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


                                    Form 10-Q
             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                For the quarterly period ended September 30, 1997
                           Commission File No. 1-11402

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


                                HFS Incorporated
             (Exact name of Registrant as specified in its charter)


            Delaware                                                22-3059335
  (State or other jurisdiction                                 (I.R.S. Employer
of incorporation or organization)                        Identification Number)

          6 Sylvan Way
     Parsippany, New Jersey                                            07054
(Address of principal executive office)                              (Zip Code)


                                (973) 428-9700
              (Registrant's telephone number, including area code)

                                 Not Applicable
       (Former name, former address and former fiscal year, if applicable)


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


     Indicate  by check mark  whether the  Registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  and 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 [ ]


                      APPLICABLE ONLY TO CORPORATE ISSUERS:

     The number of shares  outstanding  of each of the  Registrant's  classes of
common stock was 167,809,558  shares of Common Stock  outstanding as of November
7, 1997.


<PAGE>



                        HFS Incorporated and Subsidiaries

                                      INDEX




PART I - FINANCIAL INFORMATION                                         Page No.
                                                                       --------

     Item 1 - Financial Statements
              Consolidated Balance Sheets -
                  September 30, 1997 and December 31, 1996...............3  - 4
               Consolidated Statements of Income - Three Months and
                  Nine Months Ended September 30, 1997 and 1996.............5
               Consolidated Statements of Cash Flows -
                  Nine Months Ended September 30, 1997 and 1996.............6

      Item 2 - Management's Discussion and Analysis of Financial
               Condition and Results of Operations.....................12  - 26


PART II - OTHER INFORMATION

      Item 6 - Exhibits and Reports on Form 8-K............................27
      Signatures...........................................................28
      Index to Exhibits....................................................29

      Certain  statements  in this  Quarterly  Report  on Form  10-Q  constitute
"forward-looking  statements"  within  the  meaning  of the  Private  Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown  risks,  uncertainties  and other  factors  which  may cause the  actual
results,  performance, or achievements of the Company to be materially different
from any future results,  performance,  or achievements  expressed or implied by
such forward-looking statements.  These forward-looking statements were based on
various factors and were derived utilizing  numerous  important  assumptions and
other  important  factors that could cause actual  results to differ  materially
from those in the forward-looking  statements.  Important  assumptions and other
important  factors that could cause  actual  results to differ  materially  from
those  in the  forward-looking  statements,  include,  but are not  limited  to:
uncertainty as to the Company's future  profitability;  the Company's ability to
develop  and  implement  operational  and  financial  systems to manage  rapidly
growing  operations;  competition in the Company's existing and potential future
lines of business;  the Company's ability to integrate and operate  successfully
acquired businesses and the risks associated with such businesses, including the
Company's pending merger with CUC  International  Inc.; the Company's ability to
obtain  financing on acceptable  terms to finance the Company's  growth strategy
and for the  Company to  operate  within the  limitations  imposed by  financing
arrangements; uncertainty as to the future profitability of acquired businesses,
and other factors.  Other factors and assumptions not identified above were also
involved in the derivation of these forward-looking  statements, and the failure
of such other assumptions to be realized as well as other factors may also cause
actual results to differ materially from those projected. The Company assumes no
obligation  to update  these  forward-  looking  statements  to  reflect  actual
results,  changes in  assumptions  or changes in other  factors  affecting  such
forward-looking statements.




<PAGE>



PART 1 - FINANCIAL INFORMATION


ITEM 1.        FINANCIAL STATEMENTS


                        HFS Incorporated and Subsidiaries
                           CONSOLIDATED BALANCE SHEETS
                                 (In thousands)

<TABLE>
<CAPTION>


ASSETS                                                                   September 30,   December 31,
                                                                              1997          1996
                                                                          -----------   -------------
<S>                                                                            <C>             <C>
CURRENT ASSETS
Cash and cash equivalents .............................................   $    93,667   $    69,541
Restricted cash .......................................................        23,825        89,849
Accounts and notes receivable,
   net of allowance for doubtful accounts .............................       857,338       687,907
Due from car rental operations of Avis Rent A Car, Inc., net ..........        62,633          --
Other current assets ..................................................        99,414       117,320
Deferred income taxes .................................................       127,472        93,798
                                                                          -----------   -----------

TOTAL CURRENT ASSETS ..................................................     1,264,349     1,058,415


Property and equipment - net ..........................................       321,035       328,528
Franchise agreements - net  ...........................................       942,780       995,947
Excess of cost over fair value of net - net............................     1,913,478     1,783,409
Other intangibles - net ...............................................       769,497       604,535
Investment in Avis Rent A Car, Inc. ...................................       124,879        76,540
Other assets ..........................................................       537,687       289,392
                                                                          -----------   -----------

Total assets exclusive of assets under management and mortgage programs     5,873,705     5,136,766
                                                                          -----------   -----------

Assets under management and mortgage programs:
   Net investment in leases and leased vehicles .......................     3,547,217     3,418,666
   Relocation receivables .............................................       587,310       773,326
   Mortgage loans held for sale .......................................     1,162,220     1,248,299
   Mortgage servicing rights and fees .................................       305,428       288,943
                                                                          -----------   -----------
                                                                            5,602,175     5,729,234
                                                                          -----------   -----------

TOTAL ASSETS ..........................................................   $11,475,880   $10,866,000
                                                                          ===========   ===========

</TABLE>


     See accompanying notes to consolidated financial statements.

<PAGE>



                        HFS Incorporated and Subsidiaries
                           CONSOLIDATED BALANCE SHEETS
                        (In thousands except share data)

<TABLE>
<CAPTION>


LIABILITIES AND SHAREHOLDERS' EQUITY                                   September 30,   December 31,
                                                                           1997            1996
                                                                       ------------    ------------
<S>                                                                           <C>           <C>
CURRENT LIABILITIES
Accounts payable and other accrued expenses ........................   $    913,969    $    855,770
Short-term debt ....................................................           --           150,000
Due to car rental operations of Avis Rent A Car, Inc., net .........           --            61,807
Current portion of long-term debt ..................................          1,247           2,995
                                                                       ------------    ------------

TOTAL CURRENT LIABILITIES ..........................................        915,216       1,070,572

Long-term debt .....................................................      1,662,169         748,421
Deferred revenue ...................................................        397,754         397,034
Other liabilities ..................................................        204,608         231,951
                                                                       ------------    ------------

Total liabilities exclusive of liabilities under programs ..........      3,179,747       2,447,978
                                                                       ------------    ------------

Liabilities under management and mortgage programs:
   Debt ............................................................      4,952,083       5,089,943
   Deferred income taxes ...........................................        300,683         281,948
                                                                       ------------    ------------
                                                                          5,252,766       5,371,891
                                                                       ------------    ------------

Commitments and contingencies


SHAREHOLDERS' EQUITY
Preferred stock, $1.00 par value - authorized 10,000,000 shares;
   none issued and outstanding .....................................           --              --
Common stock, $.01 par value - authorized 600,000,000 shares;
   issued 162,808,704 and 158,728,807 shares, respectively .........          1,628           1,588
Additional paid-in capital .........................................      2,277,933       2,236,367
Retained earnings ..................................................        966,385         830,970
Net unrealized gain on investment ..................................           --             4,366
Currency translation adjustment ....................................        (12,109)         (8,008)
Treasury stock, at cost (3,087,400 and 322,500 shares, respectively)       (190,470)        (19,152)
                                                                       ------------    ------------

TOTAL SHAREHOLDERS' EQUITY .........................................      3,043,367       3,046,131
                                                                       ------------    ------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .........................   $ 11,475,880    $ 10,866,000
                                                                       ============    ============

</TABLE>


     See accompanying notes to consolidated financial statements.



<PAGE>



                        HFS Incorporated and Subsidiaries
                        CONSOLIDATED STATEMENTS OF INCOME
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>

                                                               Three Months Ended             Nine Months Ended
                                                                  September 30,                 September 30,
                                                          --------------------------    -----------------------------
                                                             1997           1996            1997             1996
                                                          -----------    -----------    -------------   -------------
<S>                                                           <C>           <C>             <C>             <C>

REVENUES:
   Service fees, net                                      $   597,872    $   389,527    $   1,627,076   $     974,754
   Fleet leasing (net of depreciation and
     interest costs of $307,908, $283,086,
     $892,186 and $839,080, respectively)                      13,148         14,297           42,905          41,016
   Other, net                                                  38,860          5,747           79,496          16,845
                                                          -----------    -----------    -------------   -------------
Net revenues                                                  649,880        409,571        1,749,477       1,032,615
                                                          -----------    -----------    -------------   -------------

EXPENSES:
   Operating                                                  222,771        173,771          657,835         469,154
   Marketing and reservation                                   80,897         50,044          211,378         115,994
   General and administrative                                  18,670         17,647           75,782          56,836
   Merger and restructuring charge associated
     with business combination                                     --             --          303,000              --
   Depreciation and amortization                               44,541         25,224          131,075          62,206
   Interest, net                                               17,239          1,070           47,986          11,836
                                                          -----------    -----------    -------------   -------------
Total expenses                                                384,118        267,756        1,427,056         716,026
                                                          -----------    -----------    -------------   -------------

Income before income taxes                                    265,762        141,815          322,421         316,589
Provision for income taxes                                    108,359         56,941          180,364         128,098
                                                          -----------    -----------    -------------   -------------
Net income                                                $   157,403    $    84,874    $     142,057   $     188,491
                                                          ===========    ===========    =============   =============

SHARE INFORMATION:

Net income per share
   Primary                                                $       .89    $       .50    $         .83   $        1.20
                                                          ===========    ===========    =============   =============

   Fully diluted                                          $       .88    $       .50    $         .81   $        1.19
                                                          ===========    ===========    =============   =============


Weighted average common and common
   equivalent shares outstanding
       Primary                                                179,703        171,947          175,611         160,068
                                                          ===========    ===========    =============   =============

       Fully diluted                                          183,084        172,313          178,804         160,891
                                                          ===========    ===========    =============   =============

</TABLE>


     See accompanying notes to consolidated financial statements.


<PAGE>



                        HFS Incorporated and Subsidiaries
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>

                                                                                       Nine Months Ended
                                                                                        September 30,
                                                                                      1997                  1996
                                                                                --------------       ----------------
<S>                                                                                    <C>                   <C>
Operating Activities:
   Net income                                                                   $      142,057       $       188,491
   Restructuring charge                                                                303,000                    --
   Restructuring related payments                                                     (137,000)                   --
   Increase (decrease) from changes in:
     Assets under management programs:
       Depreciation and amortization under management and mortgage programs            812,309               764,172
       Mortgage loans held for sale                                                     86,079              (318,767)
   Other operating activity                                                            (24,729)               76,443
                                                                                --------------       ---------------
     Net cash provided by operating activities                                       1,312,791               772,546
                                                                                --------------       ---------------

Investing Activities:
  Assets under management and mortgage programs:
   Investment in leases and leased vehicles                                         (1,565,857)           (1,217,700)
   Payments received on investment in leases and leased vehicles                       615,153               470,193
   Equity advances in homes under management                                        (4,185,486)           (2,347,351)
   Repayment of advances on homes under management                                   4,341,295             2,377,103
   Additions to originated mortgage servicing rights                                  (147,608)             (115,219)

  Property and equipment additions                                                     (62,662)              (35,955)
  Investment in preferred stock                                                       (181,191)                   --
  Due from Avis Rent A Car, Inc.                                                      (124,440)                   --
  Net assets acquired, exclusive of cash acquired                                     (498,845)             (970,885)
  Proceeds from sale of assets                                                          21,750                38,018
  All other investing activities                                                        20,435               (11,052)
                                                                                --------------       ----------------
     Net cash used in investing activities                                          (1,767,456)           (1,812,848)
                                                                                ---------------      ----------------

Financing Activities:
   Proceeds from borrowings                                                          3,046,657             1,538,130
   Principal payments on borrowings                                                 (1,748,901)           (1,198,078)
   Net change in short term borrowings under management
     and mortgage programs                                                            (693,891)              114,518
   Issuance of common stock, net                                                        53,302             1,176,810
   Redemption of Series A Preferred Stock of Century 21                                     --               (80,000)
   Purchases of treasury stock                                                        (171,318)               (8,025)
   Payment of dividends of pooled entities                                              (6,644)              (18,356)
                                                                                ---------------      ----------------
     Net cash provided by financing activities                                         479,205             1,524,999
                                                                                --------------       ---------------

Effect of changes in exchange rates on cash and cash equivalents                          (414)              (17,104)

Net increase in cash and cash equivalents                                               24,126               467,593
Cash and cash equivalents, beginning of period                                          69,541                22,923
                                                                                --------------       ---------------
Cash and cash equivalents, end of period                                        $       93,667       $       490,516
                                                                                ==============       ===============
</TABLE>

     See accompanying notes to consolidated financial statements.

<PAGE>



                        HFS Incorporated and Subsidiaries
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   Basis of Presentation

     The consolidated  balance sheet of HFS  Incorporated and subsidiaries  (the
"Company") as of September 30, 1997, the  consolidated  statements of income for
the  three  and  nine  months  ended  September  30,  1997  and  1996,  and  the
consolidated  statements  of cash flows for the nine months ended  September 30,
1997 and 1996 are  unaudited.  In the  opinion of  management,  all  adjustments
necessary for a fair  presentation  of such  financial  statements are included.
There were no  adjustments of an unusual  nature  recorded  during the three and
nine months ended  September  30, 1997 and 1996 except for a one-time  charge of
$303 million ($227 million  after tax),  recorded in the second  quarter of 1997
representing transaction and restructuring costs incurred in connection with the
merger of the Company with PHH Corporation  ("PHH") (See Note 4). The Company is
a global  provider of fee-based  consumer  services  primarily to the travel and
real estate  industries.  The Company  therefore  experiences  seasonal  revenue
patterns similar to those of the travel and real estate  industries  wherein the
summer  months   produce   higher  revenue  than  other  periods  of  the  year.
Accordingly,  the first and fourth  quarters are  traditionally  weaker than the
second  and third  quarters  and as such  interim  results  are not  necessarily
indicative of results for a full year.

     The consolidated financial statements include the accounts and transactions
of all  wholly-owned and majority owned  subsidiaries,  except for the Company's
ownership of Avis Rent A Car,  Inc.  ("ARAC"),  which is accounted for under the
equity method (See Note 7). All material  intercompany balances and transactions
have been eliminated in  consolidation.  On April 30, 1997, the Company acquired
PHH by merger,  which has been accounted for as a pooling of interests (See Note
3). Accordingly,  the accompanying  consolidated  financial statements have been
restated as if the Company and PHH had operated as one entity  since  inception.
The  consolidated  financial  statements  of the Company  include the assets and
liabilities  of Ramada  Franchise  Systems,  Inc.,  an entity  controlled by the
Company by virtue of its  ownership  of 100% of the common stock of such entity.
The assets of Ramada  Franchise  Systems,  Inc. are not available to satisfy the
claims of any creditors of the Company or any of its other affiliates, except as
otherwise specifically agreed by Ramada Franchise Systems, Inc.

     The consolidated  financial  statements and notes are presented as required
by Form 10-Q and do not contain  certain  information  included in the Company's
consolidated financial statements, included in the Company's Form 8-K dated July
16, 1997. The December 31, 1996 consolidated  balance sheet was derived from the
Company's  audited  financial  statements and should be read in conjunction with
such consolidated financial statements and notes thereto.

     Certain reclassifications have been made to the 1996 consolidated financial
statements to conform with the presentation used in 1997.


2.   Pending Merger with CUC International Inc.

     On May 27, 1997,  the Company  entered into a definitive  merger  agreement
(with CUC  International  Inc. ("CUC") pursuant to which the Company is expected
to merge with and into CUC,(the "CUC Merger")and be renamed Cendant Corporation.


<PAGE>



In  connection  with the CUC Merger,  each share of the  Company's  common stock
shall be converted  into the right to receive 2.4031 shares of CUC common stock.
CUC is a leading technology-driven,  membership-based consumer services company,
providing its members with access to a variety of goods and services  worldwide,
including such services as shopping,  travel,  auto,  dining,  home improvement,
lifestyle,  vacation  exchange,  credit card and  checking  account  enhancement
packages,  financial products and discount programs. CUC reported total revenues
and net income of $2.3 billion and $164.1  million,  respectively,  for the year
ended January 31, 1997. The CUC Merger received  approval from the  shareholders
of each company on October 1, 1997 and also requires  Federal  Trade  Commission
approval which has not yet been  received.  The CUC Merger will be accounted for
as a pooling of interests.


3.   Merger with PHH Corporation

     On April 30, 1997,  the Company  acquired PHH by merger (the "PHH Merger"),
issuing 30.3 million  shares of Company  common stock in exchange for all of the
outstanding  common  stock of PHH.  The PHH Merger has been  accounted  for as a
pooling of  interests.  Accordingly,  the  accompanying  consolidated  financial
statements  have been  prepared as if PHH and the  Company  had  operated as one
entity  since  inception.  PHH is the  world's  largest  provider  of  corporate
relocation  services and also provides  mortgage  services and fleet  management
services.

     The following table shows the historical  operating  results of the Company
and PHH for the periods prior to the PHH Merger ($000's):

                        For the four months               For the nine months
                       ended April 30, 1997             ended September 30, 1996
                       --------------------             ------------------------
Net revenues
     HFS .................   $  473,969                       $  550,010
     PHH ................       237,838                          482,605
                             ----------                       ----------
         Total ...........   $  711,807                       $1,032,615
                             ==========                       ==========

Net income
     HFS .................   $   83,667                       $  130,960
     PHH .................       41,747                           57,531
                             ----------                       ----------
         Total ...........   $  125,414                       $  188,491
                             ==========                       ==========


4.   Merger and Restructuring Charge

     The Company  recorded a one-time  pre-tax merger and  restructuring  charge
("PHH  Restructuring  Charge") of $303 million ($227 million,  after tax) during
the second quarter of 1997 in connection with the PHH Merger.  Excluding the PHH
Restructuring  Charge,  net income  was $369  million or $2.07 per share for the
nine months ended September 30, 1997. The PHH Restructuring Charge is summarized
by type as follows ($000's):





<PAGE>



              Personnel related                           $       142.4
              Professional fees                                    36.8
              Business terminations                                44.7
              Facility related                                     57.1
              Other costs                                          22.0
                                                          -------------
              Total                                       $       303.0
                                                          =============


     Personnel  related  charges are  comprised of costs  incurred in connection
with  employee  reductions  associated  with the  combination  of the  Company's
relocation  service  businesses and the  consolidation of corporate  activities.
Personnel  related  charges  include  termination  benefits  such as  severance,
medical and other  benefits.  Also  included in  personnel  related  charges are
supplemental  retirement benefits resulting from the change of control.  Several
grantor trusts were  established  and funded by the Company to pay such benefits
in accordance with the terms of the PHH merger agreement. Full implementation of
the  restructuring  plan will result in the  termination  of  approximately  500
employees,  substantially  all of whom  are  located  in  North  America.  As of
September  30,  1997,  369  employees  were  terminated.  Professional  fees are
primarily comprised of investment banking, accounting and legal fees incurred in
connection  with the PHH  Merger.  Business  termination  charges  relate to the
exiting  of  certain  activities  associated  with  fleet  management,  mortgage
services and ancillary  operations in  accordance  with the Company's  strategic
plan. Facility related expenses include costs associated with contract and lease
terminations,  asset disposals and other charges incurred in connection with the
consolidation and closure of excess space.

     The Company  anticipates  that  approximately  $236 million will be paid in
cash in connection with the PHH  Restructuring  Charge of which $137 million was
paid  through  September  30,  1997.  The  remaining  cash  portion  of the  PHH
Restructuring Charge will be financed through cash generated from operations and
borrowings under the Company's credit  facilities.  It is currently  anticipated
that the  restructuring  plan will be completed in early 1998 and will result in
pre-tax  savings  approximating  $100  million  with  the full  benefit  of cost
reductions beginning in 1998. Revenue and operating results from activities that
will not be  continued  are not  material  to the results of  operations  of the
Company.


5.   Pro Forma Information

     The following table reflects the unaudited operating results of the Company
for the nine months ended  September 30, 1996 on a pro forma basis,  which gives
effect to the  following  1996  acquisitions,  accounted  for under the purchase
method of accounting,  and the related financing of such acquisitions as if they
had occurred on January 1, 1996: (i) the Travelodge(R)  franchise  system;  (ii)
the Electronic  Realty  Associates(R)  franchise  system;  (iii) the six CENTURY
21(R) non-owned regions;  (iv) Coldwell Banker Corporation;  (v) Avis, Inc.; and
(vi) Resort Condominiums International, Inc. ($000's, except per share data):

         Net revenues                                       $   1,516,822
         Net income                                               242,430
         Net income per share (fully diluted)                        1.38





<PAGE>



6.   Investment in ARAC

     Upon entering into a definitive  merger  agreement to acquire Avis, Inc. in
July 1996,  the Company  announced its strategy to dilute its interest in ARAC's
car rental  operations  while  retaining  assets  associated  with the franchise
business,   including  trademarks,   reservation  system  assets  and  franchise
agreements with ARAC and other  licensees.  In September 1997, ARAC completed an
initial public offering  ("IPO")  resulting in a 72.5% dilution of the Company's
investment interest.  Net proceeds approximating $359.3 million retained by ARAC
were  used to fund its  August  20,  1997  acquisition  of The  First  Gray Line
Corporation and repay ARAC indebtedness.

     The  Company  licenses  the Avis  trademark  to ARAC  pursuant to a 50-year
master  license  agreement  and  receives  royalty  fees  based  upon 4% of ARAC
revenue,  escalating to 4.5% of ARAC revenue over a 5-year period.  In addition,
the Company operates the telecommunications and computer processing system which
services ARAC for  reservations,  rental  agreement  processing,  accounting and
fleet control for which the Company charges ARAC at cost.  Summarized  financial
information of ARAC is as follows ($000's):

                              Avis Rent A Car, Inc.


Balance sheet data:          September 30, 1997          December 31, 1996
                             ------------------          -----------------
    Vehicles ...........        $3,364,660                    $2,243,492
    Total assets .......         4,717,107                     3,131,357
    Debt ...............         3,285,548                     2,295,474
    Total liabilities ..         4,263,001                     3,054,817
    Shareholders' equity           454,106                        76,540


                             Three Months Ended               Nine Months Ended
Statement of income data:    September 30, 1997              September 30, 1997
                             ------------------              ------------------
    Revenues .................   $  580,049                   $1,525,696
    Income before provision
      for income taxes .......       24,953                       49,313
    Net income ............. .       13,868                       26,974


7.   Redemption of 4-1/2% Notes

     On  September  22,  1997,  the Company  exercised  its option to redeem the
outstanding  4-1/2%  Convertible Senior Notes ("4-1/2% Notes") effective October
15, 1997 in accordance  with the  provisions  of the  indenture  under which the
4-1/2% Notes were issued. Prior to the redemption date, each of the 4-1/2% Notes
were  converted into shares of Company  common stock.  Accordingly,  the Company
issued 8.2 million  shares of Company common stock as a result of the conversion
of such notes of which 0.1 million shares of Company common stock were issued as
of September 30, 1997.


8.   Investment in NRT

     During the third  quarter,  the Company  acquired $182 million of preferred
stock  (included in other assets) of NRT  Incorporated  ("NRT"),  a newly formed
corporation created



<PAGE>



     to acquire  residential  real estate  brokerage firms. The Company acquired
$188.7 million of certain intangible assets including trademarks associated with
real estate  brokerage  firms  acquired by NRT in the third quarter of 1997. The
Company,  at its  discretion,  may acquire up to $81.3 million of additional NRT
preferred stock and may also purchase up to $257.3 million of certain intangible
assets of real estate brokerage firms acquired by NRT.

     In September  1997,  NRT acquired  the real estate  brokerage  business and
operations of National  Realty Trust (the "Trust"),  and two other regional real
estate  brokerage  businesses.  The Trust is an  independent  trust to which the
Company  contributed  the brokerage  offices  formerly owned by Coldwell  Banker
Corporation  in connection  with the Company's  acquisition  of Coldwell  Banker
Corporation. NRT is the largest residential brokerage firm in the United States.


<PAGE>



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




GENERAL OVERVIEW

     HFS  Incorporated,  together with its subsidiaries  (the  "Company"),  is a
leading global provider of consumer  services.  The Company  provides  fee-based
services that primarily fall within the Travel and Real Estate  industries.  The
Company generally does not own the assets or share the risks associated with the
underlying businesses of its customers.

     In the travel  industry,  the Company is the world's largest  franchisor of
lodging facilities and car rental  operations,  the leading provider of vacation
timeshare  exchange  services  and a leading  provider  of  international  fleet
management services.

     In the real estate industry,  the Company is the world's largest franchisor
of real estate  brokerage  offices,  the world's  largest  provider of corporate
relocation  services and operates the tenth largest mortgage lender business in
the United States.

     On May 27, 1997,  the Company  entered into a definitive  merger  agreement
with CUC International  Inc. ("CUC"),  pursuant to which the Company is expected
to  merge  with  and  into  CUC  (the  "CUC  Merger"),  and be  renamed  Cendant
Corporation.  In  connection  with the CUC Merger,  each share of the  Company's
common stock shall be converted  into the right to receive  2.4031 shares of CUC
common  stock.  CUC is a  leading  technology-driven  membership-based  consumer
services  company  with  shares  traded on the New York  Stock  Exchange.  CUC's
business  profile is consistent with the Company's in that CUC's primary revenue
source  consists of recurring  membership  revenue  rather than revenue from the
sale of goods and services to club members.


RESULTS OF OPERATIONS

3Q 1997 vs 3Q 1996

     Consolidated  net income increased 85% ($72.5 million) to $157.4 million in
1997 while  earnings per share ("EPS")  increased 76% ($.38) to $.88.  Operating
income (revenue less expenses,  excluding  interest and income taxes)  increased
98% ($140.1 million) to $283.0 million.  Consolidated net revenue  increased 59%
($240.3 million) to $649.9 million.

     Net interest  expense  increased  $16.2 million  primarily  resulting  from
borrowings  under  revolving  credit  arrangements  which financed 1997 treasury
stock   purchases,    restructuring   expenditures   and   acquisition   related
expenditures.  The weighted average effective  interest rate increased from 5.7%
to 5.8% as a result of higher short-term interest rates.





<PAGE>



SEGMENT DISCUSSION OF OPERATING INCOME

     Certain of the underlying  segments are comprised of businesses  which were
acquired  in 1996  and  accounted  for by the  purchase  method  of  accounting.
Accordingly,  the results of operations of such acquired companies were included
in the consolidated  operating  results of the Company from the respective dates
of acquisition.  In such circumstances,  for comparative  purposes,  the segment
discussion  compares the 1997  operating  results  with the pro forma  operating
results for 1996,  which assumes that the businesses  acquired during 1996, were
acquired  on  January 1,  1996.  Operating  expenses  include  depreciation  and
amortization  but exclude  interest  expense and income  taxes.  Results for the
Company's business segments are as follows:


TRAVEL INDUSTRY

Lodging

     The  Company  operates  eight  nationally  recognized  lodging  brands with
approximately  5,700 lodging  properties  under franchise  contracts of up to 20
years in duration.  The Company provides central reservation system services and
national marketing programs, which are completely funded by its franchisees from
a designated  portion of the franchise  fees. The Company  charges  royalty fees
based on a percentage  of  franchisee  gross room sales to fund all expenses not
covered by marketing and reservation fees, such as quality assurance inspections
and franchise sales and service functions.  Accordingly, the significant revenue
drivers of the lodging segment are the number of royalty-paying  franchise units
and the average  royalty  rate which they pay.  Other  relevant  drivers are the
average  daily  rates  and  occupancy   percentage  of  the  underlying  lodging
properties.

Operating income ($000's)       1997       1996   Variance
-------------------------   --------   --------   --------
    Net revenue .........   $124,473   $115,670          8%
    Operating expenses ..     73,487     71,530          3%
                            --------   --------
    Operating income ....   $ 50,986   $ 44,140         16%
                            ========   ========

     The net revenue increase resulted from an 8% increase in royalty fees and a
41% increase in revenue from preferred alliances seeking access to the Company's
franchisees  and their  underlying  consumer  base. The increase in royalty fees
resulted  primarily from a 5% growth in franchised rooms from the same period in
1996.  The 3% increase in  operating  expenses  represents  increased  marketing
expenses  associated  with  funds  administered  by the  Company  on  behalf  of
franchisees  on a  pass-through  basis  (corresponding  franchisee  contribution
included in revenue).

Car Rental

     The Company acquired HFS Car Rental,  Inc. (formerly Avis, Inc.) on October
17, 1996. In September 1997, ARAC completed an IPO Resulting in a 72.5% dilution
of the  Company's  investment  in a  subsidiary  that  operated  the car  rental
operations  of HFS Car Rental,  Inc.  The Company  retained  the assets that are
consistent with the Company's service provider  business profile,  including the
trademark,  franchise agreements,  reservation system and information technology
system.  The Company receives fees based on a master license agreement with ARAC
and other third party  licensees.  The Company's  equity in the earnings of ARAC
after royalty and reservation fees are reported in the Company's other segment.





<PAGE>



                                            Pro Forma
Operating income ($000's) .........  1997      1996     Variance
----------------------------------- -------   -------   --------
    Net revenue ................... $62,787   $59,315         6%
    Operating expenses ...........   37,596    38,334        (2%)
                                    -------   -------
    Operating income ............   $25,191   $20,981        20%
                                    =======   =======

     Pro forma operating  income  increased $4.2 million (20%) from 1996 to 1997
as a result of $1.3  million  (7%)  increase in royalty fees and $2.2 million of
preferred  alliance and other  revenue.  A 6% increase in franchisee  car rental
price per day contributed to the royalty increase.

Timeshare

     The Company  acquired Resort  Condominiums  International,  Inc. ("RCI") in
November 1996 as such,  amounts for 1996 are pro forma.  RCI sells  subscription
memberships to owners of vacation  timeshare resorts which allows the members to
exchange their timeshare  accommodations for timeshare  accommodations  owned by
other members at  participating  affiliated  resorts  worldwide.  In addition to
membership fees, RCI earns fees for exchanges processed by its call centers. The
key  timeshare  revenue  drivers  include  the number of fee paying  members and
exchanges as well as each corresponding average fee.

                                               Pro Forma
Operating income ($000's) ........      1997      1996       Variance
                                      -------   -------      --------
    Net revenue ......................$86,860   $78,164        11%
    Operating expenses ............... 64,392    66,649        (3%)
                                      -------   -------
    Operating income .................$22,468   $11,515        95%
                                      =======   =======

     Pro forma operating  income increased $11.0 million (95%) from 1996 to 1997
as  a  result  of  expense  reductions  realized  following  the  November  1996
acquisition of RCI. Pro forma revenue increased 11% as a result of a 9% increase
in exchange revenue and a 24% increase in subscription  revenue,  resulting from
membership and price increases.

Fleet Management

     Fleet management  services are offered to corporate  clients and government
agencies to assist them in  effectively  managing  their  vehicle  fleet  costs,
reducing  in-house  administrative  costs  and  enhancing  driver  productivity.
Services  consist of leasing  (which  generally  requires an  investment  by the
Company in the vehicles and includes new vehicle purchasing, open and closed-end
operating leasing, direct finance leasing and used vehicle marketing) as well as
a  variety  of  fee-based  services   including  fuel  purchasing,   maintenance
management programs,  expense reporting, fuel management programs,  accident and
safety programs and other driver services for managing  clients' vehicle fleets.
The Company has  experienced  minimal losses  associated  with its investment in
vehicles due to the overall creditworthiness of its corporate clients.

Operating income ($000's)      1997      1996   Variance
-------------------------   -------   -------   --------
    Net revenue .........   $59,810   $59,062         1%
    Operating expenses ..    41,104    44,156        (7%)
                            -------   -------
    Operating income ....   $18,706   $14,906        25%
                            =======   =======

     Net revenue  increased  only $.7 million (1%) as a result of the  Company's
January  1997 sale of certain  credit card  operations.  The  Company  currently
participates in such credit card operations as a joint venture partner and


<PAGE>



accordingly,  records  revenue  based on its  equity  in  earnings  of the joint
venture. As a result, revenue in 1997 includes revenue, net of expenses from the
joint  venture,   compared  to  gross  revenue   received  from   corresponding,
wholly-owned  credit  card  operations  in  1996.  Assuming  the  joint  venture
commenced  January 1, 1996,  pro forma net revenue  increased 12% primarily as a
result of $3.6 million of increased  fuel card revenue in the United Kingdom and
a $1.6 million  increase in the United States fleet card  operations.  Operating
income increased 25% as a result of savings  generated from the restructuring of
operations subsequent to the PHH Merger.


REAL ESTATE INDUSTRY

Real Estate Franchise

     The Company licenses brand names to independently  owned brokerage  offices
associated  with  three of the four  largest  real  estate  brokerage  franchise
systems in the world. The Company acquired the world's largest franchise system,
the CENTURY 21(R) franchise  system, in August 1995, the ERA(R) franchise system
in February 1996 and the Coldwell  Banker(R)  franchise  system in May 1996. The
most significant  revenue driver for the real estate  franchise  business is the
number  of  real  estate  sales  transactions  for  which  the  broker  receives
commission  revenue.  Royalties  are  calculated  based on a percentage  of such
franchisee commission revenue.  Marketing fees are collected from franchisees by
the Company and are used to fund  national  advertising  expenditures  and other
marketing activities.

Operating income ($000's)      1997      1996   Variance
-------------------------   -------   -------   --------
    Net revenue .........   $98,344   $79,426        24%
    Operating expenses ..    36,574    36,187         1%
                            -------   -------
    Operating income ....   $61,770   $43,239        43%
                            =======   =======

     Operating  income  increased  43% as a  result  of a  $18.9  million  (24%)
increase in net  revenue  and only a $0.4  million  (1%)  increase in  operating
expenses.  The royalty portion of revenue increased $13.0 million (18%) to $85.8
million. Increased royalty revenue reflects higher broker sales volume primarily
resulting from a 5 % increase in real estate  transactions and a 12% increase in
the average  price of homes sold.  The net revenue  increase also reflects a 75%
increase in revenue from  preferred  alliance  programs to $8.3 million in 1997.
The Company  limited  operating  expenses to a $0.4 million  (1%)  increase as a
result of the  post-acquisition  realization of cost savings associated with the
consolidation of operating functions of its franchise systems.

Relocation

     Relocation segment services  primarily consist of the purchase,  management
and  resale  of homes  and fee  based  home  related  services  for  transferred
employees of corporate clients, members of affinity group clients and government
agencies. Although the Company acquires the home of client employees, the client
corporation reimburses the Company for carrying costs until the home is sold and
for home sale losses.  Accordingly,  the Company  earns a fee for services  with
minimal  real estate risk.  Operating  expenses  primarily  consist of sales and
service staffing and related costs.





<PAGE>



Operating income ($000's)       1997       1996   Variance
-------------------------   --------   --------   --------
    Net revenue .........   $112,034   $101,958         10%
    Operating expenses ..     76,907     80,804         (5%)
                            --------   --------
    Operating income ....   $ 35,127   $ 21,154         66%
                            ========   ========

     The $14.0 million (66%) increase in operating  income is  attributable to a
$10.1  million  (10%)  increase in net revenue and $3.9 million (5%) decrease in
expenses.  The increase in net revenue was primarily attributable to an increase
in referral  fees from home sale  transactions.  The $3.9  million  reduction in
operating  expenses primarily reflects savings associated with the restructuring
of relocation operations following the PHH Merger.

Mortgage Services

     Mortgage services primarily consist of the origination,  sale and servicing
of residential  first mortgage loans.  The Company  packages such mortgage loans
for sale in  secondary  markets  generally  within  45 days of  origination  and
retains  servicing  rights.  The  Company  markets a variety  of first  mortgage
products to consumers through relationships with corporations,  affinity groups,
government  agencies,  financial  institutions,  real estate brokerage firms and
mortgage  banks by a combination of retail  teleservices  delivery and wholesale
correspondent lending arrangements.

Operating income ($000's)      1997      1996   Variance
-------------------------   -------   -------   -------
    Net revenue .........   $51,602   $40,513        27%
    Operating expenses ..    32,161    26,533        21%
                            -------   -------
    Operating income ....   $19,441   $13,980        39%
                            =======   =======

     Operating  income  increased  39%  as a  result  of a 27%  increase  in net
revenue.  The  increase in net revenue  resulted  primarily  from a $6.2 million
(22%) increase in loan  origination  revenue due to an increase in loan closings
($3.5  billion  for third  quarter ) and a $4.9  million  (41%)increase  in loan
servicing fees. Operating expenses increased $5.6 million (21%),  reflecting the
increase in current loan  origination  volume and  anticipation of future volume
increases.

Other

     Other business operations  primarily consist of the equity in earnings from
the Company's investment in ARAC after charging ARAC franchise, reservation, and
information technology fees and other ancillary operations or transactions which
are not included in the Company's primary business segment operations. Operating
expenses also include  corporate  overhead  expenses  which are not allocated to
other operating business segments. Operating income is summarized as follows:

Operating income ($000's)      1997      1996   Variance
-------------------------   -------   -------   -------
    Net revenue .........   $53,970   $12,943       317%
    Operating expenses ..     4,658     7,476       (38%)
                            -------   -------
    Operating income ....   $49,312   $ 5,467       802%
                            =======   =======

     Operating  income  increased  $43.8 million  primarily as a result of $26.9
million of the equity in earnings of ARAC.





<PAGE>



Year-To-Date 1997 vs 1996

     The Company  incurred  an  anticipated  $303  million  one-time  merger and
restructuring charge ($227 million,  after tax) (the "PHH Restructuring Charge")
during the  second  quarter of 1997 in  connection  with the merger  with PHH on
April 30, 1997.

     The PHH Restructuring  Charge was comprised of approximately $142.4 million
of personnel related expenses, $36.8 million of professional fees, $44.7 million
of business  termination  costs,  $57.1 million of facility related expenses and
$22.0  million  of other  expenses  directly  associated  with  the PHH  Merger.
Personnel  related  charges are comprised of costs  incurred in connection  with
employee reductions  associated with the combination of the Company's relocation
service  businesses and the  consolidation  of corporate  activities.  Personnel
related  charges  include  termination  benefits such as severance,  medical and
other  benefits.  Also included in personnel  related  charges are  supplemental
retirement benefits resulting from the change of control. Several grantor trusts
were  established  and funded by the Company to pay such  benefits in accordance
with  the  terms  of  the  PHH  merger  agreement.  Full  implementation  of the
restructuring plan will result in the termination of approximately 500 employees
substantially all of whom are located in North America and of whom 369 employees
were  terminated  as of September  30,  1997.  Professional  fees are  primarily
comprised  of  investment  banking,   accounting  and  legal  fees  incurred  in
connection with the PHH Merger.  Business termination charges relate to the exit
of certain  activities  associated with fleet management,  mortgage services and
ancillary  operations in accordance with the Company's  revised  strategic plan.
Facility  related  expenses  include  costs  associated  with contract and lease
terminations,  asset disposals and other charges  incurred in the  consolidation
and closure of excess space.

     The Company  anticipates  that  approximately  $236 million will be paid in
cash in connection with the PHH  Restructuring  Charge of which $137 million was
paid  through  September  30,  1997.  The  remaining  cash  portion  of the  PHH
Restructuring Charge will be financed through cash generated from operations and
borrowings under the Company's credit  facilities.  It is currently  anticipated
that the  restructuring  plan will be completed in early 1998 and will result in
pre-tax  savings  approximating  $100  million  with  the full  benefit  of cost
reductions beginning in 1998. Revenue and operating results from activities that
will not be  continued  are not  material  to the results of  operations  of the
Company.

     The financial summary for the nine months ended September 30, 1997 and 1996
including the PHH Restructuring Charge is as follows ($000's):


Operating income ($000's)         1997         1996     Variance      
-------------------------   ----------   ----------   ---------- 
    Net revenue .........   $1,749,477   $1,032,615           69% 
    Operating expenses ..    1,379,070      704,190           96% 
                            ----------   ----------               
    Operating income ....   $  370,407   $  328,425           13% 
                            ==========   ==========               

    Net income ..........   $  142,057   $  188,491          (25%) 
    Net income per share
     (fully diluted)        $      .81   $     1.19          (32%) 

     Including  the second  quarter 1997 PHH  Restructuring  Charge,  net income
decrease  $46.4 million (25%) while  operating  income  increased  $42.0 million
(13%). Net interest expense increased 305% ($36.2 million)  primarily  resulting
from borrowings under revolving credit arrangements which financed 1997 treasury
stock   purchases,   restructuring   expenditures,   and   acquisition   related
expenditures,  while the weighted average effective interest rate increased from
5.7% to 5.9% as a result of higher short-term interest rates.



<PAGE>



    Excluding the PHH  Restructuring  Charge,  consolidated net income increased
96%  ($180.6  million)  to $369.1  million  in 1997,  while net income per share
increased 74% ($.88) to $2.07.  In addition,  operating  income  increased  105%
($345.0 million) to $673.4 million.


SEGMENT DISCUSSION OF OPERATING INCOME

     Since the majority of the PHH Restructuring  Charge does not directly apply
to the Company's  operating  segments,  the following  segment  information  and
discussions  exclude the PHH Restructuring  Charge.  Operating  expenses include
depreciation and  amortization  but excludes  interest expense and income taxes.
The operating results of the Company's business segments are as follows:


TRAVEL INDUSTRY

Lodging

Operating income ($000's)       1997       1996   Variance
-------------------------   --------   --------   --------
    Net revenue .........   $322,427   $295,892          9%
    Operating expenses ..    191,240    186,555          3%
                            --------   --------
    Operating income ....   $131,187   $109,337         20%
                            ========   ========

     The net revenue increase  resulted from a 7% increase in royalty fees and a
62% increase in revenue from preferred alliances seeking access to the Company's
franchisees  and their  underlying  consumer  base. The increase in royalty fees
resulted  primarily from a 4% growth in franchised rooms from the same period in
1996. The 3% ($4.7 million)  increase in operating  expenses resulted from a 10%
($12.2 million) increase in marketing and reservation  expenses which are funded
by the Company's  franchisees  partially  offset by the  absorption of corporate
overhead expenses by several other operating segments acquired in 1996.

Car Rental
                                                       Pro Forma
     Operating income ($000's)           1997              1996       Variance
     -------------------------        -----------      ---------      --------
         Net revenue                  $   181,657      $165,112            10%
         Operating expenses               113,889       109,561             4%
                                      -----------      --------
         Operating income             $    67,768      $ 55,551            22%
                                      ===========      ========

     Pro forma  operating  income  increased 22% primarily as a result of a $3.3
million (5%) increase in royalty fees and $5.2 million of preferred alliance and
other revenue.  The increase in royalty fees was primarily  attributable to a 5%
increase in ARAC's car rental price per day.





<PAGE>



Timeshare
                                           Pro Forma
Operating income ($000's) ....     1997       1996     Variance
                                 --------   --------   --------
    Net revenue ................ $274,570   $236,675         16%
    Operating expenses .........  212,531    207,397          2%
                                 --------   --------
    Operating income ........... $ 62,039   $ 29,278        112%
                                 ========   ========

     Pro forma operating income increased $32.8 million (112%) from 1996 to 1997
as a result of a $37.9  million  (16%)  increase  in net revenue and only a $5.1
million (2%) increase in operating expenses.  Pro forma revenue increased 16% as
a result of an $11.6  million  (9%)  increase in  exchange  revenue and an $18.0
million (24%) increase in subscription  revenue due to both membership and price
increases.  The pro forma operating  expense  increase of only 2% is a result of
expense reductions realized following the November 1996 acquisition of RCI.

Fleet Management

Operating income ($000's)       1997       1996   Variance
-------------------------   --------   --------   --------
    Net revenue .........   $206,391   $192,832          7%
    Operating expenses ..    130,491    135,055         (3%)
                            --------   --------
    Operating income ....   $ 75,900   $ 57,777         31%
                            ========   ========

     Operating income increased $18.1 million (31%) to $75.9 million,  primarily
as a result of a $13.6  million (7%)  increase in net revenue and a $4.6 million
(3%) decrease in operating  expenses  resulting  from  operational  efficiencies
realized from the second quarter 1997  restructuring of certain fleet management
operations.  The  increase in net  revenues is  comprised  of a 10%  increase in
fee-based revenues and a 4% increase in asset-based fees.

<TABLE>
<CAPTION>

REAL ESTATE INDUSTRY

Real Estate Franchise
                                                                 Pro Forma
Operating income ($000's)       1997       1996   Variance           1996       Variance
-------------------------   --------   --------   --------       ---------      --------
<S>                             <C>        <C>      <C>            <C>            <C>
    Net revenue .........   $237,412   $159,951         48%      $203,519            17%
    Operating expenses ..    108,465     84,897         28%       113,264            (4%)
                            --------   --------                  --------
    Operating income ....   $128,947   $ 75,054         72%      $ 90,255            43%
                            ========   ========                  ========
</TABLE>

<PAGE>


     Operating  income  increased  72% as a  result  of a  $77.5  million  (48%)
increase in net revenue and only a $23.6  million  (28%)  increase in  operating
expenses. The royalty portion of revenue increased $65.5 million (46%) to $208.8
million which is primarily  attributable to the Coldwell Banker franchise system
operations which were acquired in May 1996.  Operating  expenses  increased as a
result of incremental  expenses  associated with the acquired franchise systems.
Pro forma operating  income increased $38.7 million (43%) from 1996 to 1997 as a
result of a $33.9 million (17%)  increase in net revenue and a $4.8 million (4%)
reduction in operating expenses.  Pro forma net revenue increased primarily as a
result of a 10% increase in royalty fees  principally  due to increases in homes
sold and the average price of homes sold.  The pro forma  reduction in operating
expenses  reflects cost savings  realized from the  restructuring of real estate
businesses acquired.

Relocation
<TABLE>
<CAPTION>
                                                                 Pro Forma
Operating income ($000's)       1997       1996   Variance          1996        Variance
-------------------------   --------   --------   --------       ---------      --------
<S>                           <C>         <C>       <C>            <C>            <C>  

    Net revenue .........   $300,727   $253,073         19%      $287,951            4%
    Operating expenses ..    226,348    213,689          6%       241,859           (6%)
                            --------   --------                  --------
    Operating income ....   $ 74,379   $ 39,384         89%      $ 46,092            61%
                            ========   ========                  ========
</TABLE>


<PAGE>



     The  $47.7  million  (19%)  increase  in  operating   income  is  primarily
attributable to operating  income from the Coldwell Banker  relocation  business
acquired in May 1996. The pro forma operating income increased $46 million (61%)
from 1996 to 1997 as a result of a $12.8  million  (4%)  increase in net revenue
and a $15.5 million (6%) reduction in operating expenses.  Pro forma net revenue
increased  primarily as a result of an increase in referral  fees from home sale
transactions.  The pro forma reduction in operating  expenses  reflects  savings
associated with the  restructuring  of relocation  operations  following the PHH
Merger.

Mortgage Services

Operating income ($000's)       1997       1996   Variance
-------------------------   --------   --------   --------
    Net revenue .........   $127,731   $ 95,667         34%
    Operating expenses ..     76,832     65,620         17%
                            --------   --------
    Operating income ....   $ 50,899   $ 30,047         69%
                            ========   ========

     Operating  income  increased  69%  as a  result  of a 34%  increase  in net
revenue,  net of a 17% increase in operating expenses.  Loan origination revenue
increased $25.5 million (43%) as a result of a 19% increase in loan closings and
a 20% price increase. Servicing revenue increased $4.3 million (20%) as a result
of an 18% increase in revenue from the servicing  portfolio.  Operating expenses
increased 17% due to increases in loan  origination  volume as well as increased
recruiting,   training  and  systems   development  costs  associated  with  the
anticipation of increased volume, primarily from the retail teleservice delivery
systems.

Other

Operating income ($000's)      1997      1996   Variance
-------------------------   -------   -------   --------
    Net revenue .........   $98,562   $35,200       180%
    Operating expenses ..    16,274    18,374       (11%)
                            -------   -------
    Operating income ....   $82,288   $16,826       389%
                            =======   =======

     Operating  income  increased  $65.5 million  primarily as a result of $51.2
million of equity in earnings of ARAC.


LIQUIDITY AND CAPITAL RESOURCES

Transaction Overview

     The  Company  continues  to seek to expand and  strengthen  its  leadership
position in the travel and real estate  industry  segments.  Following the April
30, 1997 merger with PHH, the Company  believes it has achieved annual points of
contact with over 100 million consumers  involved in significant  dollar volumes
of annual transactions in the travel and real estate industries.

     The   Company's    businesses    acquired   by   purchase   share   similar
characteristics, foremost of which is that each was immediately accretive to the
Company's earnings. Revenue is generated substantially from service fees and not
dependent  on tangible  assets or the need for capital  expenditures  other than
technology  investments which support and historically  have been  substantially
funded by the  Company's  customers.  These  service  businesses  each  generate
significant  cash flow which is enhanced by the  Company's  operating  leverage.
Such  leverage  provides  for acquired  revenue  streams  without  corresponding
increases  in  operating  infrastructure  expenses.  The  Company  is  currently
positioned to cross market within its existing  business  segments and continues
to pursue  acquisitions  and/or  investments in service  businesses that fit the
profile described above.




<PAGE>



CUC Merger

     On May 27, 1997,  the Company  entered into a definitive  merger  agreement
with CUC  pursuant  to which the  Company is expected to merge with and into CUC
and be renamed  Cendant  corporation.  In connection  with the CUC Merger,  each
share of the Company's common stock shall be converted into the right to receive
2.4031   shares  of  CUC  common   stock.   CUC,  a  leading   technology-driven
membership-based  consumer  services  company with shares traded on the New York
Stock  Exchange,  reported  revenue  and net income  for the  fiscal  year ended
January  31,  1997 of $2.3  billion and $164.1  million,  respectively.  The CUC
Merger  received  shareholder  approval and is  contingent  upon  Federal  Trade
Commission approval which has not yet been received.  The combination of CUC and
HFS is intended to provide CUC's membership  businesses  access to the Company's
more than 100 million consumer contacts, while providing Company businesses with
the  technology-driven,  direct  marketing  expertise  necessary to successfully
cross-market  within  its  existing  business  units.  The  CUC  Merger  will be
accounted for as a pooling of interests.

     On  October  3,  1997,   CUC  completed  the   acquisition   of  Hebdo  Mag
International, Inc. ("Hebdo"), a leading international publisher and distributor
of classified advertising information for approximately 15 million shares of CUC
common stock valued at approximately $440 million. The transaction was accounted
for as a pooling of interests.

Acquisitions and Investments

C21 HOLDING CORP - On May 15,  1997,  the Company  acquired  the 12.5%  minority
ownership  interest in C21 Holding Corp.,  the parent company of Century 21 Real
Estate  Corporation  from a company  comprised  primarily  of former  management
employees for $52.8 million.  Such purchase  resulted in an increase in goodwill
of $51.5 million  associated with the August 1995  acquisition of the CENTURY 21
franchise system.

PHH - On April 30,  1997,  the  Company  acquired  PHH by merger,  issuing  30.3
million  shares of Company  common stock in exchange for all of the  outstanding
common stock of PHH. PHH is the world's largest provider of corporate relocation
services and also provides  mortgage services and vehicle  management  services.
This  transaction  was  accounted  for as a pooling of  interests.  The  Company
recorded a one-time  pre-tax  merger and  restructuring  charge of $303  million
($227 million, after tax) in the second quarter of 1997 upon the consummation of
the PHH Merger.

ARAC-IPO - Upon  entering  into a definitive  merger  agreement to acquire Avis,
Inc. in July 1996, the Company  announced its strategy to dilute its interest in
ARAC's  car  rental  operations  while  retaining  assets  associated  with  the
franchise  business,   including  trademarks,   reservation  system  assets  and
franchise  agreements  with ARAC and other  licensees.  In September  1997, ARAC
completed an initial public  offering  ("IPO")  resulting in a 72.5% dilution in
the Company's investment interest.

NRT - During the third quarter,  the Company  acquired $182 million of preferred
stock of NRT Incorporated ("NRT"), a newly formed corporation created to acquire
residential  real estate brokerage firms. The Company acquired $188.7 million of
certain  intangible  assets,  including  trademarks  associated with real estate
brokerage firms acquired by NRT in the third quarter of 1997.



<PAGE>



The Company,  at its  discretion,  may acquire up to $81.3 million of additional
NRT  preferred  stock and may also  purchase up to $257.3  million of additional
assets of real estate brokerage firms acquired by NRT.

In  September  1997,  NRT  acquired  the  real  estate  brokerage  business  and
operations of National Realty Trust and two other regional real estate brokerage
businesses.

Equity Transactions

Treasury  Purchases - On January 7, 1997, the Board of Directors  authorized the
purchase of up to 2.6 million  shares of Company  common stock to satisfy  stock
option  exercises and conversions of convertible  debt securities and for future
acquisitions.  The Company  acquired  approximately  2.6 million treasury shares
during the first quarter of 1997 for $171.3 million.

Redemption  of 4-1/2% Notes - On September 22, 1997,  the Company  exercised its
option to redeem  the  outstanding  4-1/2%  Convertible  Senior  Notes  ("4-1/2%
Notes")effective  on October 15, 1997 in accordance  with the  provisions of the
indenture  under which the 4-1/2%  Notes were  issued.  Prior to the  redemption
date,  each of the 4-1/2%  Notes were  converted  into shares of Company  common
stock.  Accordingly,  the Company  issued 8.2 million  shares of Company  common
stock as a result of the conversion of such notes of which 0.1 million shares of
Company common stock were issued as of September 30, 1997.

Financing

     Management  believes  that the  Company  has  excellent  liquidity  and has
expanded its access to liquidity  following  both the completed  merger with PHH
and the proposed  merger with CUC. Most  significant,  the Company has generated
significant  positive  cash  flow from  operations  in every  quarter  since its
initial public  offering in December 1992,  excluding the second quarter of 1997
when it  incurred a pre-tax  $303  million  merger and  restructuring  charge in
connection  with the PHH Merger.  The Company  has  demonstrated  its ability to
access  equity and public debt markets and  financial  institutions  in order to
generate  capital  for  strategic  transactions.  Indicative  of  the  Company's
creditworthiness,  Standard & Poors Corporation  ("S&P") affirmed its "A" credit
rating of the Company's  publicly issued debt following the announcement of both
the PHH and CUC Mergers and Moody's Investors Service, Inc. ("Moody's") upgraded
the  Company's  debt  rating to "A3"  following  the PHH  Merger.  Duff & Phelps
currently  rates  the  Company's  debt "A".  Please  note that a rating is not a
recommendation  to buy,  sell or hold  securities  and is subject to revision or
withdrawal  at any time by the rating  agency.  Each rating  should be evaluated
independently of any other rating.

     Liquidity is available to the Company through  revolving credit  facilities
which may provide up to $1.5 billion of unsecured  borrowings at interest  rates
generally  approximating  LIBOR plus a margin of 22.5 basis  points.  In October
1997,  the  Company  entered  into an  agreement  with a bank to provide  for an
additional  $300 million of borrowings  under a revolving  credit facility for a
term which is extendable  through  consummation of the CUC Merger.  The proposed
combined company has executed amended revolving credit  arrangements  which will
replace HFS' $1.5 billion  revolving credit facility with a syndicated  facility
aggregating  approximately $2 billion with tranches of various tenor, contingent
upon  completion of the CUC Merger.  At September 30, 1997, the Company had $400
million of available borrowings under its revolving credit facilities.

     The Company filed a shelf  registration  statement  with the Securities and
Exchange Commission  effective August 29, 1996, for the aggregate issuance of up
to $1 billion of debt and equity securities. These securities



<PAGE>



may be offered from time to time,  together or separately,  based on terms to be
determined at the time of sale.  The proceeds may be used for general  corporate
purposes, which may include future acquisitions.  Subsequent to the proposed CUC
Merger the Company expects to replace this shelf  registration  statement with a
similar $2 billion shelf registration statement.

     Long-term  debt  increased  $914 million to $1.7  billion at September  30,
1997,  when compared to amounts  outstanding at December 31, 1996 primarily as a
result of $171.3  million of treasury  share  purchases,  $137.0  million of PHH
Restructuring  Charge  payments  and $680.0  million to fund both the  Company's
investment  in  NRT  and  certain   intangible   assets  associated  with  NRT's
acquisitions  during  the third  quarter of 1997 and other  acquisition  related
payments.  Long-term  debt at September 30, 1997  primarily  consisted of $539.6
million of fixed rate publicly issued debt and $1.1 billion of borrowings  under
the Company's revolving credit facilities.

     PHH will continue to operate its mortgage  services,  fleet  management and
relocation  businesses  as  a  separate  public  reporting  entity  and  support
purchases  of leased  vehicles  and  originated  mortgages  primarily by issuing
commercial  paper and medium term  notes.  Although  PHH's debt to equity  ratio
approximates 6 to 1, such debt corresponds directly with net investments in high
quality  related  assets.  Accordingly,  following the  announcement  of the PHH
Merger,  S&P,  Moody's and Fitch  Investor  Service  affirmed  investment  grade
ratings of "A+",  "A2" and "A+",  respectively,  to PHH debt and "A1",  "P1" and
"F1", respectively, to PHH commercial paper.

     PHH debt is issued without recourse to the Company.  The Company expects to
continue  to have broad  access to global  capital  markets by  maintaining  the
quality of its assets under management.  This is achieved by establishing credit
standards to minimize  credit risk and the potential for losses.  Depending upon
asset growth and financial  market  conditions,  PHH utilizes the United States,
European and Canadian commercial paper markets, as well as other  cost-effective
short-term instruments. In addition, PHH will continue to utilize the public and
private debt markets to issue unsecured senior corporate debt.  Augmenting these
sources, PHH will continue to manage outstanding debt with the potential sale or
transfer  of  managed  assets  to  third  parties  while  retaining  fee-related
servicing  responsibility.  At September 30, 1997,  PHH's aggregate  outstanding
borrowings  approximated  $2.5 billion in  outstanding  commercial  paper,  $2.3
billion in medium-term notes and $0.2 billion in other debt securities.

     To provide  additional  financial  flexibility,  PHH's current policy is to
ensure that  minimum  committed  facilities  aggregate 80 percent of the average
amount of outstanding  commercial paper. PHH maintains a $2.5 billion syndicated
unsecured  credit  facility which is backed by domestic and foreign banks and is
comprised  of $1.25  billion of lines of credit  maturing  in 364 days and $1.25
billion  of lines  of  credit  maturing  in five  years.  In  addition,  PHH has
approximately $300 million of uncommitted lines of credit with various financial
institutions.  Management  closely  evaluates not only the credit quality of the
banks but the terms of the various  agreements to ensure  ongoing  availability.
The full amount of PHH's committed facilities at September 30, 1997 was undrawn.
Management  believes that its current policy provides adequate protection should
volatility  in the financial  markets limit PHH's access to commercial  paper or
medium-term note funding.

     The Company and PHH  currently  operate  under  policies  limiting  (a) the
payment of  dividends on PHH's  capital  stock to 40% of net income of PHH on an
annual  basis,  less the  outstanding  principal  balance  of loans  from PHH to
Company as of the date of any proposed dividend payment, and (b) the outstanding
principal balance of loans from PHH to Company to 40% of net income of PHH on an
annual basis, less payment of dividends on PHH's capital stock during such year.




<PAGE>



     PHH  minimizes  its  exposure  to  interest  rate  and  liquidity  risk  by
effectively   matching   floating   and  fixed   interest   rate  and   maturity
characteristics  of funding  to  related  assets,  varying  short and  long-term
domestic and international  funding sources, and securing available credit under
committed banking facilities.

Cash Flow

     The  Company   generated  $1.3  billion  of  cash  flow  from   operations,
representing a $540.2 million (70%) increase from the same period of 1996.  Cash
flow from  operations  included a $46.4  million  decrease  in net income  which
included a $227 million  after-tax PHH  Restructuring  Charge.  The  comparative
increase in cash flow from operations  primarily  resulted from a $404.8 million
increase in operating  cash flow from mortgage loans held for resale and a $48.1
million increase in depreciation and amortization of assets under management and
mortgage programs.  Net cash used in investing activities remained substantially
unchanged  compared to 1996 at  approximately  $1.8 billion and included uses of
cash such as a $181.2 million investment in NRT and a $124.4 million of payments
made on behalf of ARAC net of a $472.0 million reduction in acquisition  related
payments. Cash provided by financing activities decreased $1.0 billion primarily
as a result of $1.1 billion of proceeds received in a June 1996 equity offering.

     The  Company  believes  that  based  upon  its  analysis  of its  financial
position,  its cash flow during the past twelve months and the expected  results
of operations in the future,  operating cash flow,  available  funding under the
revolving credit facility and issuance of securities in the capital markets,  if
appropriate,  will be adequate to fund  operations,  strategic  investments  and
acquisitions of other service related businesses.

Other

     The  Company  anticipates  investing   approximately  $150  million  during
calendar  year 1998 in  capital  expenditures.  Such  capital  expenditures  are
primarily  associated  with the  consolidation  of  internationally  based  call
centers and information  technology systems to support expected volume increases
in  the  Company's   mortgage   services   business  and  improve   operationsal
efficiencies in the delivery of relocation services.


IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     In February 1997, the Financial Accounting Standards Board issued Statement
of Financial  Accounting  Standards No. 128 ("SFAS 128"),  "Earnings Per Share",
which requires a change to the  presentation of EPS to include the  presentation
of  basic  and  diluted  EPS  in  place  of  primary  and  fully   diluted  EPS,
respectively.  SFAS 128 is effective for interim periods and fiscal years ending
after December 15, 1997. Earlier adoption of the pronouncement is not permitted.
Management of the Company believes that there will not be a material  difference
in fully  diluted  earnings  per share  under the  existing  pronouncement  when
compared to the new diluted presentation.

     Assuming  SFAS 128 was  applicable  for the  three  and nine  months  ended
September 30 1997, the Company would have reported diluted earnings per share of
$0.89 and $0.83,  respectively,  including the second quarter $303 million ($227
after tax) one-time PHH restructuring  charge.  Excluding such charge,  earnings
per share is as follows:

                                   Three Months Ended       Nine Months Ended
                                   September 30, 1997       September 30, 1997
                                   ------------------       ------------------
     Pro Forma SFAS 128:
         Basic EPS                       $0.99                   $2.33
         Diluted EPS                     $0.89                   $2.11
     As Reported:
         Primary EPS                     $0.89                   $2.11
         Fully Diluted EPS               $0.88                   $2.07

     In June 1997, the Financial  Accounting Standards Board issued Statement of
Financial  Accounting Standards No. 130 ("SFAS 130"),  "Reporting  Comprehensive
Income",  which requires  preparation of a new basic  financial  statement which
considers  the impact of  certain  economic  events  that have  heretofore  been
reflected as adjustments to stockholders'  equity but have not impacted reported
earnings on the consolidated statements of operations.  Comprehensive income per
share is not  required to be shown on the new  statement.  SFAS 130 is effective
for fiscal years  beginning  after December 15, 1997. The Company plans to adopt
the provisions of SFAS 130 on January 1, 1998.

<PAGE>

     Upon  adoption of SFAS 130, the Company will classify  other  comprehensive
income  separately into foreign  currency  translation  adjustments,  unrealized
gains and losses on securities and minimum pension liability adjustments.

     In June 1997, the Financial  Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments
of an Enterprise and Related  Information",  which requires  companies to report
information about operating  segments in annual financial  statements as well as
selected  information about the operating  segments in interim reports issued to
shareholders.  SFAS 131 also established standards for related disclosures about
products  and  services,  geographic  areas,  and major  customers.  SFAS 131 is
effective for fiscal years beginning after December 15, 1997.

Year 2000 Compliance

     The Company has commenced an upgrade or  replacement  of operating  systems
which are or were unable to satisfactorily  process data  including years after
the December 31, 1999.  The Company  believes that all systems will be Year 2000
compliant by January 1, 2000 and amounts  charged to  operating  expense are not
expected to be material.



<PAGE>



PART II.       OTHER INFORMATION

ITEM 6.        EXHIBITS AND REPORTS ON FORM 8-K

(a)   Exhibits

Exhibit
No.       Description
10.1      Second  Amendment,  dated as of September  18, 1997,  to the Five Year
          Competitive  Advance And  Revolving  Credit  Agreement and the 364-Day
          Competitive  Advance And Revolving Credit Agreement,  each of which is
          dated  as of  October  2,  1996 by and  among  HFS  Incorporated,  the
          financial institutions party thereto  and The Chase Manhattan Bank, as
          Administrative agent.
10.2      Second Amendment, dated as of September 26, 1997 to (i) 364-day
          Competitive Advance and Revolving Credit Agreement, dated as of March
          4, 1997, PHH Corporation (the "Borrower"), PHH Vehicle Management
          Services, Inc., the Lenders referred to therein, the Chase Manhattan
          Bank of Canada, as administrative agent for the US Lenders (the
          "Administrative Agent"), and The Chase Manhattan Bank of Canada, as
          administrative agent for the Canadian Lenders; and (ii) the Five Year
          Competitive Advance and Revolving Credit Agreement, dated as of March
          4, 1997, among the Borrower, the Lenders referred to therein and the
          Administrative Agent.
10.3      Separation Agreement dated as of July 30, 1997 by and between HFS Car
          Rental, Inc. and Avis Rent A Car, Inc.
11        Statement of Computation of Earnings Per share.
27        Financial Data Schedule.

(b)       Reports on Form 8-K

          The Company  filed a report on Form 8-K dated July 15, 1997  reporting
          in Item 5 the combined  results of operations  for the month ended May
          31, 1997 of the Company and PHH.

          The Company  filed a report on Form 8-K dated July 16, 1997  reporting
          under  Items  5  and  7  the  financial  statements  and  management's
          discussion  and  analysis  of  financial   condition  and  results  of
          operations  of  the  Company  and  gives  retroactive  effect  to  the
          acquisition  of PHH with and into the Company which has been accounted
          for as a pooling  of  interests.  The Form 8-K  included  the  audited
          consolidated balance sheets of the Company as of December 31, 1996 and
          1995, and the related consolidated statements of income, shareholders'
          equity and cash flows for each of the three years in the period  ended
          December 31, 1996.





<PAGE>



                                   SIGNATURES



Pursuant to the  requirements  of the  Securities  and Exchange Act of 1934, the
Registrant  has duly  caused this  amendment  to this report to be signed on its
behalf by the undersigned thereunto duly authorized.


                                    HFS Incorporated




                                    By:   /s/ Scott E. Forbes
                                         Scott E. Forbes
                                         Senior Vice President
Date: November 14, 1997                  and Chief Accounting Officer






<PAGE>



                                  EXHIBIT INDEX


Exhibit
 No.           Descriptions

10.1      Second  Amendment,  dated as of September  18, 1997,  to the Five Year
          Competitive  Advance And  Revolving  Credit  Agreement and the 364-Day
          Competitive  Advance And Revolving Credit Agreement,  each of which is
          dated  as of  October  2,  1996 by and  among  HFS  Incorporated,  the
          financial institutions party thereto  and The Chase Manhattan Bank, as
          Administrative agent.

10.2      Second Amendment, dated as of September 26, 1997 to (i) 364-day
          Competitive Advance and Revolving Credit Agreement, dated as of March
          4, 1997, PHH Corporation (the "Borrower"), PHH Vehicle Management
          Services, Inc., the Lenders referred to therein, the Chase Manhattan
          Bank of Canada, as administrative agent for the US Lenders (the
          "Administrative Agent"), and The Chase Manhattan Bank of Canada, as
          administrative agent for the Canadian Lenders;  and (ii) the Five Year
          Competitive Advance and Revolving Credit Agreement, dated as of March
          4, 1997, among the Borrower, the Lenders referred to therein and the
          Administrative Agent.
   

10.3      Separation Agreement dated as of July 30, 1997 by and between HFS
          Car Rental, Inc. and Avis Rent A Car, Inc.

11        Statement of Computation of Earnings Per share.

27        Financial Data Schedule.