accounts receivable                                  (2,524)         239
      Other assets                                                   (9)      (6,420)
      Accounts payable and accrued expenses                      (8,081)      (1,493)
      Due to Real Estate Companies                               (2,158)      29,232
      Deferred rent obligations                                  19,011        5,400
      Other liabilities                                             (69)         (11)
                                                               --------     --------

        Net cash provided by operating activities                 3,006       25,903

INVESTING ACTIVITIES:
  Purchase of non-real estate assets                                 --      (38,723)
  Additions to property, plant, and equipment                   (12,302)      (9,666)
                                                               --------     --------

        Net cash used in investing activities                   (12,302)     (48,389)

FINANCING ACTIVITIES:
  Proceeds from issuance of long-term debt                        7,014           --
  Repayment of long-term debt                                       (47)          --
  Repayment of due to Real Estate Companies                      (5,444)      (8,249)
  Capital contributions                                           6,000       38,723
                                                               --------     --------

        Net cash provided by financing activities                 7,253       30,474
                                                               --------     --------

NET CHANGE IN CASH AND CASH EQUIVALENTS                          (1,773)       7,988

CASH AND CASH EQUIVALENTS:
  Beginning of period                                             7,988           --
                                                               --------     --------

  End of period                                                $  6,215     $  7,988
                                                               ========     ========
</TABLE>


                                                                     (Continued)





                                      F-43
<PAGE>   90






VORNADO CRESCENT LOGISTICS OPERATING
PARTNERSHIP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2000 AND FOR THE PERIOD FROM
 MARCH 11, 1999 (DATE OF INCEPTION) TO DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                             2000        1999

<S>                                                        <C>         <C>
SUPPLEMENTAL DISCLOSURES:
  Interest paid                                            $    753    $    331
                                                           ========    ========

SUPPLEMENTAL INFORMATION ABOUT NONCASH
  ACTIVITIES:
  Liabilities assumed in connection with acquisition of
    non-real estate assets                                             $ 13,198
                                                                       ========
  Initial working capital to be collected on behalf of
    Real Estate Companies                                              $ 21,200
                                                                       ========
</TABLE>

                                                                     (Concluded)


See notes to consolidated financial statements.





                                      F-44
<PAGE>   91


VORNADO CRESCENT LOGISTICS OPERATING
PARTNERSHIP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999 AND FOR THE YEAR ENDED
DECEMBER 31, 2000 AND FOR THE PERIOD FROM
MARCH 11, 1999 (DATE OF INCEPTION) TO DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
--------------------------------------------------------------------------------


1.    ORGANIZATION AND BUSINESS

      Vornado Crescent Logistics Operating Partnership (the "Partnership") was
      formed on March 11, 1999. The Partnership holds its assets and conducts
      its business through its wholly owned subsidiary AmeriCold Logistics, LLC
      (collectively "AmeriCold Logistics"). At December 31, 2000, AmeriCold
      Logistics, headquartered in Atlanta, Georgia, has 6,700 employees and
      operates 99 temperature controlled warehouse facilities nationwide with an
      aggregate of approximately 518 million cubic feet of refrigerated, frozen,
      and dry storage space. Of the 99 warehouses, AmeriCold Logistics leases 88
      temperature controlled warehouses with an aggregate of approximately 439
      million cubic feet from the Vornado REIT/Crescent REIT Partnership, and
      manages 11 additional warehouses containing approximately 79 million cubic
      feet of space. AmeriCold Logistics provides the frozen food industry with
      refrigerated warehousing and transportation management services.
      Refrigerated warehouses are comprised of production and distribution
      facilities. Production facilities typically serve one or a small number of
      customers, generally food processors, located nearby. These customers
      store large quantities of processed or partially processed products in the
      facility until they are shipped to the next stage of production or
      distribution. Distribution facilities primarily warehouse a wide variety
      of customers' finished products until future shipment to end-users. Each
      distribution facility generally services the surrounding regional market.
      AmeriCold Logistics' transportation management services include freight
      routing, dispatching, freight rate negotiation, backhaul coordination,
      freight bill auditing, network flow management, order consolidation, and
      distribution channel assessment. Additionally, AmeriCold Logistics mines
      limestone at two of its locations.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Basis of Presentation - The consolidated financial statements of the
      Partnership include the accounts of the Partnership and its subsidiary.
      The Partnership is owned 60% by Vornado Operating L.P. and 40% by COPI
      Cold Storage L.L.C. (an affiliate of Crescent Operating Inc.). The
      partnership agreement provides that net income and losses are allocated to
      each partner's account in relation to their ownership interests. Subject
      to certain provisions, the Partnership continues for a term through
      October 2027. Certain reclassifications to prior year amounts have been
      made to conform with the current year's presentation. Management has made
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the
      date of the financial statements and the reported amounts of revenues and
      expenses during the reporting period. Actual results could differ from
      those estimates.

      Cash and Cash Equivalents - Cash and cash equivalents consist of highly
      liquid investments purchased with original maturities of three months or
      less.

      Restricted Cash - Cash restricted for uses related to payment of rent
      ($7,229 at December 31, 2000 and 1999) and settlement of certain
      self-insured liabilities ($7,507 and $9,658 at December 31, 2000 and 1999,
      respectively) are classified as restricted cash.

      Property, Plant, and Equipment - Depreciation and amortization are
      computed on the straight-line method over the estimated useful lives of
      the respective assets. Depreciation and amortization begin the month in
      which the asset is placed into service.




                                      F-45
<PAGE>   92

      Properties are reviewed for impairment if events or changes in
      circumstances indicate that the carrying amount of the property may not be
      recoverable. In such an event, a comparison is made of the current and
      projected operating cash flows of each such property into the foreseeable
      future on an undiscounted basis to the carrying amount of such property.
      Such carrying amount would be adjusted, if necessary, to estimated fair
      value to reflect an impairment in the value of the asset.

      Revenue Recognition - Revenues include storage, transportation and
      handling fees, and management fees for locations managed on behalf of
      third parties. Storage revenues are recognized as services are provided.
      Transportation fees and expenses are recognized upon tender of product to
      common carriers, which is not materially different than if such revenues
      and expenses were recognized upon delivery. Management fees are recognized
      when the Company is contractually entitled to such fees. Costs related to
      managed facilities are included in operating expenses. AmeriCold Logistics
      charges customers for both inbound and outbound handling in advance but
      defers the outbound handling revenue until the product has been shipped.
      Revenues from the sale of limestone are recognized upon delivery to
      customers.

      Income Taxes - AmeriCold Logistics has elected to be treated as a
      partnership for income tax purposes. Taxable income or loss of AmeriCold
      Logistics is reported in the income tax returns of the partners.
      Accordingly, no provision for income taxes is made in the financial
      statements of AmeriCold Logistics.

      Fair Value of Financial Instruments - All financial instruments of the
      Company are reflected in the accompanying consolidated balance sheets at
      historical cost which, in management's estimation, based upon an
      interpretation of available market information and valuation
      methodologies, reasonably approximates their fair values. Such fair values
      are not necessarily indicative of the amounts that would be realized upon
      disposition of the Company's financial instruments.

      Recently Issued Accounting Standards - In June 1998, the Financial
      Accounting Standards Board issued Statement of Financial Accounting
      Standards No. 133, Accounting for Derivative Instruments and Hedging
      Activities ("SFAS No. 133") which establishes accounting and reporting
      standards for derivative instruments, including certain derivative
      instruments embedded in other contracts, and for hedging activities. The
      Company is required to adopt SFAS No. 133, as amended by SFAS No. 138,
      effective January 1, 2001. Because the Company does not currently utilize
      derivatives or engage in hedging activities, management does not
      anticipate that implementation of this statement will have a material
      effect on the Company's financial statements.

3.    ACQUISITION

      In March 1999, AmeriCold Logistics purchased all of the non-real estate
      assets of a group of companies owned by Vornado Realty Trust and
      subsidiaries of Crescent Real Estate Equities Company and Crescent
      Operating, Inc. (the "Real Estate Companies").

      The purchase price of the non-real estate assets was $48.7 million
      including the assumption of approximately $10 million of liabilities in
      connection with the closure of one of the warehouse facilities. In
      addition, the Company acquired capitalized leased assets and assumed $3.2
      million of capitalized lease obligations as a result of the purchase.



                                      F-46
<PAGE>   93



      The purchase method of accounting was applied to this acquisition.
      Approximate fair values assigned to assets and liabilities acquired were
      as follows:

        (amounts in thousands)


<TABLE>
<S>                                                         <C>
Property, plant, and equipment                              $ 43,421
Other assets                                                   8,500
                                                            --------
                                                              51,921
Other liabilities                                            (13,198)
                                                            --------
                                                            $ 38,723
                                                            ========
</TABLE>


      Results of operations are presented from the date of acquisition in 1999.

4.    ACCRUED EXPENSES

      Detail of accrued expenses as of December 31, 2000 and 1999 is as follows:


<TABLE>
<CAPTION>
(amounts in thousands)                                    2000              1999

<S>                                                     <C>               <C>
Accrued payroll and related expense                     $  9,854          $  8,855
Accrued employee retirement and other benefits             7,636             8,521
Accrued workers' compensation                              8,443             7,961
Other accrued expenses                                    17,720            19,233
                                                        --------          --------
                                                        $ 43,653          $ 44,570
                                                        ========          ========
</TABLE>


5.    LONG-TERM DEBT




(amounts in thousands)

<TABLE>
<S>                                                                   <C>
Promissory Notes, due March 2002                                      $ 5,000
Promissory Note, payable in equal monthly
  installments through January 2003                                     1,937
                                                                      -------

                                                                        6,937

  Less: current maturities                                               (577)
                                                                      -------

                                                                      $ 6,360
                                                                      =======
</TABLE>


      The promissory notes are due in March 2002. At the Company's option, these
      loans may be repaid at any time. Until the notes are paid, monthly
      interest-only payments are due at the annual rate of 12%. The notes are
      secured by certain property with a net book value of approximately
      $18,400,000.

      The promissory note payable in equal monthly installments may be repaid
      prior to its maturity, subject to certain prepayment penalties. This loan
      bears interest at the rate of 10.72% per annum. The note is secured by
      certain equipment with a net book value of approximately $1,967,000.




                                      F-47
<PAGE>   94

6.    TRANSACTIONS WITH REAL ESTATE COMPANIES AND OWNERS

      During 2000 and 1999, AmeriCold Logistics received a management fee of
      $255,000 and $201,000, respectively, from the Real Estate Companies for
      administrative services performed. During 2000 and 1999, AmeriCold
      Logistics paid a management fee of $487,000 to Vornado Realty L.P.

      At December 31, 2000 and 1999, $1,061,000 and $952,000, respectively, were
      receivable from the Partnership's owners for expenditures made on their
      behalf for a new business venture. Such amounts have been included in
      other assets.

7.    LEASE COMMITMENTS (SEE ALSO LEASE RESTRUCTURING DISCUSSION - NOTE 9)

      AmeriCold Logistics entered into leases with the Real Estate Companies
      covering the warehouses used in this business. The leases, as amended in
      2000, which commenced in March 1999, generally have a 15-year term with
      two five-year renewal options and provide for the payment of fixed base
      rent and percentage rent based on revenues AmeriCold Logistics receives
      from its customers. Fixed base rent is approximately $137 million per
      annum through 2003, $139 million per annum from 2004 through 2008, and
      $141 million per annum from 2009 through 2014. Percentage rent for each
      lease is based on a specified percentage of revenues in excess of a
      specified base amount. The aggregate base revenue amount under five of the
      six leases is approximately $350 million, and the weighted-average
      percentage rate is approximately 36% for the initial five-year period,
      approximately 38% for the period from 2004 through 2008, and approximately
      40% for the period from 2009 through February 28, 2014. The aggregate base
      revenue amount under the sixth lease is approximately $32,000,000 through
      2001, and approximately $26,000,000 for the period from 2002 through
      February 28, 2014, and the percentage rate is 24% through 2001, 37.5% for
      the period from 2002 through 2006, 40% from 2007 through 2011, and 41%
      from 2012 through February 28, 2014.

      The fixed base rent for each of the two five-year renewal options is
      equal, generally, to the greater of the then fair market value rent or the
      fixed base rent for the immediately preceding lease year plus 5%.

      AmeriCold Logistics has the right to defer the payment of 15% of fixed
      base rent and all percentage rent for up to three years beginning in March
      1999 to the extent that available cash, as defined in the leases, is
      insufficient to pay such rent. Pursuant to the agreement, AmeriCold
      Logistics exercised its deferral rights and deferred approximately $19.0
      million and $5.4 million in 2000 and 1999, respectively, in fixed and
      percentage rent.

      AmeriCold Logistics is also required to pay for all costs arising from the
      operation, maintenance and repair of the properties, including all real
      estate taxes and assessments, utility charges, permit fees, and insurance
      premiums, as well as property capital expenditures in excess of $5,000,000
      annually.

      AmeriCold Logistics also has operating lease agreements for equipment and
      other facilities. AmeriCold Logistics pays taxes, insurance, and
      maintenance costs on substantially all of the leased property. Lease terms
      generally range from 5 to 20 years with renewal or purchase options.




                                      F-48
<PAGE>   95


      At December 31, 2000, future minimum fixed lease payments under these
      leases with the Real Estate Companies and future minimum lease payments
      under operating leases other than leases with the Real Estate Companies
      were as follows:

       (amounts in thousands)



<TABLE>
<CAPTION>
   YEAR ENDED
   DECEMBER 31,
                              REAL ESTATE              OTHER
                               COMPANIES              LESSORS                 TOTAL

<S>                           <C>                   <C>                   <C>
   2001                       $    137,201          $      8,068          $    145,269
   2002                            137,340                 7,001               144,341
   2003                            137,327                 5,175               142,502
   2004                            139,729                 3,921               143,650
   2005                            138,920                 3,538               142,458
   Thereafter                    1,157,752                 4,026             1,161,778
                              ------------          ------------          ------------

                              $  1,848,269          $     31,729          $  1,879,998
                              ============          ============          ============
</TABLE>



      Rent expense under all lease obligations for 2000 was $139,723,000 for
      fixed rent and $30,917,000 for percentage rent. Rent expense under all
      lease obligations for 1999 was $109,031,000 for fixed rent and $26,780,000
      for percentage rent.

8.    EMPLOYEE BENEFIT PLANS

      Defined Benefit Pension Plans - AmeriCold Logistics has defined benefit
      pension plans that cover substantially all employees, other than union
      employees covered by union pension plans under collective bargaining
      agreements. Benefits under AmeriCold Logistics' plans are based on years
      of credited service and compensation during the years preceding
      retirement, or on years of credited service and established monthly
      benefit levels.

      Postretirement Benefits Other Than Pensions - During 1999, AmeriCold
      Logistics settled and curtailed postretirement healthcare and life
      insurance benefits for a substantial portion of its employees. As a
      result, AmeriCold Logistics recorded a gain of approximately $1,363,000.

      Actuarial information regarding the defined benefit pension plans and
      postretirement benefits other than pensions as of December 31, 2000 and
      1999 is as follows:



                                      F-49
<PAGE>   96






<TABLE>
<CAPTION>
                                                                                               2000
                                                                       ----------------------------------------------------
                                                                               PENSION BENEFITS
                                                                       --------------------------------
                                                                                             NATIONAL             OTHER
                                                                        RETIREMENT           SERVICE          POSTRETIREMENT
(amounts in  thousands)                                                INCOME PLAN         RELATED PLAN          BENEFITS

<S>                                                                    <C>                 <C>                 <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year                                $     33,710        $      9,351        $      1,920
Service cost                                                                  1,641                 211                  45
Interest cost                                                                 2,518                 707                 106
Actuarial (gain) loss                                                         2,826              (1,168)               (257)
Settlements                                                                      --                  --                (521)
Benefits paid                                                                (5,271)               (468)                 (4)
                                                                       ------------        ------------        ------------

Benefit obligation at end of year                                      $     35,424        $      8,633        $      1,289
                                                                       ============        ============        ============

CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year                         $     28,774        $      9,635        $         --
Actual return on plan assets                                                  1,475                 (38)                 --
Employer contributions                                                        1,240                 248                   4
Benefits paid                                                                (5,271)               (468)                 (4)
                                                                       ------------        ------------        ------------

Fair value of plan assets at end of year                               $     26,218        $      9,377        $         --
                                                                       ============        ============        ============

Funded status                                                          $     (9,205)       $        743        $     (1,289)
Unrecognized actuarial (gain) loss                                            2,805               1,283                (260)
Unrecognized prior service cost                                               1,264                 152                (582)
Minimum liability adjustment                                                 (2,091)                 --                  --
                                                                       ------------        ------------        ------------
(Accrued) prepaid benefit cost                                         $     (7,227)       $      2,178        $     (2,131)
                                                                       ============        ============        ============


Amounts recognized in the consolidated balance sheet consist of:
  Accrued benefit liability                                            $     (7,227)       $         --        $     (2,131)
  Prepaid asset                                                                  --               2,178                  --
  Intangible asset                                                            1,261                  --                  --
  Accumulated other comprehensive loss                                          830                  --                  --
                                                                       ------------        ------------        ------------
Net amount recognized                                                  $     (5,136)       $      2,178        $     (2,131)
                                                                       ============        ============        ============

Weighted-average assumptions as of December 31, 2000:
Discount rate                                                                7.75 %              7.75 %              7.50 %
Expected return                                                              9.50 %              9.50 %                 N/A
Rate of compensation increase                                                4.00 %                 N/A                 N/A
</TABLE>





                                      F-50
<PAGE>   97


<TABLE>
<CAPTION>
                                                                                                1999
                                                                       ----------------------------------------------------
                                                                               PENSION BENEFITS
                                                                       --------------------------------
                                                                                             NATIONAL             OTHER
                                                                        RETIREMENT           SERVICE          POSTRETIREMENT
(amounts in  thousands)                                                INCOME PLAN         RELATED PLAN          BENEFITS

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

CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of period                              $     33,052        $     11,653        $      7,150
Service cost                                                                  1,297                 254                 147
Interest cost                                                                 2,461                 576                 346
Actuarial (gain) loss                                                        (3,903)                404                (320)
Curtailments                                                                     --                  --              (2,735)
Settlements                                                                      --                  --              (1,940)
Plan transfers                                                                2,930              (2,930)                 --
Plan amendments                                                                  --                  --                (664)
Benefits paid                                                                (2,127)               (606)                (64)
                                                                       ------------        ------------        ------------

Benefit obligation at end of period                                    $     33,710        $      9,351        $      1,920
                                                                       ============        ============        ============

CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of period                       $     25,693        $     10,058        $         --
Actual return on plan assets                                                  3,364               1,060                  --
Employer contributions                                                           --                 967                  64
Plan transfers                                                                1,844              (1,844)                 --
Benefits paid                                                                (2,127)               (606)                (64)
                                                                       ------------        ------------        ------------

Fair value of plan assets at end of period                             $     28,774        $      9,635        $         --
                                                                       ============        ============        ============

Funded status                                                          $     (4,936)                285        $     (1,920)
Unrecognized actuarial (gain) loss                                           (1,809)              1,409                  (2)
Unrecognized prior service cost                                               1,338                 157                (648)
                                                                       ------------        ------------        ------------
(Accrued) prepaid benefit cost                                         $     (5,407)       $      1,851        $     (2,570)
                                                                       ============        ============        ============


Amounts recognized in the consolidated balance sheet consist of:
  Accrued benefit liability                                            $     (5,407)       $         --        $     (2,570)
  Prepaid asset                                                                  --               1,851                  --
                                                                       ------------        ------------        ------------
Net amount recognized                                                  $     (5,407)       $      1,851        $     (2,570)
                                                                       ============        ============        ============

Weighted-average assumptions as of December 31, 1999:
Discount rate                                                                7.75 %              7.75 %              7.75 %
Expected return                                                              9.50 %              9.50 %                 N/A
Rate of compensation increase                                                4.00 %                 N/A                 N/A
</TABLE>





                                      F-51


<PAGE>   98
<TABLE>
<CAPTION>
                                                            2000
                                        --------------------------------------------
                                              PENSION BENEFITS
                                        ---------------------------
                                                         NATIONAL         OTHER
                                        RETIREMENT       SERVICE      POSTRETIREMENT
                                        INCOME PLAN    RELATED PLAN      BENEFITS
<S>                                     <C>            <C>            <C>
(amounts in thousands)
COMPONENTS OF NET PERIODIC
  BENEFIT COST:
  Service cost                           $ 1,641          $   211        $    45
  Interest cost                            2,518              707            106
  Expected return on plan assets          (3,153)          (1,094)            --
  Recognized net actuarial loss (gain)      (119)              90             --
  Amortization of prior service cost          80                6            (65)
                                         -------          -------        -------
                                         $   967          $   (80)       $    86
                                         =======          =======        =======
</TABLE>

<TABLE>
<CAPTION>
                                                            1999
                                        --------------------------------------------
                                              PENSION BENEFITS
                                        ---------------------------
                                                         NATIONAL         OTHER
                                        RETIREMENT       SERVICE      POSTRETIREMENT
                                        INCOME PLAN    RELATED PLAN      BENEFITS
<S>                                     <C>            <C>            <C>
(amounts in thousands)
COMPONENTS OF NET PERIODIC
  BENEFIT COST:
  Service cost                           $ 1,297         $   254          $   147
  Interest cost                            2,461             576              346
  Expected return on plan assets          (2,531)           (820)              --
  Recognized net actuarial loss              338              18               67
  Amortization of prior service cost         104               5              (56)
                                         -------         -------          -------
                                         $ 1,669         $    33          $   504
                                         =======         =======          =======
</TABLE>


      The medical plan for retirees provides a fixed dollar benefit for each
      year that the retiree is receiving benefits. All increases in medical
      costs are paid by the retiree, thus, there is no assumed health care cost
      trend.

      Profit Sharing - AmeriCold Logistics has defined contribution employee
      benefit plans which cover all eligible employees. The plans also allow
      contributions by plan participants in accordance with Section 401(k) of
      the Internal Revenue Code. Profit sharing expense for 2000 and 1999 was
      approximately $3,084,000 and $4,060,000, respectively.

      Deferred Compensation - AmeriCold Logistics has deferred compensation and
      supplemental retirement plan agreements with certain of its executives.
      The agreements provide for certain benefits at retirement or disability,
      and also provide for survivor benefits in the event of death of the
      employee. AmeriCold Logistics charges expense for the accretion of the
      liability each year.

      The net expense for all deferred compensation and supplemental retirement
      plans for 2000 and 1999 was approximately $123,000 and $164,000,
      respectively.


                                      F-52
<PAGE>   99

9.    SUBSEQUENT EVENT

      On February 22, 2001 the leases with the Real Estate Companies were
      restructured to, among other things, (i) reduce 2001's contractual rent to
      $146,000,000 ($14,500,000 less than 2000's contractual rent), (ii) reduce
      2002's contractual rent to $150,000,000 (plus contingent rent in certain
      circumstances), (iii) increase the Real Estate Companies' share of annual
      maintenance capital expenditures by $4,500,000 to $9,500,000 effective
      January 1, 2000, and (iv) extend the deferred rent period to December 31,
      2003 from March 11, 2002.


                                      F-53
<PAGE>   100


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Executive Committee of
The Woodlands Operating Company, L.P.:


We have audited the accompanying consolidated balance sheets of The Woodlands
Operating Company, L.P. (a Texas limited partnership) and subsidiary as of
December 31, 2000 and 1999 and the related consolidated statements of earnings,
changes in partners' equity and cash flows for each of the three years ended
December 31, 2000. These financial statements are the responsibility of The
Woodlands Operating Company, L.P.'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 The
Woodlands Operating Company, L.P. and subsidiary as of December 31, 2000 and
1999 and the consolidated results of their operations and cash flows for each of
the three years ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States.

ARTHUR ANDERSEN LLP

Houston, Texas
January 15, 2001



                                      F-54
<PAGE>   101


              THE WOODLANDS OPERATING COMPANY, L.P. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2000 AND 1999
                             (DOLLARS IN THOUSANDS)



<TABLE>
<CAPTION>
                                                          2000        1999
                                                        --------    --------
<S>                                                     <C>         <C>
ASSETS
Cash and cash equivalents ...........................   $  3,817    $  1,677
Trade receivables, net of allowance for doubtful
      accounts of $295 and $302 .....................      6,071       6,839
Inventory ...........................................      1,217       1,046
Prepaid and other current assets ....................        432         264
Property and equipment, at cost less accumulated
    depreciation of $1,172 and $673 .................      2,430       2,109
Other assets ........................................        738       1,200
                                                        --------    --------
                                                        $ 14,705    $ 13,135
                                                        ========    ========

LIABILITIES AND EQUITY
Liabilities
    Accounts payable ................................   $ 10,857    $  8,113
    Accrued liabilities .............................      2,636       2,273
    Deferred revenue ................................      7,045       5,300
    Other liabilities ...............................        336         468
                                                        --------    --------
                                                          20,874      16,154

Commitments and contingencies (Note 2)

Partners' deficit (Note 3) ..........................     (6,169)     (3,019)
                                                        --------    --------
                                                        $ 14,705    $ 13,135
                                                        ========    ========
</TABLE>


                                      F-55

<PAGE>   102


              THE WOODLANDS OPERATING COMPANY, L.P. AND SUBSIDIARY
                       CONSOLIDATED STATEMENTS OF EARNINGS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                             (DOLLARS IN THOUSANDS)



<TABLE>
<CAPTION>
                                                           2000        1999        1998
                                                         --------    --------    --------
<S>                                                      <C>         <C>         <C>
REVENUES
    Conference Center and Country Club operations ....   $ 53,355    $ 47,945    $ 47,609
    Management fees and other ........................     29,394      26,690      27,151
                                                         --------    --------    --------
                                                           82,749      74,635      74,760
                                                         --------    --------    --------

OPERATING EXPENSES
    Conference Center and Country Club operations ....     52,166      47,325      46,162
    Operating, general and administrative ............     26,712      24,531      25,246
DEPRECIATION AND AMORTIZATION ........................      1,035         863         751
                                                         --------    --------    --------
                                                           79,913      72,719      72,159
                                                         --------    --------    --------

OPERATING EARNINGS ...................................      2,836       1,916       2,601

OTHER INCOME .........................................        (14)        (28)        (37)
                                                         --------    --------    --------

NET EARNINGS .........................................   $  2,850    $  1,944    $  2,638
                                                         ========    ========    ========
</TABLE>


                                      F-56
<PAGE>   103

              THE WOODLANDS OPERATING COMPANY, L.P. AND SUBSIDIARY
        CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY (DEFICIT)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                   WOCOI     MS/TWC
                                 Investment   Joint     MS/TWC,
                                  Company    Venture     Inc.       Total
                                 ----------  -------    -------    -------
<S>                              <C>        <C>        <C>        <C>
Balance, December 31, 1997 ....   $   594    $   790    $    15    $ 1,399
Distributions .................    (2,550)    (3,390)       (60)    (6,000)
Earnings ......................     1,121      1,491         26      2,638
                                  -------    -------    -------    -------
Balance, December 31, 1998 ....      (835)    (1,109)       (19)    (1,963)
Distributions .................    (1,275)    (1,695)       (30)    (3,000)
Earnings ......................       826      1,098         20      1,944
                                  -------    -------    -------    -------
Balance, December 31, 1999 ....    (1,284)    (1,706)       (29)    (3,019)
Distributions .................    (3,266)    (2,679)       (55)    (6,000)
Earnings ......................     1,927        900         23      2,850
                                  -------    -------    -------    -------
Balance, December 31, 2000 ....   $(2,623)   $(3,485)   $   (61)   $(6,169)
                                  =======    =======    =======    =======
</TABLE>


                                      F-57
<PAGE>   104


              THE WOODLANDS OPERATING COMPANY, L.P. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                             (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>

                                                                2000       1999       1998
                                                               -------    -------    -------
<S>                                                            <C>        <C>        <C>
OPERATING ACTIVITIES
Net earnings ...............................................   $ 2,850    $ 1,944    $ 2,638
Adjustments to reconcile net earnings  to
    cash provided by (used for) operating activities
      Depreciation and amortization ........................     1,035        863        751
      Deferred Country Club initiation fees, net ...........     1,745      2,468      2,062
      Other ................................................      (671)      (329)      (113)
                                                               -------    -------    -------
                                                                 4,959      4,946      5,338
      Changes in operating assets and liabilities
        Trade receivables, inventory and prepaid assets ....       429     (2,167)       656
        Other assets .......................................       462        522     (1,687)
        Accounts payable ...................................     2,744     (3,826)     6,388
        Accrued liabilities ................................       363        458     (2,360)
                                                               -------    -------    -------
Cash provided by (used for) operating activities ...........     8,957        (67)     8,335
                                                               -------    -------    -------

INVESTING ACTIVITIES
Capital expenditures .......................................      (817)    (1,106)      (519)
                                                               -------    -------    -------

FINANCING ACTIVITIES
Distributions to partners ..................................    (6,000)    (3,000)    (6,000)
                                                               -------    -------    -------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...........     2,140     (4,173)     1,816
CASH AND CASH EQUIVALENTS, beginning of year ...............     1,677      5,850      4,034
                                                               -------    -------    -------

CASH AND CASH EQUIVALENTS, end of year .....................   $ 3,817    $ 1,677    $ 5,850
                                                               =======    =======    =======
</TABLE>


                                      F-58
<PAGE>   105


              THE WOODLANDS OPERATING COMPANY, L.P. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2000

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     CONTROL. The Woodlands Operating Company, L.P. ("Woodlands Operating"), The
Woodlands Land Development Company, L.P. ("Woodlands Development") and The
Woodlands Commercial Properties Company, L.P. ("Woodlands Commercial") are owned
by entities controlled by Crescent Real Estate Equities Limited Partnership or
Crescent Operating, Inc. (together "Crescent") and Morgan Stanley Real Estate
Fund II, L.P. ("Morgan Stanley"). Woodlands Development and Woodlands Commercial
are successors to The Woodlands Corporation. Prior to July 31, 1997, The
Woodlands Corporation was a wholly owned subsidiary of Mitchell Energy &
Development Corp. On July 31, 1997 The Woodlands Corporation was acquired by
Crescent and Morgan Stanley and merged into Woodlands Commercial, a Texas
limited partnership. Woodlands Commercial was then divided into two
partnerships: Woodlands Commercial and Woodlands Development. WECCR General
Partnership ("WECCR GP") is a wholly owned subsidiary of Woodlands Operating.
Woodlands Operating manages assets owned by Woodlands Commercial and Woodlands
Development.

     PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of Woodlands Operating and WECCR GP. All significant intercompany
transactions and accounts are eliminated in consolidation.

     BUSINESS. Woodlands Operating's activities are concentrated in The
Woodlands, a planned community located north of Houston, Texas. Consequently,
these operations and the associated credit risks may be affected, either
positively or negatively, by changes in economic conditions in this geographical
area. Woodlands Operating provides services to Woodlands Development and
Woodlands Commercial under management and advisory services agreements. These
agreements are automatically renewed annually. Woodlands Development and
Woodlands Commercial pay Woodlands Operating an advisory fee equal to 3% above
cost. In addition, they reimburse Woodlands Operating for all cost and expenses
incurred on their behalf. For the years ended December 31, 2000, 1999 and 1998,
Woodlands Operating recorded revenues of $12,606,000, $10,597,000 and
$11,050,000 for services provided to Woodlands Development and $6,398,000,
$7,480,000 and $7,343,000 for services provided to Woodlands Commercial.

     WECCR GP leases The Woodlands Conference Center, Resort and Country Club
("the Facilities") from Woodlands Commercial. This agreement has an eight-year
term ending July 31, 2005. WECCR GP operates the Facilities and pays Woodlands
Commercial a base rent of $750,000 per month and a quarterly percentage rent
based on the gross receipts of the Facilities. For the years ended December 31,
2000, 1999 and 1998, rent under the lease agreement totaled $14,349,000,
$13,011,000 and $12,799,000.

     DEPRECIATION. Depreciation of property and equipment is provided on the
straight-line method over the estimated useful lives of the assets, which range
from three to ten years.

     INVENTORY. Inventory is carried at replacement cost and consists of
golf-related clothing and equipment sold at golf course pro shops in The
Woodlands.

     INCOME TAXES. No provision for Federal income taxes is included in the
accompanying financial statements since Woodlands Operating is not a tax-paying
entity and all income and expenses are reported by the partners for tax
reporting purposes.

     The tax returns, the qualification of Woodlands Operating for tax purposes
and the amount of distributable partnership income or loss are subject to
examination by Federal taxing authorities. If such examinations result in
changes with respect to partnership qualification or in changes to distributable
partnership income or loss, the tax liability of the partners could be changed
accordingly.


                                      F-59
<PAGE>   106

     STATEMENTS OF CASH FLOWS. Short-term investments with maturities of three
months or less are considered to be cash equivalents. There were no significant
non-cash investing or financing activities for the years ended December 31,
2000, 1999 and 1998.

     REVENUE RECOGNITION. Country club initiation fees are deferred and
recognized over the estimated life of membership, which is approximately nine
years.

     USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.

     RECENT ACCOUNTING PRONOUNCEMENTS. Staff Accounting Bulletin No. 101 ("SAB
101") provides interpretive guidance on the proper revenue recognition,
presentation and disclosure in financial statements. Woodlands Operating has
reviewed its revenue recognition policies and determined that it is in
compliance with generally accepted accounting principles and the related
interpretive guidance set forth in SAB 101.

(2) COMMITMENTS AND CONTINGENCIES

     LEGAL ACTIONS. Woodlands Operating is a party to claims and legal actions
arising in the ordinary course of business and to recurring examinations by the
Internal Revenue Service and other regulatory agencies. Management believes,
after consultation with outside counsel, that adequate financial statement
accruals have been provided for all known litigation contingencies where losses
are deemed probable. Woodlands Operating believes it is not probable that the
ultimate resolution of this litigation will have a material adverse effect on
its financial position and results of operations.

     LEASES. Woodlands Operating has various facility and equipment lease
agreements including the Facility lease described in Note 1. Rental expenses for
operating leases for the years ended December 31, 2000, 1999 and 1998 total
$15,419,000, $14,364,000 and $13,898,000. Lease terms extend to 2009 and have an
average remaining term of seven years. Minimum rentals for the five years
subsequent to December 31, 2000 total approximately $10,032,000; $9,950,000;
$9,571,000; $9,442,000, $5,712,000 and $1,739,000 thereafter.

     INCENTIVE PLAN. Woodlands Operating instituted an incentive compensation
plan for certain employees effective January 1, 1998. The plan is unfunded and
while certain payments are made currently, a portion of the payment is deferred
and paid only upon the occurrence of certain future events. Woodlands
Development and Woodlands Commercial will reimburse any incentive plan payments
made in the future.

(3) PARTNERS' DEFICIT

     Crescent's ownership interest in Woodlands Operating is WOCOI Investment
Company, which holds a 42.5% general partner interest. Morgan Stanley's
ownership interests are MS/TWC Joint Venture, which holds a 56.5% limited
partner interest, and MS TWC, Inc., which holds a 1% general partner interest.

     The partnership agreement provides, among other things, the following:

         (i) Woodlands Operating is governed by an Executive Committee composed
of equal representation from its respective general partners.

         (ii) Net income and losses from operations are currently allocated so
that partners' capital accounts stand in the ratio of the percentage interest
listed above.

         (iii) Distributions are made to partners based on specified payout
percentages and include cumulative preferred returns to Morgan Stanley's
affiliates. The payout percentage to Morgan Stanley's affiliates is 57.5% until
the affiliates receive distributions equal to their capital contributions and a
12% cumulative preferred return compounded quarterly. Then, the payout
percentage to Morgan Stanley's affiliates is 50.5% until the affiliates


                                      F-60
<PAGE>   107


receive distributions equal to their capital contributions and an 18% cumulative
preferred return compounded quarterly. Thereafter, the payout percentage to
Morgan Stanley's affiliates is 47.5%.

         (iv) Woodlands Operating will continue to exist until December 31, 2040
unless terminated earlier due to specified events.

         (v) No additional partners may be admitted to Woodlands Operating
unless specific conditions in the partnership agreements are met. Partnership
interests may be transferred to affiliates of Crescent or Morgan Stanley.
Crescent has the right of first refusal to buy the partnership interests of the
Morgan Stanley affiliates at the same terms and conditions offered to a third
party purchaser, or sell its affiliates' interests to the same third party
purchaser.

         (vi) Crescent and Morgan Stanley have the right to offer to purchase
the other partner's affiliates' partnership interests in the event of failure to
make specified capital contributions or a specified default by the other.
Specified defaults include bankruptcy, breach of partnership covenants, transfer
of partnership interests except as permitted by the partnership agreements, and
fraud or gross negligence.

(4) EMPLOYEE SAVINGS PLAN

     Woodlands Operating has a 401(k) defined contribution plan that is
available to all full-time employees who meet specified service requirements.
The plan is administered by a third party. Contributions to the plan are based
on a match of employee contributions up to a specified limit. For the years
ended December 31, 2000, 1999 and 1998 Woodlands Operating contributions totaled
$634,000, $547,000 and $582,000.


                                      F-61
<PAGE>   108


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Executive Committee of
The Woodlands Land Development Company, L.P.:


We have audited the accompanying consolidated balance sheets of The Woodlands
Land Development Company, L.P. (a Texas limited partnership) and subsidiary as
of December 31, 2000 and 1999 and the related consolidated statements of
earnings, changes in partners' equity and cash flows for each of the three years
ended December 31, 2000. These financial statements are the responsibility of
The Woodlands Land Development Company, L.P.'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 The
Woodlands Land Development Company, L.P. and subsidiary as of December 31, 2000
and 1999 and the consolidated results of their operations and cash flows for
each of the three years ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States.

ARTHUR ANDERSEN LLP

Houston, Texas
January 15, 2001


                                      F-62

<PAGE>   109

           THE WOODLANDS LAND DEVELOPMENT COMPANY, L.P. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2000 AND 1999
                             (DOLLARS IN THOUSANDS)



<TABLE>
<CAPTION>

                                                         2000       1999
                                                       --------   --------
<S>                                                    <C>        <C>
ASSETS
Cash and cash equivalents ..........................   $ 10,739   $    486
Trade receivables ..................................        989        465
Inventory ..........................................         56         36
Prepaid and other current assets ...................      2,072        727
Notes and contracts receivable (Notes 2 and 10) ....     30,471     35,787
Real estate (Notes 3 and 4) ........................    395,940    375,663
Other assets .......................................      4,342      4,391
                                                       --------   --------
                                                       $444,609   $417,555
                                                       ========   ========

LIABILITIES AND EQUITY
Liabilities
    Accounts payable ...............................   $ 27,935   $ 19,264
    Accrued liabilities ............................      3,598      3,148
    Credit facility (Notes 5 and 10) ...............    217,000    237,000
    Other debt (Notes 5 and 10) ....................     38,356      3,285
    Deferred revenue ...............................      6,272      1,603
    Other liabilities ..............................      7,128      8,250
    Note payable to affiliated company (Note 8) ....     15,880     23,303
    Notes payable to partners (Notes 6 and 10) .....     25,000     25,000
                                                       --------   --------
                                                        341,169    320,853

Commitments and contingencies (Notes 4 and 7)

Partners' equity (Note 9) ..........................    103,440     96,702
                                                       --------   --------
                                                       $444,609   $417,555
                                                       ========   ========
</TABLE>

                                     F-63

<PAGE>   110

           THE WOODLANDS LAND DEVELOPMENT COMPANY, L.P. AND SUBSIDIARY
                       CONSOLIDATED STATEMENTS OF EARNINGS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                             (DOLLARS IN THOUSANDS)




<TABLE>
<CAPTION>
                                                              2000         1999         1998
                                                           ---------    ---------    ---------
<S>                                                        <C>          <C>          <C>
REVENUES
Residential lot sales ..................................   $ 127,435    $  92,904    $  77,824
Commercial land sales ..................................      39,486       24,820       43,778
Other (Notes 3 and 4) ..................................       9,963       13,135       10,349
                                                           ---------    ---------    ---------
                                                             176,884      130,859      131,951
                                                           ---------    ---------    ---------
COSTS AND EXPENSES
Residential lot cost of sales ..........................      64,269       51,352       45,203
Commercial land cost of sales ..........................      15,411       10,024       17,533
Operating expenses (Note 8) ............................      25,249       18,705       19,471
Depreciation and amortization ..........................       1,267          753          464
                                                           ---------    ---------    ---------
                                                             106,196       80,834       82,671
                                                           ---------    ---------    ---------

OPERATING EARNINGS .....................................      70,688       50,025       49,280
                                                           ---------    ---------    ---------

OTHER (INCOME) EXPENSE
Interest expense (Notes 5, 6 and 8) ....................      29,424       23,833       24,000
Interest capitalized ...................................     (26,438)     (21,659)     (22,106)
Amortization of debt costs .............................       1,083        1,211        1,243
Other ..................................................         149          226          329
                                                           ---------    ---------    ---------
                                                               4,218        3,611        3,466
                                                           ---------    ---------    ---------

EARNINGS BEFORE EXTRAORDINARY CHARGE AND CUMULATIVE
    EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE .........      66,470       46,414       45,814

EXTRAORDINARY CHARGE (NOTE 5) ..........................          --          883           --

CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
    PRINCIPLE (Note 11) ................................          --           --          639
                                                           ---------    ---------    ---------

NET EARNINGS ...........................................   $  66,470    $  45,531    $  45,175
                                                           =========    =========    =========
</TABLE>



                                      F-64
<PAGE>   111


            THE WOODLANDS LAND DEVELOPMENT COMPANY, LP AND SUBSIDIARY
             CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                             (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>
                                         THE
                                      WOODLANDS       MS/TWC
                                        LAND           JOINT          MS/TWC,
                                    COMPANY, INC.     VENTURE           INC.           TOTAL
                                    -------------    ---------       ---------       ---------
<S>                                 <C>              <C>             <C>             <C>
Balance, December 31, 1997 ....      $  31,405       $  41,748       $     739       $  73,892
Contributions .................          2,575           3,423              60           6,058
Distributions .................        (15,299)        (20,338)           (360)        (35,997)
Net earnings ..................         19,199          25,524             452          45,175
                                     ---------       ---------       ---------       ---------
Balance, December 31, 1998 ....         37,880          50,357             891          89,128
Contributions .................          2,550           3,390              60           6,000
Distributions .................        (18,682)        (24,836)           (439)        (43,957)
Net earnings ..................         19,351          25,725             455          45,531
                                     ---------       ---------       ---------       ---------
Balance, December 31, 1999 ....         41,099          54,636             967          96,702
Contributions .................          2,550           3,390              60           6,000
Distributions .................        (27,947)        (37,129)           (656)        (65,732)
Net earnings ..................         28,260          37,547             663          66,470
                                     ---------       ---------       ---------       ---------
Balance, December 31, 2000 ....      $  43,962       $  58,444       $   1,034       $ 103,440
                                     =========       =========       =========       =========
</TABLE>


                                      F-65
<PAGE>   112

           THE WOODLANDS LAND DEVELOPMENT COMPANY, L.P. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                             (DOLLARS IN THOUSANDS)



<TABLE>
<CAPTION>
                                                                       2000         1999         1998
                                                                    ---------    ---------    ---------
<S>                                                                 <C>          <C>          <C>
OPERATING ACTIVITIES
Net earnings ....................................................   $  66,470    $  45,531    $  45,175
Adjustments to reconcile net earnings to
    cash provided by operating activities
      Cost of land sold .........................................      79,680       61,376       62,736
      Depreciation and amortization .............................       1,267          753          464
      Gain on sale of property ..................................          --       (4,239)        (699)
      Partnership distributions greater (less) than earnings ....         184          365          (61)
      (Increase) decrease in notes and contracts receivable .....       5,316       (5,747)      (9,108)
      Other .....................................................       5,301        4,750       (4,697)
                                                                    ---------    ---------    ---------
                                                                      158,218      102,789       93,810
      Land development capital expenditures .....................     (58,060)     (71,969)     (50,035)
      Changes in operating assets and liabilities
        Trade receivables, inventory and prepaid assets .........      (1,889)      (1,075)           1
        Other assets ............................................          49       (2,383)       1,855
        Accounts payable and accrued liabilities ................       9,610        7,153       (1,118)
                                                                    ---------    ---------    ---------
Cash provided by operating activities ...........................     107,928       34,515       44,513
                                                                    ---------    ---------    ---------

INVESTING ACTIVITIES
Capital expenditures ............................................     (45,591)          --           --
Acquisition of commercial property ..............................          --           --      (10,100)
Proceeds from sale of property ..................................          --        5,398        4,819
                                                                    ---------    ---------    ---------
Cash provided by (used for) investing activities ................     (45,591)       5,398       (5,281)
                                                                    ---------    ---------    ---------

FINANCING ACTIVITIES
Contributions from partners .....................................       6,000        6,000        6,058
Distributions to partners .......................................     (65,732)     (43,957)     (35,997)
Debt borrowings .................................................       3,513      252,438        3,263
Debt repayments .................................................     (20,169)    (251,308)     (30,250)
Repayment of affiliated company note ............................      (7,423)      (2,697)          --
Subsidiary debt financing .......................................      31,727           --           --
                                                                    ---------    ---------    ---------
Cash used for financing activities ..............................     (52,084)     (39,524)     (56,926)
                                                                    ---------    ---------    ---------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................      10,253          389      (17,694)
CASH AND CASH EQUIVALENTS, beginning of year ....................         486           97       17,791
                                                                    ---------    ---------    ---------

CASH AND CASH EQUIVALENTS, end of year ..........................   $  10,739    $     486    $      97
                                                                    =========    =========    =========
</TABLE>



                                      F-66
<PAGE>   113


           THE WOODLANDS LAND DEVELOPMENT COMPANY, L.P. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2000


(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     CONTROL. The Woodlands Land Development Company, L.P. ("Woodlands
Development"), The Woodlands Commercial Properties Company, L.P. ("Woodlands
Commercial"), WECCR General Partnership ("WECCR GP"), and The Woodlands
Operating Company, L.P. ("Woodlands Operating") are owned by entities controlled
by Crescent Real Estate Equities Limited Partnership or Crescent Operating, Inc.
(together "Crescent") and Morgan Stanley Real Estate Fund II, L.P. ("Morgan
Stanley"). Woodlands Development and Woodlands Commercial are successors to The
Woodlands Corporation. Prior to July 31, 1997, The Woodlands Corporation was a
wholly owned subsidiary of Mitchell Energy & Development Corp. On July 31, 1997
The Woodlands Corporation was acquired by Crescent and Morgan Stanley and merged
into Woodlands Commercial, a Texas limited partnership. Woodlands Commercial was
then divided into two partnerships: Woodlands Commercial and Woodlands
Development. Woodlands Operating manages assets owned by Woodlands Development
as described in Note 8. In July 2000, Woodlands Development and Woodlands
Commercial established Woodlands VTO 2000 Land, LP ("VTO Land"), a subsidiary of
Woodlands Development, and Woodlands VTO 2000 Commercial, LP ("VTO Commercial"),
a subsidiary of Woodlands Commercial. These subsidiaries purchased certain
commercial properties owned by Woodlands Development and Woodlands Commercial.

     PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of Woodlands Development and its subsidiary. All significant
intercompany transactions and accounts are eliminated in consolidation.

     BUSINESS. Woodlands Development's real estate activities are concentrated
in The Woodlands, a planned community located north of Houston, Texas.
Consequently, these operations and the associated credit risks may be affected,
either positively or negatively, by changes in economic conditions in this
geographical area. Activities associated with The Woodlands include residential
and commercial land sales and the construction of commercial buildings.

     REAL ESTATE. Costs associated with the acquisition and development of real
estate, including holding costs consisting principally of interest and ad
valorem taxes, are capitalized as incurred. Capitalization of such holding costs
is limited to properties for which active development continues. Capitalization
ceases upon completion of a property or cessation of development activities.
Where practicable, capitalized costs are specifically assigned to individual
assets; otherwise, costs are allocated based on estimated values of the affected
assets.

     LAND SALES. Earnings from sales of real estate are recognized when a
third-party buyer has made an adequate cash down payment and has attained the
attributes of ownership. Notes received in connection with land sales are
discounted when the stated purchase prices are significantly different from
those that would have resulted from similar cash transactions. The cost of land
sold is generally determined as a specific percentage of the sales revenues
recognized for each land development project. These percentages are based on
total estimated development costs and sales revenues for each project.

     DEPRECIATION. Depreciation of operating assets is provided on the
straight-line method over the estimated useful lives of the assets, which range
from three to fifty years.

     INCOME TAXES. No provision for Federal income taxes is included in the
accompanying financial statements since the Woodlands Development is not a
tax-paying entity and all income and expenses are reported by the partners for
tax reporting purposes.

     The tax returns, the qualification of Woodlands Development for tax
purposes and the amount of distributable partnership income or loss are subject
to examination by Federal taxing authorities. If such examinations result in


                                      F-67
<PAGE>   114


changes with respect to partnership qualification or in changes to distributable
partnership income or loss, the tax liability of the partners could be changed
accordingly.

     STATEMENTS OF CASH FLOWS. Short-term investments with original maturities
of three months or less are considered to be cash equivalents. The reported
amounts for proceeds from issuance of debt and debt repayments exclude the
impact of borrowings with initial terms of three months or less. For the years
ended December 31, 2000, 1999 and 1998, Woodlands Development paid interest
totaling $30,018,000, $22,541,000 and $25,361,000 related to debt described in
Notes 5, 6 and 8.

     USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.

     RECENT ACCOUNTING PRONOUNCEMENTS. On January 1, 2001, Woodlands Development
adopted SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities" as amended by SFAS No. 138 "Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of FASB Statement No.
133". These standards establish accounting and reporting standards for
derivative instruments and hedging activities. In particular, they require a
company to record derivative instruments on the balance sheet at fair value and
recognize changes in fair value currently in earnings unless specific hedge
accounting criteria are satisfied. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally document
and assess the effectiveness of transactions that receive hedge accounting. The
adoption of these standards will result in a reduction of its derivative
instruments by $206,000. See Note 5 for additional information regarding the
Woodlands Development's derivative instruments and hedging activities.

     Staff Accounting Bulletin No. 101 ("SAB 101") provides interpretive
guidance on the proper revenue recognition, presentation and disclosure in
financial statements. Woodlands Development has reviewed its revenue recognition
policies and determined that it is in compliance with generally accepted
accounting principles and the related interpretive guidance set forth in SAB
101.

(2) NOTES AND CONTRACTS RECEIVABLE

     Notes receivable are carried at cost, net of discounts. At December 31,
2000 and 1999, Woodlands Development held utility district receivables totaling
$30,471,000 and $33,559,000. Utility district receivables, the collection of
which is dependent on the ability of utility districts in The Woodlands to sell
bonds, have a market interest rate of approximately 5.5% at December 31, 2000.

     In December 2000, Woodlands Development sold its remaining notes receivable
to a financial institution for $5,560,000. During 2000, Woodlands Development
sold $27,200,000 of its utility district receivables to a financial institution
under a factoring agreement. There was no gain or loss recognized.

(3) REAL ESTATE

     The following is a summary of real estate at December 31, 2000 and 1999 (in
thousands):


<TABLE>
<CAPTION>
                                      2000         1999
                                   ---------    ---------
<S>                                <C>          <C>
Land ...........................   $ 320,110    $ 344,140
Commercial properties ..........      68,811       27,285
Equity investments (Note 4) ....       8,406        1,682
Other assets ...................         453        3,579
                                   ---------    ---------
                                     397,780      376,686
Accumulated depreciation .......      (1,840)      (1,023)
                                   ---------    ---------
                                   $ 395,940    $ 375,663
                                   =========    =========
</TABLE>


                                      F-68

<PAGE>   115


     LAND. The principal land development is The Woodlands, a mixed-use,
master-planned community located north of Houston, Texas. Residential land is
divided into seven villages in various stages of development. Each village has
or is planned to contain a variety of housing, neighborhood retail centers,
schools, parks and other amenities. Woodlands Development controls the
development of the residential communities and produces finished lots for sale
to qualified builders. Housing is constructed in a wide choice of pricing and
product styles.

     Commercial land is divided into distinct centers that serve or are planned
to serve as locations for office buildings, retail and entertainment facilities,
industrial and warehouse facilities, research and technology facilities, and
college and training facilities. Woodlands Development produces finished sites
for third parties or its own building development activities.

     COMMERCIAL PROPERTIES. Commercial properties owned by Woodlands Development
are leased to third-party tenants. At December 31, 2000, the net book value of
assets under operating leases totaled $55,304,000. Other commercial properties
are under development at December 31, 2000. Lease terms range from five to nine
years with an average term of six years. Leases are accounted for under the
operating method. Minimum future lease revenues from operating leases exclude
contingent rentals that may be received. Tenant rents include rent for
noncancelable operating leases. For the years ending December 31, 2000, 1999 and
1998, tenant rents totaled $2,589,000, $1,938,000 and $1,470,000 and are
included in other revenues. Contingent rents include pass-throughs of
incremental operating costs. For the years ending December 31, 2000, 1999 and
1998, contingent rents totaled $63,000, $144,000 and $155,000. Minimum future
lease revenues for the five years subsequent to December 31, 2000 are
$5,785,000; $5,805,000; $5,934,000; $6,083,000; and $6,113,000.

(4) EQUITY INVESTMENTS

     During 2000, Woodlands Development's principal partnership and corporation
interests included the following:

<TABLE>
<CAPTION>
                                                         Ownership           Nature of Operations
                                                         ---------           ---------------------
<S>                                                      <C>           <C>
Sterling Ridge Retail 2000 (completed December 2000) ...     50%       Retail property in The Woodlands
Stewart Title of Montgomery County, Inc. ...............     50%       Title company
</TABLE>

     Woodlands Development's net investment in these entities is included in the
real estate caption on the balance sheets and its share of these entities'
pretax earnings is included in other revenues on the statements of earnings. A
summary of the net investment as of December 31, 2000 and the share of pre-tax
earnings for the year then ended follows (in thousands):


<TABLE>
<CAPTION>
                                                               Equity in Pre-Tax
                                              Net Investment       Earnings
                                              --------------   -----------------
<S>                                           <C>              <C>
Sterling Ridge Retail 2000 .................      $6,953             $   --
Stewart Title of Montgomery County, Inc. ...       1,368                555
Other ......................................          85               (130)
                                                  ------             ------
                                                  $8,406             $  425
                                                  ======             ======
</TABLE>

     In September 1999, Woodlands Development completed a sale of its 49%
interest in Mitchell Mortgage Company, LLC for $5,398,000 and recognized as
other revenue a $4,239,000 gain on the sale.


                                      F-69
<PAGE>   116

     Summarized financial statement information for partnerships and a
corporation in which Woodlands Development has an ownership interest at December
31, 2000 and for the year then ended follows (in thousands):

<TABLE>
<S>                                                                 <C>
Assets ..........................................................   $19,308
Debt payable to third parties
   Woodlands Development's proportionate share (nonrecourse) ....     1,837
   Other parties' proportionate share ...........................     1,836
Accounts payable and deferred credits ...........................     1,275
Owners' equity ..................................................    14,360

Revenues ........................................................   $ 4,938
Operating earnings ..............................................     1,912
Pre-tax earnings ................................................     1,597
Woodlands Development's proportionate share
     of pre-tax earnings ........................................       425
</TABLE>

(5) DEBT

     A summary of Woodlands Development's outstanding debt at December 31, 2000
and 1999 follows (in thousands):

<TABLE>
<CAPTION>
                                          2000       1999
                                        --------   --------
<S>                                     <C>        <C>
Bank credit agreement ...............   $217,000   $237,000
Subsidiary's credit agreement .......     31,727         --
Mortgages payable, at an average
interest rate of 8.4% ...............      6,629      3,285
                                        --------   --------
                                        $255,356   $240,285
                                        ========   ========
</TABLE>


     BANK CREDIT AGREEMENT. In November 1999, Woodlands Development and
Woodlands Commercial replaced their existing bank credit agreement and
construction loan agreement with a new facility, consisting of a $300,000,000
term loan and a $100,000,000 revolving loan. The transaction resulted in an
extraordinary charge of $883,000 for Woodlands Development. The charge consisted
of the write-off of previously deferred financing costs. The new bank credit
agreement has a three-year term expiring in November 2002 with two one-year
extension options. The interest rate, based on the London Interbank Offered Rate
plus a margin, is approximately 9.8% at December 31, 2000. Interest is paid
monthly. Commitment fees, based on .25% of the unused commitment, total $18,000,
$9,000 and $52,000 for the years ended December 31, 2000, 1999 and 1998. The
credit agreement contains certain restrictions which, among other things,
require the maintenance of specified financial ratios, restrict indebtedness and
sale, lease or transfer of certain assets, and limit the right of Woodlands
Development to merge with other companies and make distributions to its
partners. At December 31, 2000, Woodlands Development was in compliance with its
debt covenants. Certain assets of Woodlands Development, including cash,
receivables, commercial properties and equity investments in joint ventures and
partnerships, secure the credit agreement. Mandatory debt maturities are
$18,000,000 in 2001 and $199,000,000 in 2002. Payments may be made by Woodlands
Development or Woodlands Commercial or both at their option. Beginning in 2001,
additional principal payments are required based on distributions to Crescent
and Morgan Stanley. Additional prepayments can also be made at the discretion of
Woodlands Development. Prepayments on the term loan are subject to a prepayment
penalty of up to 2%.

     Woodlands Development and Woodlands Commercial entered into an interest
rate cap agreement with a commercial bank to reduce the impact of increases in
interest rates on their bank credit agreement. The interest cap agreement
effectively limits their interest rate exposure on a notional amount to a
maximum LIBOR rate of 9%. The notional amount is $134,000,000 at December 31,
2000 and will reduce to $121,000,000 in December 2001. The interest cap
agreement matures at the same time as the bank credit agreement. Woodlands
Development is exposed

                                      F-70

<PAGE>   117

to credit loss in the event of nonperformance by the other party with respect to
the interest cap agreement. However, management does not anticipate
nonperformance by the other party.

     SUBSIDIARY'S CREDIT AGREEMENT. VTO Land and VTO Commercial entered into a
$67,500,000 credit agreement that has a three-year term expiring in October 2003
with two one-year extension options. The interest rate, based on the London
Interbank Offered Rate plus a margin, is approximately 8.8% at December 31,
2000. Interest is paid monthly. The credit agreement contains certain
restrictions which, among other things, require the maintenance of specified
financial ratios and restrict indebtedness and leasing. At December 31, 2000,
VTO Land was in compliance with its debt covenants. Certain assets of the VTO
Land and VTO Commercial secure the agreement. Debt maturities for the three
years subsequent to December 31, 2000 are $82,000, $490,000 and $31,155,000. VTO
Land, VTO Commercial, or both may make payments at their option.

     VTO Land and VTO Commercial entered into an interest rate cap agreement
with a commercial bank to reduce the impact of increases in interest rates on
their credit agreement. The interest cap agreement effectively limits their
interest rate exposure on a notional amount to a maximum LIBOR rate of 9%. The
notional amount is $33,750,000. The interest cap agreement matures at the same
time as the credit agreement. VTO Land is exposed to credit loss in the event of
nonperformance by the other party with respect to the interest cap agreement.
However, management does not anticipate nonperformance by the other party.

     MORTGAGES PAYABLE. The mortgages payable have debt maturities for the five
years subsequent to December 31, 2000 totaling $356,000; $530,000; $577,000;
$3,017,000; $2,007,000 and $142,000 thereafter. Mortgages payable are secured by
certain tracts of land.

(6) NOTES PAYABLE TO PARTNERS

     Woodlands Development has notes payable to its partners totaling
$25,000,000. The notes bear interest at 15%. Interest is payable beginning in
October 1998 and quarterly thereafter. All outstanding balances are due in 2007.
These notes are subordinate to the bank credit agreement and mortgages payable
described above.

(7) COMMITMENTS AND CONTINGENCIES

     CONTINGENT LIABILITIES. At December 31, 2000 and 1999, Woodlands
Development had contingent liabilities totaling approximately $11,000,000 and
$4,600,000, consisting of letters of credit and commitments to complete certain
improvements in The Woodlands. Under the terms of a land sales agreement,
Woodlands Development has committed to construct, or cause to be constructed,
certain improvements in The Woodlands and is contingently liable for up to
$3,100,000 in liquidating damages if the improvements are not complete by
certain dates.

     LEASES. Rental expense for operating leases for the years ended December
31, 2000, 1999 and 1998 totaled $56,000, $19,000 and $14,000.

     LEGAL ACTIONS. The 221st Judicial District Court of Montgomery County,
Texas entered a judgment against Woodlands Development in October 1999 awarding
a total of $1,433,000 in damages to the plaintiffs. In addition to these
damages, the judgment also awards attorneys' fees to the plaintiff for
preparation, trial and subsequent appeals. The total present amount of the
judgment, including actual damages and attorneys' fees through the time of
trial, is approximately $1,468,000. The judgment awards postjudgment interest of
10% per annum. Woodlands Development appealed the ruling. Oral arguments have
been set by the Court of Appeals for February 2001.

     During 2000, Woodlands Development settled outstanding litigation, related
to flooding in the North Houston area in 1994, brought against it by various
homeowners in The Woodlands. No additional losses were incurred as a result of
this settlement.

     Woodlands Development is also a party to other claims and legal actions
arising in the ordinary course of their business and to recurring examinations
by the Internal Revenue Service and other regulatory agencies.

     Management believes, after consultation with outside counsel, that adequate
financial statement accruals have been provided for all known litigation
contingencies where losses are deemed probable. Since the ultimate cost will


                                      F-71
<PAGE>   118


depend on the outcomes of the uncertainties discussed in this note, it is
possible, however, that additional future charges might be required that would
be significant to the operating results of a particular period. Based on the
status of the cases, Woodlands Development is unable to determine a range of
such possible additional losses, if any, that might be incurred in connection
with this litigation. Woodlands Development believes it is not probable that the
ultimate resolution of this litigation will have a material adverse effect on
its financial position.

     INCENTIVE PLAN. Woodlands Operating instituted an incentive compensation
plan for certain employees effective January 1, 1998. The plan is unfunded and
while certain payments are made currently, a portion of the payment is deferred
and paid only upon the occurrence of certain future events. Woodlands
Development will reimburse a portion of any incentive plan payments made in the
future.

(8) RELATED PARTY TRANSACTIONS

     Woodlands Operating provides services to Woodlands Development under
management and advisory services agreements. These agreements are automatically
renewed annually. Woodlands Development pays Woodlands Operating an advisory fee
equal to cost plus 3%. In addition, Woodlands Development reimburses Woodlands
Operating for all cost and expenses incurred on their behalf. For the years
ended December 31, 2000, 1999 and 1998, Woodlands Development recorded expenses
of $12,606,000, $10,597,000 and $11,050,000 for services provided by Woodlands
Operating.

     In July 1999, Woodlands Development purchased approximately 1,000 acres of
land in The Woodlands from Woodlands Commercial for $33,090,000, the then
current fair market value which approximated the carrying cost. The transaction
consisted of cash and a $26,000,000 note. The note bears interest at 8.5% and
matures in August 2009. Principal and interest payments are due quarterly and
additional principal payments are due when a portion of the land is conveyed to
a third party or built upon. The note is unsecured and subordinate to the bank
credit agreement described in Note 5.

(9) PARTNERS' EQUITY

     Crescent's ownership interest in Woodlands Development is The Woodlands
Land Company, Inc., which holds a 42.5% general partner interest. Morgan
Stanley's ownership interests are MS/TWC Joint Venture, which holds a 56.5%
limited partner interest, and MS/TWC, Inc., which holds a 1% general partner
interest.

     The partnership agreement provides, among other things, the following:

         (i) Woodlands Development is governed by an Executive Committee
composed of equal representation from their respective general partners.

         (ii) Net income and losses from operations are currently allocated so
that partners' capital accounts stand in the ratio of the percentage interest
listed above.

         (iii) Distributions are made to partners based on specified payout
percentages and include cumulative preferred returns to Morgan Stanley's
affiliates. The payout percentage to Morgan Stanley's affiliates is 57.5% until
the affiliates receive distributions on a combined basis with Woodlands
Commercial equal to their capital contributions and a 12% cumulative preferred
return compounded quarterly. Then, the payout percentage to Morgan Stanley's
affiliates is 50.5% until the affiliates receive distributions equal to their
capital contributions and an 18% cumulative preferred return compounded
quarterly. Thereafter, the payout percentage to Morgan Stanley's affiliates is
47.5%.

         (iv) Woodlands Development will continue to exist until December 31,
2040 unless terminated earlier due to specified events.

         (v) No additional partners may be admitted to Woodlands Development
unless specific conditions in the partnership agreements are met. Partnership
interests may be transferred to affiliates of Crescent or Morgan Stanley.
Crescent has the right of first refusal to buy the partnership interests of the
Morgan Stanley affiliates at the same


                                      F-72
<PAGE>   119

terms and conditions offered to a third party purchaser, or sell its affiliates'
interests to the same third party purchaser.

         (vi) Crescent and Morgan Stanley have the right to offer to purchase
the other partner's affiliates' partnership interests in the event of failure to
make specified capital contributions or a specified default by the other.
Specified defaults include bankruptcy, breach of partnership covenants, transfer
of partnership interests except as permitted by the partnership agreements, and
fraud or gross negligence.

(10) FAIR VALUE OF FINANCIAL INSTRUMENTS

     The carrying amounts and estimated fair values of Woodlands Development's
financial instruments as of December 31, 2000 follows (in thousands):

<TABLE>
<CAPTION>
                                          Carrying   Estimated Fair
                                           Amounts      Values
                                          --------   --------------
<S>                                       <C>           <C>
Notes and contracts receivable ........   $ 30,471      $ 30,471
Note payable to affiliated company ....     15,880        15,880
Debt ..................................    255,356       255,175
Notes payable to partners .............     25,000        31,524
</TABLE>


     Fair values of notes and contracts receivable were estimated by discounting
future cash flows using interest rates at which similar loans currently could be
made for similar maturities to borrowers with comparable credit ratings. Fair
values of fixed-rate, long-term debt were based on current interest rates
offered to Woodlands Development for debt with similar remaining maturities. For
floating-rate debt obligations, carrying amounts and fair values were assumed to
be equal because of the nature of these obligations. The carrying amounts of
Woodlands Development's other financial instruments approximate their fair
values.

(11) CHANGE IN ACCOUNTING PRINCIPLE

     Effective January 1, 1998 Woodlands Development changed its method of
accounting for organization costs to conform to Statement of Position 98-5
"Reporting on the Costs of Start-Up Activities." In 1998, Woodlands Development
expensed previously capitalized costs that totaled $639,000.


                                      F-73
<PAGE>   120


          SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                    CRESCENT OPERATING, INC. (PARENT COMPANY)

                            CONDENSED BALANCE SHEETS
                             (Amounts in thousands)

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

CURRENT ASSETS
  Cash and cash equivalents                                  $    760               $ (1,316)
  Accounts receivable                                             641                    406
  Intercompany                                                 13,608                  7,102
  Prepaid expenses and other current assets                       601                     89
                                                             --------               --------
    Total current assets                                       15,610                  6,281
                                                             --------               --------

PROPERTY AND EQUIPMENT, NET                                        66                     66

INVESTMENTS                                                    47,647                 48,747

OTHER ASSETS                                                    5,548                  7,289
                                                             --------               --------

TOTAL ASSETS                                                 $ 68,871               $ 62,383
                                                             ========               ========

          LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
  Accounts payable and accrued expenses                      $  1,086               $    246
  Accounts payable and accrued expenses -- CEI                  6,849                  2,078
  Current portion of long-term debt -- CEI                      8,578                     --
  Current portion of long-term debt                            16,033                  1,967
                                                             --------               --------
    Total current liabilities                                  32,546                  4,291

LONG-TERM DEBT, NET OF CURRENT PORTION                         56,170                 79,812


                                                             --------               --------
    Total liabilities                                          88,716                 84,103
                                                             --------               --------

SHAREHOLDERS' EQUITY (DEFICIT)
  Preferred stock, $.01 par value, 10,000 shares authorized,       --                     --
    no shares issued or outstanding
  Common stock, $.01 par value, 22,500 shares authorized,         114                    114
    11,443 shares issued
  Additional paid-in capital                                   17,754                 17,714
  Deferred compensation on restricted shares                     (177)                  (198)
  Accumulated comprehensive income (loss)                     (10,127)               (10,127)
  Retained deficit                                            (27,409)               (29,223)
                                                             --------               --------
    Total shareholders' equity (deficit)                      (19,845)               (21,720)
                                                             --------               --------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)         $ 68,871               $ 62,383
                                                             ========               ========
</TABLE>


          See accompanying notes to the condensed financial statements

                                      S-1
<PAGE>   121

          SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                    CRESCENT OPERATING, INC. (PARENT COMPANY)

                       CONDENSED STATEMENTS OF OPERATIONS
                             (Amounts in thousands)

<TABLE>
<CAPTION>
                                            For the                For the                 For the
                                          Year Ended             Year Ended              Year Ended
                                        December 31, 2000      December 31, 1999       December 31, 1998
                                        -----------------      -----------------       -----------------
<S>                                     <C>                    <C>                     <C>
COSTS AND EXPENSES
  General and administrative expenses      $  4,197               $  2,602                $  3,059
  Interest expense                            8,427                  8,429                   7,062
  Interest income                              (416)                  (391)                     (7)
  Other                                           2                     --                      (2)
                                           --------               --------                --------

    Total costs and expenses                 12,210                 10,640                  10,112

INVESTMENT INCOME                             4,147                  1,816                  15,101
                                           --------               --------                --------

INCOME (LOSS) BEFORE TAXES                   (8,063)                (8,824)                  4,989

INCOME TAX BENEFIT                           (4,428)                (8,153)                 (6,207)
                                           --------               --------                --------

NET INCOME (LOSS)                          $ (3,635)              $   (671)               $ 11,196
                                           ========               ========                ========
</TABLE>


          See accompanying notes to the condensed financial statements


                                      S-2
<PAGE>   122

           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                    CRESCENT OPERATING, INC. (PARENT COMPANY)

                       CONDENSED STATEMENTS OF CASH FLOWS
                             (Amounts in thousands)

<TABLE>
<CAPTION>
                                                                       For the                For the                 For the
                                                                      Year Ended             Year Ended              Year Ended
                                                                  December 31, 2000      December 31, 1999       December 31, 1998
                                                                  -----------------      -----------------       -----------------
<S>                                                               <C>                    <C>                     <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                           $ (3,635)               $   (671)                  $ 11,196
  Adjustments to reconcile net loss
    to net cash provided by (used in) operating activities:
    Depreciation                                                           32                      22                          6
    Amortization                                                         (103)                   (155)                        11
    Intercompany                                                       (6,538)                 (1,942)                       341
    Loss on sale of equipment                                               4                       2                         --
    Gain on sale of investments                                          (722)                 (1,963)                        --
    Investment (income) loss                                           (3,425)                    147                      1,746
    Deferred compensation                                                  60                      53                         53
    Deferred taxes                                                      1,744                  (6,909)                    (6,280)
    Changes in assets and liabilities, net of
      effects of acquisitions:
      Accounts receivable                                                (996)                   (127)                        --
      Prepaid expenses and current assets                                (511)                    634                        (91)
      Other assets                                                        100                     (27)                      (158)
      Accounts payable and accrued expenses                             1,240                    (315)                       147
      Accounts payable and accrued expenses - CEI                       4,771                     480                        122
                                                                     --------                --------                   --------
        Net cash provided by (used in) operating activities            (7,979)                (10,771)                     7,093
                                                                     --------                --------                   --------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Acquisition of business interests - net of cash acquired                 --                 (15,489)                   (30,500)
  Purchases of property and equipment                                     (36)                    (51)                       (46)
  Proceeds from sale of property and equipment                          4,060                      --                         --
  Proceeds from sale of investments                                        --                  22,691                         --
  Net distribution from investments                                     7,028                   7,097                      5,985
                                                                     --------                --------                   --------
        Net cash provided by (used in) investing activities            11,052                  14,248                    (24,561)
                                                                     --------                --------                   --------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds of long-term debt - CEI                                      1,675                  37,628                     42,820
  Payments of long-term debt - CEI                                         --                 (39,480)                   (21,569)
  Payments of long-term debt                                           (2,673)                 (5,942)                    (1,989)
  Other                                                                    --                       7                        802
                                                                     --------                --------                   --------
        Net cash provided by (used in) financing activities              (998)                 (7,787)                    20,064
                                                                     --------                --------                   --------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                    2,075                  (4,310)                     2,596

CASH AND CASH EQUIVALENTS,
  BEGINNING OF PERIOD                                                  (1,316)                  2,994                        398
                                                                     --------                --------                   --------

CASH AND CASH EQUIVALENTS,
  END OF PERIOD                                                      $    759                $ (1,316)                  $  2,994
                                                                     ========                ========                   ========
</TABLE>


          See accompanying notes to the condensed financial statements


                                      S-3
<PAGE>   123


           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                    CRESCENT OPERATING, INC. (PARENT COMPANY)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS


1.     BASIS OF PRESENTATION

       Crescent Operating, Inc.'s (the "Company") investment in subsidiaries is
       stated at cost plus or minus equity in undistributed earnings (losses) of
       subsidiaries since the date of acquisition. The Company's share of net
       income (loss) of its unconsolidated subsidiaries is included in
       consolidated income (loss) using the equity method. The parent
       company-only financial statements should be read in conjunction with the
       Company's consolidated financial statements.


                                      S-4
<PAGE>   124
                               INDEX TO EXHIBITS


<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                     DESCRIPTION OF EXHIBITS
-------                     -----------------------
<S>               <C>
  3.1             First Amended and Restated Certificate of Incorporation (filed
                  as Exhibit 3.3 to the Company's registration statement on Form
                  S-1 dated July 12, 1997 ("Form S-1") and incorporated by
                  reference herein)

  3.2             First Amended and Restated Bylaws (filed as Exhibit 3.4 to
                  Form S-1 and incorporated by reference herein)

  3.3             Amendment of Article V of First Amended and Restated Bylaws
                  (filed as Exhibit 3.3 to the Company's June 30, 1998 Form 10-Q
                  ("June 30, 1998 Form 10-Q") and incorporated by reference
                  herein)

  3.4             Repeal of Amendment of Article V of First Amended and Restated
                  Bylaws (filed as Exhibit 3.4 to the Company's September 30,
                  1998 Form 10-Q ("September 30, 1998 Form 10-Q") and
                  incorporated by reference herein)

  4.1             Specimen stock certificate (filed as Exhibit 4.1 to Form S-1
                  and incorporated by reference herein)

  4.2             Preferred Share Purchase Rights Plan (filed as Exhibit 4.2 to
                  Form S-1 and incorporated by reference herein)

  4.3             First Amendment to Preferred Share Purchase Rights Agreement
                  dated as of September 25, 1998, between Crescent Operating,
                  Inc. and Bank Boston, N.A., as Rights Agent (filed as Exhibit
                  4.3 to September 30, 1998 Form 10-Q and incorporated by
                  reference herein)

  4.4             Second Amendment to Preferred Share Purchase Rights Agreement
                  dated as of March 4, 1999, between Crescent Operating, Inc.
                  and Bank Boston, N.A., as Rights Agent (filed as Exhibit 4.4
                  to March 31, 1999 Form 10-Q ("March 31, 1999 Form 10-Q") and
                  incorporated by reference herein)

  10.1            Amended Stock Incentive Plan (filed as Exhibit 10.1 to Form
                  S-1 and incorporated by reference herein)

  10.2            Intercompany Agreement between Crescent Operating, Inc. and
                  Crescent Real Estate Equities Limited Partnership (filed as
                  Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
                  for the Quarter Ended June 30, 1997 ("June 30, 1997 Form
                  10-Q") and incorporated by reference herein)

  10.3            Amended and Restated Operating Agreement of Charter Behavioral
                  Health Systems, LLC (filed as Exhibit 10.3 to June 30, 1997
                  Form 10-Q and incorporated by reference herein)

  10.5            Amended and Restated Credit and Security Agreement, dated as
                  of May 30, 1997, between Crescent Real Estate Equities Limited
                  Partnership and Crescent Operating, Inc., together with
                  related Note (filed as Exhibit 10.5 to the Company's September
                  30, 1997 Form 10-Q ("September 30, 1997 Form 10-Q") and
                  incorporated by reference herein)

  10.6            Line of Credit and Security Agreement, dated as of May 21,
                  1997, between Crescent Real Estate Equities Limited
                  Partnership and Crescent Operating, Inc., together with
                  related Line of Credit Note (filed as Exhibit 10.6 to
                  September 30, 1997 Form 10-Q and incorporated by reference
                  herein)

  10.7            Acquisition Agreement, dated as of February 10, 1997, between
                  Crescent Real Estate Equities Limited Partnership and
                  Carter-Crowley Properties, Inc. (filed as Exhibit 10.7 to Form
                  S-1 and incorporated by reference herein)
</TABLE>


<PAGE>   125
<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                     DESCRIPTION OF EXHIBITS
-------                     -----------------------
<S>               <C>
  10.10           Security Agreement dated September 22, 1997 between COI Hotel
                  Group, Inc., as debtor, and Crescent Real Estate Equities
                  Limited Partnership, as lender, together with related $1
                  million promissory note (filed as Exhibit 10.10 to September
                  30, 1997 Form 10-Q and incorporated by reference herein)

  10.11           Security Agreement dated September 22, 1997 between COI Hotel
                  Group, Inc., as debtor, and Crescent Real Estate Equities
                  Limited Partnership, as lender, together with related $800,000
                  promissory note (filed as Exhibit 10.11 to September 30, 1997
                  Form 10-Q and incorporated by reference herein)

  10.12           Amended and Restated Asset Management dated August 31, 1997,
                  to be effective July 31, 1997, between Wine Country Hotel, LLC
                  and The Varma Group, Inc. (filed as Exhibit 10.12 to September
                  30, 1997 Form 10-Q and incorporated by reference herein)

  10.13           Amended and Restated Asset Management Agreement dated August
                  31, 1997, to be effective July 31, 1997, between RoseStar
                  Southwest, LLC and The Varma Group, Inc. (filed as Exhibit
                  10.13 to September 30, 1997 Form 10-Q and incorporated by
                  reference herein)

  10.14           Amended and Restated Asset Management Agreement dated August
                  31, 1997, to be effective July 31, 1997, between RoseStar
                  Management LLC and The Varma Group, Inc. (filed as Exhibit
                  10.14 to September 30, 1997 Form 10-Q and incorporated by
                  reference herein)

  10.15           Agreement for Financial Services dated July 1, 1997, between
                  Crescent Real Estate Equities Company and Petroleum Financial,
                  Inc. (filed as Exhibit 10.15 to September 30, 1997 Form 10-Q
                  and incorporated by reference herein)

  10.16           Credit Agreement dated August 27, 1997, between Crescent
                  Operating, Inc. and NationsBank of Texas, N.A. together with
                  related $15.0 million promissory note (filed as Exhibit 10.16
                  to September 30, 1997 Form 10-Q and incorporated by reference
                  herein)

  10.17           Support Agreement dated August 27, 1997, between Richard E.
                  Rainwater, John Goff and Gerald Haddock in favor of Crescent
                  Real Estate Equities Company and NationsBank of Texas, N.A.
                  (filed as Exhibit 10.17 to September 30, 1997 Form 10-Q and
                  incorporated by reference herein)

  10.18           1997 Crescent Operating, Inc. Management Stock Incentive Plan
                  (filed as Exhibit 10.18 to the Company's Annual Report on Form
                  10-K for the year ended December 31, 1997 ("December 31, 1997
                  Form 10-K") and incorporated by reference herein)

  10.19           Memorandum of Agreement executed November 16, 1997, among
                  Charter Behavioral Health Systems, LLC, Charter Behavioral
                  Health Systems, Inc. and Crescent Operating, Inc. (filed as
                  Exhibit 10.19 to December 31, 1997 Form 10-K and incorporated
                  by reference herein)

  10.20           Purchase Agreement dated August 31, 1997, by and among
                  Crescent Operating, Inc., RoseStar Management LLC, Gerald W.
                  Haddock, John C. Goff and Sanjay Varma (filed as Exhibit 10.20
                  to December 31, 1997 Form 10-K and incorporated by reference
                  herein)

  10.21           Stock Purchase Agreement dated August 31, 1997, by and among
                  Crescent Operating, Inc., Gerald W. Haddock, John C. Goff and
                  Sanjay Varma (filed as Exhibit 10.21 to December 31, 1997 Form
                  10-K and incorporated by reference herein)
</TABLE>
<PAGE>   126
<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                     DESCRIPTION OF EXHIBITS
-------                     -----------------------
<S>               <C>
  10.22           Amended and Restated Lease Agreement, dated June 30, 1995
                  between Crescent Real Estate Equities Limited Partnership and
                  RoseStar Management LLC, relating to the Denver Marriott City
                  Center (filed as Exhibit 10.17 to the Annual Report on Form
                  10-K of Crescent Real Estate Equities Company for the Fiscal
                  Year Ended December 31, 1995 (the "1995 CEI 10-K") and
                  incorporated by reference herein)

  10.23           Lease Agreement, dated December 19, 1995 between Crescent Real
                  Estate Equities Limited Partnership and RoseStar Management
                  LLC, relating to the Hyatt Regency Albuquerque (filed as
                  Exhibit 10.16 to the 1995 CEI 10-K and incorporated by
                  reference herein)

  10.24           Form of Amended and Restated Lease Agreement, dated January 1,
                  1996, among Crescent Real Estate Equities Limited Partnership,
                  Mogul Management, LLC and RoseStar Management LLC, relating to
                  the Hyatt Regency Beaver Creek (filed as Exhibit 10.12 to the
                  1995 CEI 10-K and incorporated by reference herein)

  10.25           Lease Agreement, dated July 26, 1996, between Canyon Ranch,
                  Inc. and Canyon Ranch Leasing, L.L.C., assigned by Canyon
                  Ranch, Inc. to Crescent Real Estate Equities Limited
                  Partnership pursuant to the Assignment and Assumption
                  Agreement of Master Lease, dated July 26, 1996 (filed as
                  Exhibit 10.24 to the Quarterly Report on Form 10-Q/A of
                  Crescent Real Estate Equities Company for the Quarter Ended
                  June 30, 1997 (the "1997 CEI 10-Q") and incorporated by
                  reference herein)

  10.26           Lease Agreement, dated November 18, 1996 between Crescent Real
                  Estate Equities Limited Partnership and Wine Country Hotel,
                  LLC (filed as Exhibit 10.25 to the Annual Report on Form 10-K
                  of Crescent Real Estate Equities Company for the Fiscal Year
                  Ended December 31, 1996 and incorporated by reference herein)

  10.27           Lease Agreement, dated December 11, 1996, between Canyon
                  Ranch-Bellefontaine Associates, L.P. and Vintage Resorts,
                  L.L.C., as assigned by Canyon Ranch-Bellefontaine Associates,
                  L.P. to Crescent Real Estate Funding VI, L.P. pursuant to the
                  Assignment and Assumption Agreement of Master Lease, dated
                  December 11, 1996 (filed as Exhibit 10.26 to the 1997 CEI 10-Q
                  and incorporated by reference herein)

  10.28           Master Lease Agreement, dated June 16, 1997, between Crescent
                  Real Estate Funding VII, L.P. and Charter Behavioral Health
                  Systems, LLC and its subsidiaries, relating to the Facilities
                  (filed as Exhibit 10.27 to the 1997 CEI 10-Q and incorporated
                  by reference herein)

  10.29           Form of Indemnification Agreement (filed as Exhibit 10.29 to
                  December 31, 1997 Form 10-K and incorporated by reference
                  herein)

  10.30           Purchase Agreement, dated as of September 29, 1997, between
                  Crescent Operating, Inc. and Crescent Real Estate Equities
                  Limited Partnership, relating to the purchase of Desert
                  Mountain Development Corporation (filed as Exhibit 10.30 to
                  December 31, 1997 Form 10-K and incorporated by reference
                  herein)

  10.31           Lease Agreement dated December 19, 1997, between Crescent Real
                  Estate Equities Limited Partnership, as Lessor, and Wine
                  Country Hotel, as Lessee, for lease of Ventana Inn (filed as
                  Exhibit 10.31 to the Company's March 31, 1998 Form 10-Q
                  ("March 31, 1998 Form 10-Q") and incorporated by reference
                  herein)

  10.32           Lease Agreement dated September 22, 1997, between Crescent
                  Real Estate Equities Limited Partnership, as Lessor, and COI
                  Hotel Group, Inc., as lessee, for lease of Four Seasons Hotel,
                  Houston (filed as Exhibit 10.32 to March 31, 1998 Form 10-Q
                  and incorporated by reference herein)

  10.33           Asset Purchase Agreement dated December 19, 1997, among
                  Crescent Operating, Inc., Preco Machinery Sales, Inc., and
                  certain individual Preco shareholders (filed as Exhibit 10.33
                  to March 31, 1998 Form 10-Q and incorporated by reference
                  herein)
</TABLE>
<PAGE>   127
<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                     DESCRIPTION OF EXHIBITS
-------                     -----------------------
<S>               <C>
  10.34           Asset Purchase Agreement dated April 30, 1998, among Crescent
                  Operating, Inc., Central Texas Equipment Company, and certain
                  individual Central Texas shareholders (filed as Exhibit 10.34
                  to March 31, 1998 Form 10-Q and incorporated by reference
                  herein)

  10.35           Credit Agreement dated August 29, 1997 between Crescent Real
                  Estate Equities Limited Partnership, as lender, and Desert
                  Mountain Properties Limited Partnership, as borrower, together
                  with related Senior Note, Junior Note and deed of trust (filed
                  as Exhibit 10.35 to March 31, 1998 Form 10-Q and incorporated
                  by reference herein)

  10.36           Buy-Out Agreement dated April 24, 1998, between Crescent
                  Operating, Inc. and Crescent Real Estate Equities Limited
                  Partnership (filed as Exhibit 10.36 to March 31, 1998 Form
                  10-Q and incorporated by reference herein)

  10.37           Stock Acquisition Agreement and Plan of Merger dated June 4,
                  1998, among Machinery, Inc., Oklahoma Machinery, Inc.,
                  Crescent Machinery Company, Crescent Operating, Inc. and
                  certain individual Machinery shareholders (filed as Exhibit
                  10.37 to June 30, 1998 Form 10-Q and incorporated by reference
                  herein)

  10.38           Master Revolving Line of Credit Loan Agreement (Borrowing Base
                  and Warehouse) dated May 14, 1998, between Desert Mountain
                  Properties Limited Partnership and National Bank of Arizona
                  (filed as Exhibit 10.38 to June 30, 1998 Form 10-Q and
                  incorporated by reference herein)

  10.39           1997 Management Stock Incentive Plan (filed as Exhibit 10.39
                  to June 30, 1998 Form 10-Q and incorporated by reference
                  herein)

  10.40           Credit and Security Agreement, dated as of September 21, 1998,
                  between Crescent Real Estate Equities Limited Partnership and
                  Crescent Operating, Inc., together with related Note (filed as
                  Exhibit 10.40 to September 30, 1998 Form 10-Q and incorporated
                  by reference herein)

  10.41           First Amendment to Amended and Restated Pledge Agreement,
                  dated as of September 21, 1998, between Crescent Real Estate
                  Equities Limited Partnership and Crescent Operating, Inc.
                  (filed as Exhibit 10.41 to September 30, 1998 Form 10-Q and
                  incorporated by reference herein)

  10.42           First Amendment to Line of Credit and Security Agreement,
                  dated as of August 11, 1998, between Crescent Real Estate
                  Equities Limited Partnership and Crescent Operating, Inc.,
                  together with related Note (filed as Exhibit 10.42 to
                  September 30, 1998 Form 10-Q and incorporated by reference
                  herein)

  10.43           First Amendment to Amended and Restated Credit and Security
                  Agreement, dated as of August 11, 1998, between Crescent Real
                  Estate Equities Limited Partnership and Crescent Operating,
                  Inc. (filed as Exhibit 10.43 to September 30, 1998 Form 10-Q
                  and incorporated by reference herein)

  10.44           Second Amendment to Amended and Restated Credit and Security
                  Agreement, dated as of September 21, 1998, between Crescent
                  Real Estate Equities Limited Partnership and Crescent
                  Operating, Inc. (filed as Exhibit 10.44 to September 30, 1998
                  Form 10-Q and incorporated by reference herein)

  10.45           Second Amendment to Line of Credit and Security Agreement,
                  dated as of September 21, 1998, between Crescent Real Estate
                  Equities Limited Partnership and Crescent Operating, Inc.
                  (filed as Exhibit 10.45 to September 30, 1998 Form 10-Q and
                  incorporated by reference herein)
</TABLE>
<PAGE>   128
<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                     DESCRIPTION OF EXHIBITS
-------                     -----------------------
<S>               <C>
  10.46           Agreement of Limited Partnership of COPI Colorado, L.P. (filed
                  as Exhibit 10.1 to that Schedule 13D Statement dated September
                  28, 1998, filed by COPI Colorado, L.P., Crescent Operating,
                  Inc., Gerald W. Haddock, John C. Goff and Harry H. Frampton,
                  III, and incorporated by reference herein)

  10.47           Contribution Agreement effective as of September 11, 1998, by
                  and among Crescent Operating, Inc., Gerald W. Haddock, John C.
                  Goff and Harry H. Frampton, III (filed as Exhibit 10.2 to that
                  Schedule 13D Statement dated September 28, 1998, filed by COPI
                  Colorado, L.P., Crescent Operating, Inc., Gerald W. Haddock,
                  John C. Goff and Harry H. Frampton, III, and incorporated by
                  reference herein)

  10.48           Agreement Regarding Schedules and Other Matters made as of
                  September 11, 1998, by and among Crescent Operating, Inc.,
                  Gerald W. Haddock, John C. Goff and Harry H. Frampton, III
                  (filed as Exhibit 10.3 to that Schedule 13D Statement dated
                  September 28, 1998, filed by COPI Colorado, L.P., Crescent
                  Operating Inc., Gerald W. Haddock, John C. Goff and Harry H.
                  Frampton, III, and incorporated by reference herein)

  10.49           Stock Purchase Agreement dated as of August 7, 1998 by and
                  among Western Traction Company, The Carlston Family Trust,
                  Ronald D. Carlston and Crescent Operating, Inc. (filed as
                  Exhibit 10.49 to September 30, 1998 Form 10-Q and incorporated
                  by reference herein)

  10.50           Stock Purchase Agreement dated as of July 31, 1998 by and
                  among Harvey Equipment Center, Inc., L and H Leasing Company,
                  William J. Harvey, Roy E. Harvey, Jr., Betty J. Harvey and
                  Crescent Operating, Inc. (filed as Exhibit 10.50 to September
                  30, 1998 Form 10-Q and incorporated by reference herein)

  10.51           Credit Agreement dated as of July 28, 1998, between Crescent
                  Real Estate Equities Limited Partnership and CRL Investments,
                  Inc., together with the related Note (filed as Exhibit 10.51
                  to September 30, 1998 Form 10-Q and incorporated by reference
                  herein)

  10.52           Security Agreement dated as of July 28, 1998, between Crescent
                  Real Estate Equities Limited Partnership and CRL Investments,
                  Inc. (filed as Exhibit 10.52 to September 30, 1998 Form 10-Q
                  and incorporated by reference herein)

  10.53           First Amendment to Credit Agreement effective as of August 27,
                  1998, among Crescent Operating, Inc., NationsBank, N. A., and
                  the Support Parties identified therein (filed as Exhibit 10.53
                  to September 30, 1998 Form 10-Q and incorporated by reference
                  herein)

  10.54           Lease Agreement dated as of October 13, 1998, between Crescent
                  Real Estate Equities Limited Partnership and Wine Country Golf
                  Club, Inc., relating to Sonoma Golf Club (filed as Exhibit
                  10.54 to September 30, 1998 Form 10-Q and incorporated by
                  reference herein)

  10.55           First Amendment to Lease Agreement effective December 31,
                  1998, between Canyon Ranch Leasing, L.L.C., and Crescent Real
                  Estate Equities Limited Partnership, relating to Canyon Ranch
                  - Tucson (filed as Exhibit 10.55 to the Company's Annual
                  Report on Form 10-K for the year ended December 31, 1998
                  ("December 31, 1998 Form 10-K") and incorporated by reference
                  herein)

  10.56           First Amendment to Lease Agreement effective April 1, 1996;
                  Second Amendment to Lease Agreement effective November 22,
                  1996; Third Amendment to Lease Agreement effective August 12,
                  1998; and Fourth Amendment to Lease Agreement effective
                  December 31, 1998 between RoseStar Southwest, LLC, and
                  Crescent Real Estate Funding II L.P., relating to Hyatt
                  Regency Albuquerque (filed as Exhibit 10.56 to December 31,
                  1998 Form 10-K and incorporated by reference herein)

  10.57           First Amendment to Lease Agreement effective December 31,
                  1998, between Wine Country Hotel, LLC, and Crescent Real
                  Estate Equities Limited Partnership, relating to Sonoma
                  Mission Inn & Spa (filed as Exhibit 10.57 to December 31, 1998
                  Form 10-K and incorporated by reference herein)

</TABLE>
<PAGE>   129
<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                     DESCRIPTION OF EXHIBITS
-------                     -----------------------
<S>               <C>
  10.58           First Amendment to Amended and Restated Lease Agreement
                  effective December 31, 1998, between RoseStar Management, LLC,
                  and Crescent Real Estate Equities Limited Partnership,
                  relating to Marriott City Center, Denver (filed as Exhibit
                  10.58 to December 31, 1998 Form 10-K and incorporated by
                  reference herein)

  10.59           First Amendment to Lease Agreement effective December 31,
                  1998, between Wine Country Hotel, LLC, and Crescent Real
                  Estate Equities Limited Partnership, relating to Ventana Inn
                  (filed as Exhibit 10.59 to December 31, 1998 Form 10-K and
                  incorporated by reference herein)

  10.60           First Amendment to Amended and Restated Lease Agreement
                  effective April 1, 1996 and Second Amendment to Amended and
                  Restated Lease Agreement effective December 31, 1998, between
                  RoseStar Southwest, LLC, and Crescent Real Estate Funding II,
                  L.P., relating to Hyatt Regency Beaver Creek (filed as Exhibit
                  10.60 to December 31, 1998 Form 10-K and incorporated by
                  reference herein)

  10.61           First Amendment to Lease Agreement effective December 31,
                  1998, between COI Hotel Group, Inc. and Crescent Real Estate
                  Equities Limited Partnership, relating to Four Seasons -
                  Houston (filed as Exhibit 10.61 to December 31, 1998 Form 10-K
                  and incorporated by reference herein)

  10.62           First Amendment to Lease Agreement effective December 31,
                  1998, between Wine Country Hotel, LLC and Crescent Real Estate
                  Funding VI, L.P., relating to Canyon Ranch - Lenox (filed as
                  Exhibit 10.62 to March 31, 1999 Form 10-Q and incorporated by
                  reference herein)


  10.63           Master Guaranty effective December 31, 1998, by Crescent
                  Operating, Inc. for the benefit of Crescent Real Estate
                  Equities Limited Partnership, Crescent Real Estate Funding II,
                  L.P., and Crescent Real Estate Funding VI, L.P., relating to
                  leases for Hyatt Regency Albuquerque, Hyatt Regency Beaver
                  Creek, Canyon Ranch-Lenox, Sonoma Mission Inn & Spa, Canyon
                  Ranch - Tucson, and Marriott City Center Denver (filed as
                  Exhibit 10.63 to December 31, 1998 Form 10-K and incorporated
                  by reference herein)

  10.64           Guaranty of Lease effective December 19, 1997, by Crescent
                  Operating, Inc. for the benefit of Crescent Real Estate
                  Equities Limited Partnership, relating to Ventana Inn (filed
                  as Exhibit 10.64 to December 31, 1998 Form 10-K and
                  incorporated by reference herein)

  10.65           Amended and Restated Guaranty of Lease effective December 31,
                  1998, by Crescent Operating, Inc. for the benefit of Crescent
                  Real Estate Equities Limited Partnership, relating to Four
                  Seasons Hotel - Houston (filed as Exhibit 10.65 to December
                  31, 1998 Form 10-K and incorporated by reference herein)

  10.66           Amended and Restated Guaranty of Lease effective December 31,
                  1998, by Crescent Operating, Inc. for the benefit of Crescent
                  Real Estate Equities Limited Partnership, relating to Sonoma
                  Golf Club (filed as Exhibit 10.66 to December 31, 1998 Form
                  10-K and incorporated by reference herein)

  10.67           Credit Agreement dated August 11, 1995, between Crescent
                  Development Management Corp., as borrower, and Crescent Real
                  Estate Equities Limited Partnership, as lender; First
                  Amendment to Credit Agreement dated as of April 15, 1997;
                  Second Amendment to Credit Agreement dated as of May 8, 1998;
                  and related Note and Security Agreement (filed as Exhibit
                  10.67 to December 31, 1998 Form 10-K and incorporated by
                  reference herein)
</TABLE>
<PAGE>   130
<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                     DESCRIPTION OF EXHIBITS
-------                     -----------------------
<S>               <C>
  10.68           Credit Agreement dated January 1, 1998, between Crescent
                  Development Management Corp., as borrower, and Crescent Real
                  Estate Equities Limited Partnership, as lender, and related
                  Note and Security Agreement (filed as Exhibit 10.68 to
                  December 31, 1998 Form 10-K and incorporated by reference
                  herein)

  10.69           $3,100,000 Note dated February 29, 1996, made by Crescent
                  Development Management Corp. payable to Crescent Real Estate
                  Equities Limited Partnership (filed as Exhibit 10.69 to
                  December 31, 1998 Form 10-K and incorporated by reference
                  herein)

  10.70           Credit Agreement dated January 1, 1999, between Crescent
                  Development Management Corp., as borrower, and Crescent Real
                  Estate Equities Limited Partnership, as lender, and related
                  Line of Credit Note and Security Agreement (filed as Exhibit
                  10.70 to March 31, 1999 Form 10-Q and incorporated by
                  reference herein)

  10.71           Amended and Restated Credit Agreement dated January 1, 1999,
                  between Crescent Development Management Corp., as borrower,
                  and Crescent Real Estate Equities Limited Partnership, as
                  lender, and related Line of Credit Note and Amended and
                  Restated Security Agreement (filed as Exhibit 10.71 to March
                  31, 1999 Form 10-Q and incorporated by reference herein)


  10.72           Purchase Agreement dated March 12, 1999, between Crescent
                  Operating, Inc. and Crescent Real Estate Equities Limited
                  Partnership, relating to sale of interests in Crescent CS
                  Holdings Corp., and Crescent CS Holdings II Corp., and related
                  Put Agreement of same date (filed as Exhibit 10.72 to March
                  31, 1999 Form 10-Q and incorporated by reference herein)


  10.73           Second Amendment to Lease Agreement effective April 1, 1999,
                  between Wine Country Hotel, LLC, and Crescent Real Estate
                  Funding VI, L.P., relating to Canyon Ranch-Lenox (filed as
                  Exhibit 10.73 to March 31, 1999 Form 10-Q and incorporated by
                  reference herein)

  10.74           Master Revolving Line of Credit Loan Agreement (Borrowing Base
                  and Warehouse) dated May 14, 1998, between Desert Mountain
                  Properties Limited Partnership, as borrower, and National Bank
                  of Arizona, as lender; Modification Agreement dated December
                  30, 1998; second Modification Agreement dated March 31, 1999;
                  and related Promissory Note (Borrowing Base), Promissory Note
                  (Warehouse), Pledge Agreement, Deed of Trust, and Amendment to
                  Deed of Trust (filed as Exhibit 10.74 to March 31, 1999 Form
                  10-Q and incorporated by reference herein)

  10.75           Lease Agreement dated as of June 15, 1999, between Crescent
                  Real Estate Funding III, L.P. and COI Hotel Group, Inc.,
                  relating to the Renaissance Houston Hotel (filed as Exhibit
                  10.75 to June 30, 1999 Form 10-Q and incorporated by reference
                  herein)

  10.76           Guaranty of Lease dated June 15, 1999, by Crescent Operating,
                  Inc. for the benefit of Crescent Real Estate Funding III,
                  L.P., relating to Renaissance Houston Hotel (filed as Exhibit
                  10.76 to June 30, 1999 Form 10-Q and incorporated by reference
                  herein)

  10.77           Asset Management Agreement dated as of January 1, 1999,
                  between Crescent Real Estate Equities Limited Partnership and
                  COI Hotel Group, Inc., relating to the Omni Austin Hotel
                  (filed as Exhibit 10.77 to June 30, 1999 Form 10-Q and
                  incorporated by reference herein)

  10.78           Agreement dated June 11, 1999, by and between Gerald W.
                  Haddock and Crescent Operating, Inc. and its subsidiaries and
                  affiliates (filed as Exhibit 10.78 to June 30, 1999 Form 10-Q
                  and incorporated by reference herein)
</TABLE>
<PAGE>   131
<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                     DESCRIPTION OF EXHIBITS
-------                     -----------------------
<S>               <C>
  10.79           Stock Purchase Agreement dated as of July 15, 1999, by and
                  among E. L. Lester & Company, Incorporated, E. L. Lester, Jr.,
                  Howard T. Tellepsen II, Karen Tellepsen, Tom Tellepsen II,
                  Linda Lester Griffen, Crescent Operating, Inc. and Crescent
                  Machinery Company (filed as Exhibit 10.79 to the Company's
                  September 30, 1999 Form 10-Q ("September 30, 1999 Form 10-Q")
                  and incorporated by reference herein)

  10.80           Stock Purchase Agreement dated as of July 8, 1999, by and
                  among Solveson Crane Rental, Inc., Solveson Family Revocable
                  Trust, and Crescent Machinery Company (filed as Exhibit 10.80
                  to September 30, 1999 Form 10-Q and incorporated by reference
                  herein)

  10.81           Second Amendment to Credit Agreement effective as of August
                  27, 1999, among Crescent Operating, Inc., Bank of America, N.
                  A. (formerly NationsBank, N. A.), and the Support Parties
                  identified therein (filed as Exhibit 10.81 to September 30,
                  1999 Form 10-Q and incorporated by reference herein)

  10.82           First Amendment to 1997 Crescent Operating, Inc. Management
                  Stock Incentive Plan (filed as Exhibit 10.82 to the Company's
                  December 31, 1999 Form 10-K ("December 31, 1999 Form 10-K")
                  and incorporated by reference herein)

  10.83           Form of Sales and Service Agreement between BLAW KNOX
                  Construction Equipment Corporation and certain of Crescent
                  Machinery Company and its subsidiaries (filed as Exhibit 10.83
                  to December 31, 1999 Form 10-K and incorporated by reference
                  herein)

  10.84           Form of Heavy Equipment Distributor Agreement between
                  Compaction America, Inc. and certain of Crescent Machinery
                  Company and its subsidiaries (filed as Exhibit 10.84 to
                  December 31, 1999 Form 10-K and incorporated by reference
                  herein)

  10.85           Form of Gradall Equipment Distributor Agreement between The
                  Gradall Company and certain of Crescent Machinery Company and
                  its subsidiaries (filed as Exhibit 10.85 to December 31, 1999
                  Form 10-K and incorporated by reference herein)

  10.86           Form of Distributor Selling Agreement between Ingersoll-Rand
                  Company and certain of Crescent Machinery Company and its
                  subsidiaries (filed as Exhibit 10.86 to December 31, 1999 Form
                  10-K and incorporated by reference herein)

  10.87           Form of JCB Dealership Agreement between JCB Inc. and certain
                  of Crescent Machinery Company and its subsidiaries (filed as
                  Exhibit 10.87 to December 31, 1999 Form 10-K and incorporated
                  by reference herein)

  10.88           Form of Distributor Agreement between LBX Company, LLC, and
                  certain of Crescent Machinery Company and its subsidiaries
                  (filed as Exhibit 10.88 to December 31, 1999 Form 10-K and
                  incorporated by reference herein)

  10.89           Form of Distributor Agreement between Liebherr Construction
                  Equipment Co. and certain of Crescent Machinery Company and
                  its subsidiaries (filed as Exhibit 10.89 to December 31, 1999
                  Form 10-K and incorporated by reference herein)

  10.90           Form of Distributor Agreement between Link-Belt Construction
                  Equipment Company and certain of Crescent Machinery Company
                  and its subsidiaries (filed as Exhibit 10.90 to December 31,
                  1999 Form 10-K and incorporated by reference herein)

  10.91           Form of Dealer Floor Plan Financing and Security Agreement
                  between General Electric Capital Corporation and certain of
                  Crescent Machinery Company and its subsidiaries (filed as
                  Exhibit 10.91 to December 31, 1999 Form 10-K and incorporated
                  by reference herein)
</TABLE>
<PAGE>   132
<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                     DESCRIPTION OF EXHIBITS
-------                     -----------------------
<S>               <C>
  10.92           Taxable REIT Subsidiary Election Agreement dated December 17,
                  1999, among Crescent Real Estate Equities Company, Crescent
                  Real Estate Equities Limited Partnership, Crescent Operating,
                  Inc. and Crescent Development Management Corp. (filed as
                  Exhibit 10.92 to December 31, 1999 Form 10-K and incorporated
                  by reference herein)

  10.93           Taxable REIT Subsidiary Election Agreement dated December 17,
                  1999, among Crescent Real Estate Equities Company, Crescent
                  Real Estate Equities Limited Partnership, Crescent Operating,
                  Inc. and Crescent CS Holdings II Corp. (filed as Exhibit 10.93
                  to December 31, 1999 Form 10-K and incorporated by reference
                  herein)

  10.94           Taxable REIT Subsidiary Election Agreement dated December 17,
                  1999, among Crescent Real Estate Equities Company, Crescent
                  Real Estate Equities Limited Partnership, Crescent Operating,
                  Inc. and Crescent CS Holdings Corp. (filed as Exhibit 10.94 to
                  December 31, 1999 Form 10-K and incorporated by reference
                  herein)

  10.95           Taxable REIT Subsidiary Election Agreement dated December 17,
                  1999, among Crescent Real Estate Equities Company, Crescent
                  Real Estate Equities Limited Partnership, Crescent Operating,
                  Inc. and Desert Mountain Development Corp. (filed as Exhibit
                  10.95 to December 31, 1999 Form 10-K and incorporated by
                  reference herein)

  10.96           Taxable REIT Subsidiary Election Agreement dated December 17,
                  1999, among Crescent Real Estate Equities Company, Crescent
                  Real Estate Equities Limited Partnership, Crescent Operating,
                  Inc. and The Woodlands Land Company, Inc. (filed as Exhibit
                  10.96 to December 31, 1999 Form 10-K and incorporated by
                  reference herein)

  10.97           $19.5 Million Credit and Security Agreement affective as of
                  March 11, 1999, between Crescent Real Estate Equities Limited
                  Partnership and Crescent Operating, Inc. with related
                  Promissory Note (filed as Exhibit 10.97 to December 31, 1999
                  Form 10-K and incorporated by reference herein)

  10.98           First Amendment to Credit and Security Agreement effective as
                  of March 11, 1999, between Crescent Real Estate Equities
                  Limited Partnership and Crescent Operating, Inc. (filed as
                  Exhibit 10.98 to December 31, 1999 Form 10-K and incorporated
                  by reference herein)

  10.99           Third Amendment to Amended and Restated Credit and Security
                  Agreement effective as of March 11, 1999, between Crescent
                  Real Estate Equities Limited Partnership and Crescent
                  Operating, Inc. (filed as Exhibit 10.99 to December 31, 1999
                  Form 10-K and incorporated by reference herein)

  10.100          Third Amendment to Line of Credit Credit and Security
                  Agreement effective as of March 11, 1999, between Crescent
                  Real Estate Equities Limited Partnership and Crescent
                  Operating, Inc. (filed as Exhibit 10.100 to December 31, 1999
                  Form 10-K and incorporated by reference herein)

  10.101          Agreements for Wholesale Financing (with Addendum) between
                  Deutsche Financial Services Corporation and, respectively,
                  Western Traction Company, Machinery Inc., Solveson Crane
                  Rentals Inc., Harvey Equipment Center Inc., and Crescent
                  Machinery Company, with Guarantees (filed as Exhibit 10.101 to
                  December 31, 1999 Form 10-K and incorporated by reference
                  herein)

  10.102          Master Security Agreements between Associates Commercial
                  Corporation and, respectively, Crescent Machinery Company and
                  Western Traction Company; Security Agreement between
                  Associates Commercial Corporation and Western Traction
                  Company; Addendum; and Continuing Guaranty by Crescent
                  Machinery Company (filed as Exhibit 10.102 to December 31,
                  1999 Form 10-K and incorporated by reference herein)
</TABLE>



<PAGE>   133
<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                     DESCRIPTION OF EXHIBITS
-------                     -----------------------
<S>               <C>
  10.103          First Amendment to Amended and Restated Credit Agreement dated
                  as of December 20, 1999, between Crescent Real Estate Equities
                  Limited Partnership and Crescent Development Management Corp.
                  with related Line of Credit Note and letter amendment to
                  related security agreement (filed as Exhibit 10.103 to
                  December 31, 1999 Form 10-K and incorporated by reference
                  herein)

  10.104          $5,600,000 Promissory Note dated February 28, 2000, made by
                  East West Resorts, LLC payable to Crescent Real Estate
                  Equities Limited Partnership (filed as Exhibit 10.104 to the
                  Company's March 31, 2000 Form 10-Q ("March 31, 2000 Form
                  10-Q") and incorporated by reference herein)

  10.105          Mutual Termination of Asset Management Agreement for Omni
                  Austin Hotel, Austin, Texas, effective January 31, 2000,
                  between Crescent Real Estate Equities Limited Partnership and
                  COI Hotel Group, Inc. (filed as Exhibit 10.105 to March 31,
                  2000 Form 10-Q and incorporated by reference herein)

  10.106          Master Asset Management and Administrative Services Agreement
                  dated February 1, 2000, by and among Sonoma Management Corp.
                  I, Crescent Operating, Inc. and each of its subsidiaries
                  identified therein (filed as Exhibit 10.106 to March 31, 2000
                  Form 10-Q and incorporated by reference herein)

  10.107          Management Agreement effective February 1, 2000, between
                  Sonoma Management Corp. I, as Manager, and Crescent Real
                  Estate Funding VIII, L.P., as Owner and assignor to the
                  Company, relating to Ventana Inn & Spa (filed as Exhibit
                  10.107 to March 31, 2000 Form 10-Q and incorporated by
                  reference herein)

  10.108          Management Agreement effective February 1, 2000, between
                  Sonoma Management Corp. I, as Manager, and Crescent Real
                  Estate Funding VIII, L.P., as Owner and assignor to the
                  Company, relating to Sonoma Mission Inn Golf and Country Club
                  (filed as Exhibit 10.108 to March 31, 2000 Form 10-Q and
                  incorporated by reference herein)

  10.109          Management Agreement effective February 1, 2000, between
                  Sonoma Management Corp. I, as Manager, and Crescent Real
                  Estate funding VIII, L.P., as Owner and assignor to the
                  Company, relating to Sonoma Mission Inn and Spa (filed as
                  Exhibit 10.109 to March 31, 2000 Form 10-Q and incorporated by
                  reference herein)

  10.110          Termination of Lease Agreement for The Four Seasons Hotel,
                  Houston, effective November 3, 2000, between COI Hotel Group,
                  Inc. and Crescent Real Estate Funding IX, L.P. (filed as
                  Exhibit 10.110 to the Company's September 30, 2000 Form 10-Q
                  ("September 30, 2000 Form 10-Q") and incorporated by reference
                  herein)

  10.111          First Amendment to Credit and Security agreement effective
                  February 1, 2000, between Crescent Realty Estate Equities
                  Limited Partnership and Crescent Operating, Inc. relating to
                  $19.5 Million Credit and Security Agreement effective March
                  11, 1999 (filed as Exhibit 10.111 to September 30, 2000 Form
                  10-Q and incorporated by reference herein)

  10.112          Second Amendment to Credit and Security Agreement effective
                  February 1, 2000, between Crescent Real Estate Equities
                  Limited Partnership and Crescent Operating, Inc. relating to
                  $9 Million Credit and Security Agreement effective September
                  21, 1998 (filed as Exhibit 10.112 to September 30, 2000 Form
                  10-Q and incorporated by reference herein)

  10.113          Fourth Amendment to Amended and Restated Credit and Security
                  Agreement effective February 1, 2000, between Crescent Real
                  Estate Equities Limited Partnership and Crescent Operating,
                  Inc. relating to Amended and Restated Credit and Security
                  Agreement effective May 21, 1997 (filed as Exhibit 10.113 to
                  September 30, 2000 Form 10-Q and incorporated by reference
                  herein)
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<PAGE>   134
<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                     DESCRIPTION OF EXHIBITS
-------                     -----------------------
<S>               <C>
  10.114          Fourth Amendment to Line of Credit Credit and Security
                  Agreement effective February 1, 2000, between Crescent Real
                  Estate Equities Limited Partnership and Crescent Operating,
                  Inc. relating to Line of Credit Credit and Security Agreement
                  effective May 21, 1997 (filed as Exhibit 10.114 to September
                  30, 2000 Form 10-Q and incorporated by reference herein)

  10.115          Credit Agreement dated September 21, 2000, between Crescent
                  Development Management Corp., as borrower, and Crescent Real
                  Estate Equities Limited Partnership, as lender, and related
                  Line of Credit Note and Security Agreement (filed herewith)

  10.116          Assignment of Interest in East West Resorts, LLC (CDMC to
                  COPI); Assignment of Interest in East West Resorts, LLC (COPI
                  to CDMC); Assignment, Assumption and Consent Agreement dated
                  December 31, 2000, among Crescent Development Management
                  Corp., Crescent Development Management Corp. II, and Crescent
                  Real Estate Equities Limited Partnership (filed herewith)

  10.117          Assignment of Membership Interest dated December 29, 2000
                  between Crescent Operating, Inc. and Rockwood Financial Group,
                  Inc.; Assignment of Membership Interest dated December 29,
                  2000 between COPI CBHS Holdings, L.P. and Rockwood Financial
                  Group, Inc.; and related Indemnification Agreement dated
                  December 29, 2000 among COPI CBHS Holdings, L.P., Crescent
                  Operating, Inc. and Rockwood Financial Group, Inc. (filed
                  herewith)

  21              List of Subsidiaries of Crescent Operating, Inc.

  23.1            Consent of Ernst & Young LLP

  23.2            Consent of Deloitte & Touche LLP

  23.3            Consent of Arthur Andersen LLP - Denver

  23.4            Consent of Arthur Andersen LLP - Houston
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