<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   ----------

                                    FORM 10-K

(MARK ONE)

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

FOR THE FISCAL YEAR ENDED February 3, 2001


                                       OR

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

FOR THE TRANSITION PERIOD FROM _______________ TO _______________

                         COMMISSION FILE NUMBER 1-12552

                                THE TALBOTS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                                                            <C>
   Delaware                                                                                        41-1111318
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)                 (I.R.S. EMPLOYER IDENTIFICATION NO.)

One Talbots Drive, Hingham, Massachusetts                                                          02043
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                                                         (ZIP CODE)
</TABLE>

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (781)749-7600

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

<TABLE>
<S>                                                                        <C>
         TITLE OF EACH CLASS                                               NAME OF EACH EXCHANGE ON WHICH REGISTERED
         Common Stock                                                                 New York Stock Exchange
         $0.01 Par Value
</TABLE>

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:  None.

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS TO BE
FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE
PRECEDING 12 MONTHS AND (2) HAS BEEN SUBJECT TO THE 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 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 APPROXIMATE AGGREGATE MARKET VALUE OF THE REGISTRANT'S COMMON STOCK HELD BY
NON-AFFILIATES (FOR THIS PURPOSE, DEEMED TO REFER TO ALL PERSONS AND ENTITIES
OTHER THAN EXECUTIVE OFFICERS, DIRECTORS AND 10% OR MORE SHAREHOLDERS) BASED ON
THE CLOSING SALE PRICE ON THE NEW YORK STOCK EXCHANGE COMPOSITE TAPE ON APRIL 5,
2001 WAS APPROXIMATELY $1,073 MILLION.

NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK AS OF APRIL 5,
2001: 63,104,548.

                      DOCUMENTS INCORPORATED BY REFERENCE:

PORTIONS OF THE REGISTRANT'S ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR
ENDED FEBRUARY 3, 2001 ARE INCORPORATED BY REFERENCE INTO PART I AND PART II,
AND PORTIONS OF THE REGISTRANT'S PROXY STATEMENT FOR THE 2001 ANNUAL MEETING OF
SHAREHOLDERS ARE INCORPORATED BY REFERENCE INTO PART III.
<PAGE>   2
                                     PART I


ITEM 1.  BUSINESS.

GENERAL

         The Talbots, Inc., a Delaware corporation (together with its wholly
owned subsidiaries, "Talbots" or the "Company"), is a leading national specialty
retailer and cataloger of women's and children's classic apparel, accessories
and shoes. Over the past ten years, the Company has implemented an aggressive
store expansion program, with the number of stores increasing from 192 at the
end of 1990 to 722 at the end of 2000. During 2000, Talbots issued 29 separate
catalogs with a combined circulation of approximately 58 million. In November
1999, the Company began offering its merchandise on the Internet at
www.talbots.com. Sales through the website are reported with catalog sales.
Total Company net sales were approximately $1,595.0 million in 2000, of which
retail store sales were approximately $1,326.0 million and catalog sales were
approximately $269.0 million.

         Sales and expenses for all periods presented have been revised in
accordance with Emerging Issues Task Force Issue ("EITF") No. 00-10, "Accounting
for Shipping and Handling Fees and Costs." The EITF stated that a seller of
goods should classify amounts billed to the customer for shipping and handling
as revenue and the costs incurred by the seller for performing such services as
an element of expense. To comply with the consensus, shipping and handling fees
and costs, which were previously reported net in selling, general and
administrative expenses, were reclassified to net sales and cost of sales,
buying and occupancy expense. All prior periods were revised to comply with the
consensus. Such revisions had no impact on previously reported operating
earnings, net earnings, stockholders' equity or cash flows.

         Talbots complies with the National Retail Federation's fiscal calendar.
Where a reference is made to a particular year or years, it is a reference to
Talbots 52-week or 53-week fiscal year. For example, "2000" refers to the
53-week fiscal year ended February 3, 2001, "1999" refers to the 52-week fiscal
year ended January 29, 2000, and "1998" refers to the 52-week fiscal year ended
January 30, 1999. Since Talbots fiscal 1999 was a 52-week year and fiscal 2000
was a 53-week year, comparable store sales are reported in this Annual Report on
a 52-week basis.

         Talbots offers a distinctive collection of classic sportswear, casual
wear, dresses, coats, sweaters, accessories and shoes, consisting almost
exclusively of Talbots own private label merchandise in misses, petites and
woman's sizes. Talbots Kids & Babies offers an assortment of high quality
classic clothing and accessories for infants, toddlers, boys and girls. Talbots
merchandising strategy focuses on achieving a "classic look", that emphasizes
timeless styles. Talbots stores, catalogs and Internet site offer a variety of
key basic and fashion items and a complementary assortment of accessories and
shoes which enable customers to assemble complete wardrobes. The consistency in
color, fabric and fit of Talbots merchandise allows a customer to create
wardrobes across seasons and years. The Company believes that a majority of its
customers are college-educated and employed, primarily in professional and
managerial occupations, and are attracted to Talbots by its focused


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merchandising strategy, personalized customer service and continual flow of high
quality, reasonably priced classic merchandise.

         Talbots has established a market niche as a brand in women's and
children's classic apparel, accessories and shoes. In 2000, over 99% of the
Company's merchandise consisted of styles that were sold exclusively under the
Talbots label. Most of this merchandise is manufactured to the specifications of
the Company's technical designers and product developers, enabling Talbots to
offer consistently high quality merchandise that the Company believes
differentiates Talbots from its competitors.

         The Company operates its stores, catalogs and website as an integrated
business and provides the same personalized service to its customers regardless
of whether merchandise is purchased through its stores, catalogs or on the
Internet. The Company believes that the synergy across these distribution
channels offers an important convenience to its customers and a competitive
advantage to the Company in identifying new store sites and testing new business
concepts.

         The first Talbots store was opened in 1947 in Hingham, Massachusetts by
Rudolph and Nancy Talbot. The first Talbots catalog was issued the following
year with a circulation of approximately 3,000. Additional stores were opened
beginning in 1955, and there was a total of five Talbots stores by 1973, at
which time the Company was acquired by General Mills, Inc. Talbots continued to
expand and grew to 126 stores by June 1988. In June 1988, Jusco (U.S.A.), Inc.
("Jusco USA") acquired Talbots (the "Acquisition"). Jusco USA is a wholly owned
subsidiary of Jusco Co., Ltd. ("Jusco"), a Japanese retail conglomerate. On
November 18, 1993, the Company effected an initial public offering of its common
stock (the "Offering"), issuing approximately 25.2 million shares of common
stock. Subsequent to the Offering, Jusco USA remains the Company's majority
shareholder, and at February 3, 2001 owned approximately 58.1% of the
outstanding common stock of the Company.

         The Company has grown significantly since the Acquisition by adding
stores and developing new complementary business concepts that capitalize on the
strength of the Talbots name and its loyal customer base. By February 3, 2001,
the number of stores increased to 722, located in 45 states, the District of
Columbia, Canada and the United Kingdom. This number included 421 Talbots Misses
stores (including 19 Misses stores in Canada and five Misses stores in the
United Kingdom), 175 Talbots Petites stores (including one Petites store in
Canada), 35 Talbots Accessories & Shoes stores, 57 Talbots Kids stores (53 of
which include a Talbots Babies assortment), 14 Talbots Woman stores and 20
Talbots Outlet stores.

         Talbots catalog business also has undergone changes. The circulation of
catalogs has been reduced by 21.8% from 74.4 million catalogs in 1990 to 58.2
million catalogs in 2000. This circulation reduction has been an integral part
of a strategy to better focus the distribution of catalogs to proven customers.

         In November 1999, Talbots went live with its website, www.talbots.com.
This new channel of distribution is a natural extension of the Company's
existing store and catalog channels. The same broad assortment of Talbots
existing store and catalog classic merchandise is available on-line with
one-stop shopping for Misses, Petites, Woman, Accessories & Shoes and Kids
apparel. The Company's existing catalog fulfillment and customer service
infrastructure manages orders taken over the Internet


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and complements this new channel of distribution. In fiscal 2000, approximately
10% of total catalog sales were attributed to the website.

         Information concerning the Company's retail store business and the
Company's catalog and Internet business and certain geographic information is
incorporated by reference to note 9 of the Company's consolidated financial
statements on pages 18 and 19 of Talbots Annual Report to Shareholders for the
fiscal year ended February 3, 2001.

STRATEGY

         The key elements of the Company's strategy are to: (1) maintain its
strong competitive position in the classics niche by providing consistently
classic women's and children's apparel, accessories and shoes, (2) continue to
operate as a predominantly private label retailer, (3) maintain its posture as a
limited promotion retailer, (4) continue to capitalize on its complementary
store, catalog and Internet operations, (5) continue to provide superior
customer service and (6) offer a broad mix of store location types.

         MARKET NICHE IN CLASSIC APPAREL. Talbots offers a distinctive
collection of sportswear, casual wear, dresses, coats, sweaters, accessories and
shoes, consisting almost exclusively of the Company's own private label
merchandise in misses, petites and woman's sizes. Talbots offers a variety of
key basic and fashion items and a complementary assortment of accessories and
shoes to enable customers to assemble complete outfits. An important aspect of
the Company's marketing strategy is wardrobing the customer from "head-to-toe."
The Company believes that consistently emphasizing timeless styles helps to
create a loyal customer base and reduces the risk that its apparel, shoes and
accessories will be affected by sudden changes in fashion trends.

         TALBOTS PRIVATE LABEL. The clothing assortment under the Talbots
private label exceeded 99% in 2000. Sales of private label merchandise generally
provide the Company with a higher gross margin than it believes would be
obtained on other merchandise and establish Talbots identity as a brand of
women's classic apparel.

         The Company believes that the quality and value of its classic
merchandise are key competitive factors. Talbots merchandise is manufactured to
the specifications of the Company's technical designers and product developers,
enabling Talbots to offer consistently high quality merchandise that the Company
believes differentiates Talbots from its competitors. The Company continually
monitors the production of its domestic and overseas manufacturers to ensure
that all apparel is of consistent fit and high quality.

         LIMITED PROMOTION RETAILER. The Company positions itself as a limited
promotion retailer. Talbots typically holds only four major sale events a year
in its stores, consisting of two end-of-season clearance sales and two
mid-season sales. All mid-season and end-of-season store sale events are held in
conjunction with catalog sales events. No other major promotional sale events
are typically held. The Company believes that its strategy of limiting its
promotional events has reinforced the integrity of its regular prices.


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         COMPLEMENTARY STORE, CATALOG AND E-COMMERCE OPERATIONS. The Company's
strategy is to operate its stores, catalogs and website as an integrated
business and to provide the same personalized service to its customers
regardless of whether merchandise is purchased through its stores, catalogs or
on-line. The Company believes that the synergy across these distribution
channels offers an important convenience to its customers, provides a
competitive advantage to the Company and is an important element in identifying
new store sites.

         Talbots catalogs and website provide customers with a broader selection
of merchandise, sizes and colors than its stores. In each of its United States
stores, Talbots offers a "Red Line" phone which connects the store customer
directly to a catalog telemarketing sales associate. This service can be used by
store customers to order a particular size or color of an item that is a
catalog-only item or that is sold out in the store. A reduced shipping and
handling charge is provided to customers who use the "Red Line" phone service.
In addition to providing customers the convenience of ordering Talbots
merchandise, the Company generally uses its catalogs and website to communicate
its classic image, to provide customers with fashion guidance in coordinating
outfits and to generate store traffic. Merchandise can be easily returned or
exchanged at any Talbots store or returned to the Company by mail.

         The Company believes that its catalog operation provides Talbots with a
competitive advantage. The customer database compiled through Talbots catalog
operations provides important demographic information and serves as an integral
part of the Company's expansion strategy by helping to identify markets with the
potential to support a new store. Although the addition of stores in areas where
the catalog has been successful has resulted in slightly lower catalog sales in
such areas, such lower catalog sales have been more than offset by the
significantly higher sales generated in these areas by the opening of new
stores.

         In conjunction with the Company's well-established catalog operation,
there is a strong infrastructure in place to support the website,
www.talbots.com, including the existing distribution and fulfillment
capabilities. As with catalog merchandise, items can be easily returned or
exchanged at any Talbots store or returned to the Company by mail. The Company
believes that this channel of business is a natural complement to the store and
catalog operations, and has the potential to become a significant growth
opportunity. For fiscal 2000, Internet sales accounted for approximately 10% of
total catalog sales.

         CUSTOMER SERVICE. The Company believes that it provides store, catalog
and Internet customers an extraordinarily high level of customer service. The
Company is committed to constantly improving customer service by enhancing its
training programs to ensure that sales and customer service associates are
knowledgeable about all Talbots merchandise, that they are up to date with
fashion trends and that they are able to make appropriate wardrobing suggestions
to customers.

         BROAD MIX OF STORE LOCATIONS. The Company believes that providing a
broad mix of store location types helps insulate it from changes in customer
shopping patterns and allows it to offer locations that are convenient and
consistent with its image. As of February 3, 2001, the Company had 42% of its
stores in malls, 36% in specialty centers, 12% in village locations, 7% as
freestanding stores and 3% in urban locations.


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MERCHANDISING

         The Company's merchandising strategy focuses on achieving a "classic
look," which emphasizes timeless styles. Talbots offers a distinctive collection
of classic sportswear, casual wear, dresses, coats, sweaters, accessories and
shoes, consisting primarily of private label merchandise made exclusively for
Talbots. Talbots stores, catalogs and e-commerce website offer a variety of key
basic and fashion items and a complementary assortment of accessories and shoes
which enable customers to assemble complete outfits. Sales associates are
trained to assist customers in merchandise selection and wardrobe coordination,
helping them achieve the Talbots look from "head-to-toe". The consistency in
color, fabric and fit of Talbots merchandise also allows a customer to create
wardrobes across seasons and years.

         PRIVATE LABEL MERCHANDISE DESIGN AND PURCHASING. Talbots private label
merchandise is designed and produced through the coordinated efforts of the
Company's merchandising and manufacturing teams, which consist of the New
York-based Talbots product development office, the Hingham-based technical
testing and design staff, the buying staff, the production planning staff and a
Hong Kong-based product sourcing office. Styles for Talbots private label
merchandise are developed based upon prior years' sales history and current
fashion trends for each of the Company's two main seasons, spring and fall.

         The New York-based Talbots product development office oversees the
conceptualization of Talbots merchandise. This initial product determination
concerns styling, color, and fabrication recommendations. The development
process begins approximately nine months before the expected in-house delivery
date of the merchandise.

         The Company's Hingham-based buying staff is responsible for the
quantification of specific merchandise and departmental needs and plans. These
plans are used to place specific item orders on styles developed in conjunction
with the product development office and with the various merchandise vendors.

         In conjunction with the merchandise developed by the product
development team and quantified by the buying organization, the Company's
Hingham-based technical design testing and performance testing staff works to
determine the technical specifications of virtually all of its private-label
merchandise. In addition to preparing the initial specifications, this group
also reviews the first fit sample together with the product development team,
ensuring that the creative intent is preserved. Subsequent fit samples are
evaluated on fit and quality characteristics, ensuring that specifications and
quality standards are met.

         SOURCING. In 2000, Talbots purchased approximately 62% of its
merchandise directly from offshore vendors, and the remaining 38% through
domestic-based vendors. During the year, the Company's Hong Kong office
accounted for approximately 48% of Talbots total direct offshore sourcing, with
the remaining 52% being handled through various agents. Approximately 30% of
Talbots merchandise is currently sourced through Hong Kong.


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         In order to diversify the Company's Far East sourcing operations,
additional exclusive overseas sourcing offices have been established in Jakarta,
Indonesia and in Bangkok, Thailand. In the summer of 2001, a third exclusive
sourcing office is expected to open in Singapore. Under the terms of an
agreement between the Company and Eralda Industries ("Eralda"), a long time
supplier of the Company, Eralda serves as the Company's exclusive agent and has
established these offices to serve the Company in this capacity.

         In addition to the Company's office in Hong Kong, which deals with
local manufacturers, and the sourcing arrangement with Eralda, Talbots utilizes
agents in Japan, Korea, Italy, Portugal and Spain plus domestic resources to
source its merchandise. The Company analyzes its overall distribution of
manufacturing to assure that no one company or country is responsible for a
disproportionate amount of Talbots merchandise. Directly sourced merchandise is
currently manufactured to the Company's specifications by independent foreign
factories located primarily in Hong Kong, China and Thailand in Asia and
primarily in Italy in Europe.

         The Company's domestic vendors include those who either manufacture
their own merchandise or supply merchandise manufactured by others, as well as
vendors that are both manufacturers and suppliers. In 2000, Royal Bright
Development accounted for approximately 5% of total merchandise purchased.
Additionally, certain divisions of The Apparel Group, Ltd., accounted for an
aggregate of approximately 5% of the total merchandise purchased by Talbots.
Most of Talbots Hong Kong and other foreign vendors manufacture their own
merchandise. The Company believes that, consistent with the retail apparel
industry as a whole, many of its domestic suppliers import a portion of their
merchandise from abroad.

         The Company typically transacts business on an order-by-order basis;
however, fabric projections are placed in order to better address fulfillment
and replenishment objectives. The Company does not maintain any long-term or
exclusive commitments or arrangements to purchase from any vendor. The Company
believes that it has good relationships with its vendors and that, as the number
of Talbots stores increases, there will be adequate sources to produce a
sufficient supply of quality goods in a timely manner and on satisfactory
economic terms. The Company does business with most of its vendors in United
States currency and has not experienced any material difficulties as a result of
any foreign political, economic or social instability.

EXPANSION

         An important aspect of the Company's business strategy has been an
expansion program designed to reach new and existing customers through the
opening of new stores. The Company has grown significantly over the past ten
years, with the number of stores increasing from 192 at the end of 1990 to 722
at the end of 2000. During that time, store net sales increased from
approximately $335.5 million in 1990 to approximately $1,326.0 million in 2000.
During fiscal 2000 Talbots opened 55 new stores.

         In addition to expanding its core Misses business, the Company has
introduced complementary new business concepts, Talbots Petites, Talbots Kids &
Babies, Talbots Accessories & Shoes, Talbots Woman and Talbots Collection.


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         In 1984, Talbots began offering merchandise in petites sizes in its
catalogs, and in 1985, the Company opened its first Talbots Petites store.
During 1989, Talbots stores began to carry a selection of Talbots Petites
merchandise, and the Company opened three additional Talbots Petites stores in
1990 as the beginning of its strategy to expand the Talbots Petites business. At
February 3, 2001, 175 Talbots Petites stores were open, and virtually every item
of women's apparel in the catalog was offered in both misses and petites sizes.

         In 1989, the Company presented Talbots Kids merchandise in a separate
catalog dedicated to apparel for boys and girls. The first Talbots Kids store
opened in 1990. During 1995, Talbots expanded the Talbots Kids merchandise by
offering an assortment for infants and toddlers, Talbots Babies. By the end of
2000, 57 Talbots Kids stores were open, 53 of which included a Babies
assortment. Also in 2000, five separate Talbots Kids catalogs were circulated
nationally. The Company will continue to position Talbots Kids & Babies as a
brand that offers a complete assortment of high quality classic children's
clothing and accessories.

         During 1994, Talbots introduced Talbots Accessories & Shoes in two
catalogs devoted to this category. The Company opened five Talbots Accessories &
Shoes stores in September 1995 and operated 35 stores at the end of 2000. A
limited collection of the merchandise continues to be offered in each Misses
catalog, in selected stores and, in 2000, in two separate catalogs.

         In September 1998, the Company introduced two new concepts, Talbots
Woman and Talbots Collection. Talbots Woman was developed for customers wearing
sizes 12W to 24W who seek the same classic styling, high quality and fit as the
Company's misses and petites customers. It was introduced as a department in
seven existing Misses stores, as one separate store adjacent to other Talbots
concept stores, and in two nationally circulated catalogs. In 2000, the Company
opened nine new Talbots Woman stores and circulated four separate catalogs
devoted exclusively to Talbots Woman fashions. At February 3, 2001, 14 Woman
stores were open and an assortment of Talbots Woman apparel was offered in 10
additional Talbots stores.

         Talbots Collection is a test concept that was developed for those
customers seeking a well-defined selection of tailored sportswear featuring fine
fabrics, interesting details and distinctive novelty prints. It is presented as
a separate department in 80 existing Talbots Misses stores.

         The Company currently anticipates opening approximately 78 new stores
(including Misses, Petites, Accessories & Shoes, Kids and Woman stores) in
2001.* The Company's ability to continue to expand its store base will be
dependent upon a number of factors, including its overall sales performance,
general economic and business conditions affecting consumer confidence and
spending, the availability of desirable locations and the ability to negotiate
acceptable lease terms for new locations. The Company also considers opening
such stores in established Talbots markets where a Misses store is not located,
thereby broadening the growth potential for each concept.


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STORES

         Misses stores generally range in size from 3,700 to 6,500 gross square
feet, with a typical store averaging approximately 4,900 gross square feet.
Talbots Petites, Woman and Kids & Babies stores generally measure 2,500, 2,700
and 3,300 gross square feet, respectively. Talbots Accessories & Shoes stores
generally measure 1,900 gross square feet. Flagship stores are Misses stores
which are utilized to generate greater awareness of Talbots merchandise in major
metropolitan locations, including Boston, New York City, Washington D.C.,
Chicago, San Francisco, London and Toronto, and generally are larger than the
average Misses store. Approximately 75% of the floor area of all Talbots stores
is devoted to selling space (including fitting rooms), with the balance
allocated to stockroom and other non-selling space.

         In certain markets, the Company has created Talbots "superstores" by
placing two or more other Talbots concepts in close proximity to a Misses store.
Together, these stores feature at least three of Talbots business concepts -
Misses, Petites, Kids & Babies, Woman and/or Accessories & Shoes - in order to
create a one-stop shopping environment. At February 3, 2001, the Company
operated 61 "superstores."

         The Company utilizes Talbots Outlet stores that are separate from its
retail stores, to provide for the controlled and effective clearance of store
and catalog merchandise remaining from each sale event. The Company uses Talbots
Outlet stores primarily for the sale of past season and "as is" merchandise.
Generally, merchandise in Talbots Outlet stores is sold at significant markdowns
from original retail prices; however, a limited selection of "core basics"
merchandise such as t- shirts, turtlenecks and denim is offered at full price.
At February 3, 2001, the Company operated 20 Talbots Outlet stores.

         Talbots stores are distinguished by a signature red door created for
each of the business concepts. Each interior is designed to have a gracious and
comfortable residential feel. This interior design theme is consistently used in
all Talbots Misses, Petites and Woman stores to promote familiarity, ease of
shopping and cost savings in the design and construction of new stores. Talbots
Kids & Babies and Talbots Accessories & Shoes also have their respective
signature red doors and interior design themes. Talbots Kids & Babies stores are
designed to create a light atmosphere and Talbots Accessories & Shoes are
designed to reflect the atmosphere of a traditional carriage house. Management
provides guidelines for merchandise display to the stores throughout the year.


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TALBOTS CATALOG AND E-COMMERCE

         Since 1948, the Company has used its catalog to offer customers
convenience in ordering Talbots merchandise. In 2000, the Company distributed 29
separate catalogs with a combined circulation of approximately 58.2 million,
including catalogs sent to stores for display and general distribution. During
2000, the catalog sales segment represented approximately 16.9% of total Company
sales. Catalog circulation has included: base catalogs offering the broadest
assortment of Talbots merchandise; specialty catalogs such as the Classics That
Work series featuring career clothing; Talbots Kids & Babies catalogs; Talbots
Accessories & Shoes catalogs; Talbots Woman catalogs; and sale catalogs. In
addition to providing customers convenience in ordering Talbots merchandise, the
Company generally uses its catalogs to communicate its classic image, to provide
customers with fashion guidance in coordinating outfits and to generate store
traffic.

         The Company utilizes computer applications, which employ mathematical
models to improve the efficiency of its catalog mailings through refinement of
its customer list. A principal factor in improving customer response has been
the Company's development of its own list of active customers. The Company
routinely updates and refines this list prior to individual catalog mailings by
monitoring customer interest. This includes the frequency and dollar amount of
purchases as well as the date of last purchase.

         The Company attempts to make catalog shopping as convenient as
possible. It maintains a toll-free number, accessible 24 hours a day, seven days
a week (except Christmas Day), to accept requests for catalogs and to take
customer orders. It maintains telemarketing centers in Knoxville, Tennessee and
Hingham, Massachusetts which, linked by computer and telephone, are designed to
provide uninterrupted service to customers. Telephone calls are answered by
knowledgeable sales associates located at the telemarketing centers who utilize
on-line computer terminals to enter customer orders and to retrieve information
about merchandise and its availability. These sales associates also suggest and
help to select merchandise and can provide detailed information regarding size,
color, fit and other merchandise features. In both the Hingham and Knoxville
telemarketing centers, sales associates are able to refer to current catalog
items in a sample store, thereby allowing them to view merchandise as they
assist customers.

         The Company employs advanced technology to process orders. Sales
associates enter orders on-line into a computerized inventory control system,
which systematically updates Talbots customer list and permits the Company to
measure the response to individual merchandise and catalog mailings. Sales and
inventory information is available to the Company's Hingham-based buying staff
the next day. The Company has achieved efficiencies in order entry and
fulfillment, which permit the shipment of most orders the following day.

         Included in catalog sales is Talbots new e-commerce website, which is a
natural extension of the Company's catalog operation. Sales orders from the
website are merged into the existing catalog fulfillment system, allowing
efficient shipping of merchandise. Customers can check the availability of
merchandise at the time of purchase and the website will provide examples of
alternative merchandise if items are unavailable. Additionally, the "on-line
chat" feature allows customers to


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communicate with customer service representatives through the website. As with
the catalog, customer on-line purchases can be returned by mail or at any
Talbots retail store.

INVENTORY CONTROL AND MERCHANDISE DISTRIBUTION

         The Company uses a centralized distribution system, under which all
merchandise is received, processed and distributed through its catalog and store
distribution center in Lakeville, Massachusetts. Merchandise received at the
distribution center is promptly inspected, assigned to individual stores, packed
for delivery and shipped to the stores. Talbots ships merchandise to its stores
virtually every business day, with each store generally receiving merchandise
twice a week. The Company believes that its strong store, catalog and e-commerce
synergy, coupled with its central distribution system, allows it to move
merchandise between the distribution channels to better take advantage of sales
trends.

         In 1995, the Company completed an expansion of its distribution center
in Lakeville, Massachusetts, by adding an additional 124,260 square feet to
support its expansion plans. Additional mezzanine level space was added in 1996
and 1997 to further support the Company's growth. In the spring of 2000, a
125,000 square foot expansion began with an anticipated completion in the summer
of 2001. The Company spent approximately $16 million through 2000 and expects to
spend an additional $3 million in 2001 on this expansion.*

MANAGEMENT INFORMATION SYSTEMS

         Talbots management information systems and electronic data processing
systems are located at the Company's Systems Center in Tampa, Florida. These
systems consist of a full range of retail, financial and merchandising systems,
including credit, inventory distribution and control, sales reporting, accounts
payable, merchandise reporting and distribution.

         All Talbots stores have point-of-sale terminals that transmit
information daily on sales by item, color and size. Talbots stores are equipped
with bar code scanning programs for the recording of store inventories, price
changes, receipts and transfers. The Company evaluates this information,
together with weekly reports on merchandise statistics, prior to making
merchandising decisions regarding reorders of fast-selling items and the
allocation of merchandise.

         Also, sales associates can locate, at any Talbots location, merchandise
no longer available in their store with a single phone call, 24 hours a day,
seven days a week (except Christmas Day).

SEASONALITY


           The nature of the Company's business is to have two distinct selling
seasons, spring and fall. The first and second quarters make up the spring
season and the third and fourth quarters make up the fall season. Within the
spring season, catalog sales are stronger in the first quarter while retail
store sales are slightly stronger in the second quarter. Within the fall season,
catalog sales and retail store sales are the strongest in the fourth quarter.


                                       10
<PAGE>   12
COMPETITION

         The women's retail apparel industry is highly competitive. The Company
believes that the principal bases upon which it competes are quality, value and
service in offering classic apparel to build "head-to-toe" wardrobes through
stores, catalogs and its website.

         Talbots competes with certain departments of national specialty
department stores such as Lord & Taylor, Saks Fifth Avenue and Nordstrom as well
as strong regional department store chains such as Macy's, Marshall Field and
Dillard's. The Company believes that it competes with these department stores by
offering a focused merchandise selection, personalized service and convenience.
Talbots also competes with other specialty retailers such as The Limited, Ann
Taylor, Eddie Bauer and The Gap, and with catalog companies such as L.L. Bean,
Lands' End and Spiegel. The Company believes that its focused merchandise
selection in classic apparel, consistent private label merchandise, superior
customer service, store site selection resulting from the synergy between its
stores and catalog operations, and the availability of its merchandise in
misses, petites and woman sizes, distinguish it from other specialty retailers.

EMPLOYEES

         At February 3, 2001, Talbots had approximately 11,100 employees, of
whom approximately 2,800 were full-time salaried employees, approximately 1,500
were full-time hourly employees and approximately 6,800 were part-time hourly
employees. The Company believes that its relationship with its employees is
good.


                                       11
<PAGE>   13
EXECUTIVE OFFICERS OF THE COMPANY

         The following table sets forth certain information regarding the
executive officers of the Company as of April 1, 2001:

<TABLE>
<CAPTION>
Name                                     Age             Position
----                                     ---             --------
<S>                                      <C>             <C>
Arnold B. Zetcher                        60              Chairman of the Board, President and Chief Executive
                                                         Officer
H. James Metscher                        44              Executive Vice President, Chief Merchandising Officer
Harold Bosworth                          52              Senior Vice President, General Manager, Talbots Kids
Paul V. Kastner                          49              Senior Vice President, International and Strategic
                                                            Planning
Edward L. Larsen                         56              Senior Vice President, Finance, Chief Financial
                                                            Officer and Treasurer
Michele M. Mandell                       53              Senior Vice President, Stores
Andrea M. McKenna                        44              Senior Vice President, Marketing and Catalog
                                                         Development
Richard T. O'Connell, Jr.                50              Senior Vice President, Legal and Real Estate, and
                                                            Secretary
Bruce L. Prescott                        45              Senior Vice President, Direct Marketing
Charles R. Richardson                    42              Senior Vice President, Information Services
Bruce C. Soderholm                       58              Senior Vice President, Operations
Stuart M. Stolper                        61              Senior Vice President, Human Resources
</TABLE>


         Mr. Zetcher joined Talbots as President in 1987. He has been President
and Chief Executive Officer and a member of the Board of Directors since 1988
and assumed the additional position of Chairman of the Board in 2000. Mr.
Zetcher was Chairman and Chief Executive Officer of John Breuner Company, a home
furnishings division of BATUS, and prior to that, Chairman and Chief Executive
Officer of Kohl's Food Stores, another BATUS division. Mr. Zetcher also served
as Chairman and Chief Executive Officer of Bonwit Teller in New York and served
in various capacities during his ten years with Federated Department Stores.

         Mr. Metscher joined Talbots as Executive Vice President and Chief
Merchandising Officer in November 1998 and became a Director in 1999. Mr.
Metscher was employed by Liz Claiborne, Inc. from 1993 to 1996, first as
President of its First Issue Division and later as President of the Liz
Claiborne Retail Division. From 1996 to 1998 he was President and Chief
Executive Officer of The Custom Foot, a venture capital backed specialty
footwear company which was discontinued and liquidated. Mr. Metscher had also
been employed by Talbots from 1984 to 1993, holding positions of increasing
responsibility including Vice President, Merchandising and Vice President,
Product Development.


         Mr. Bosworth joined the Company in June 1997 as Senior Vice President
and General Manager for Talbots Kids. From 1988 to 1997, Mr. Bosworth served as
Senior Vice President, Retail, of Ermengildo Zegna, and Senior Vice President
and General Merchandise Manager at the I. Magnin/Bullick's Wilshire division of
R.H. Macy, where he was responsible for numerous merchandising areas, including
children's. He also served in various capacities at J.W. Robinson's, a


                                       12
<PAGE>   14
division of Associated Dry Goods; The Broadway, a division of Carter Hawley
Hale; and Jordan Marsh, a division of Allied Stores from 1972 to 1988.

         Mr. Kastner joined Talbots in 1988 as Director, Business Planning and
Analysis and became Vice President, New Business Ventures and Strategic
Planning, Assistant Treasurer and Assistant Secretary in 1989. In 1994, Mr.
Kastner was promoted to the position of Senior Vice President, International and
Strategic Planning. Prior to joining Talbots, he was Director of Research and
Merchandise Information with John Breuner Company.

         Mr. Larsen became Senior Vice President, Finance, Chief Financial
Officer and Treasurer of Talbots in 1991. From 1989 to 1991, Mr. Larsen was Vice
President and Chief Financial Officer of Lillian Vernon Corporation. From 1977
to 1988, he held various positions with General Mills, Inc., including from 1985
to 1988 the position of Vice President and Group Controller of the Specialty
Retailing Group at General Mills, Inc.

         Ms. Mandell has been Senior Vice President, Stores since 1992. She
joined Talbots in 1983 as Store Manager, became District Manager in 1984 and
served as Regional Director from 1985 until 1992. From 1971 to 1983 she held
management and buying positions for Price's of Oakland in Pittsburgh,
Pennsylvania and A.E. Troutman Co. in Indiana, Pennsylvania.

         Ms. McKenna joined Talbots in December 2000 as Senior Vice President,
Marketing and Catalog Development. Prior to joining Talbots, she served as
Senior Vice President and Group Media Director at Hill, Holliday, Connors,
Cosmopulos, Inc. From 1998 to 1999, she was Vice President at McKenna Associates
Corp., a consulting firm. From 1996 to 1998, Ms. McKenna served as Vice
President of Marketing and Advertising for Hoyts Cinemas Corporation.

         Mr. O'Connell joined Talbots in 1988 as Vice President, Legal and Real
Estate and Secretary, and became Senior Vice President, Legal and Real Estate
and Secretary in 1989. Prior to joining Talbots, he served as Vice President,
Group Counsel of the Specialty Retailing Group at General Mills, Inc.

         Mr. Prescott became Senior Vice President, Direct Marketing in August
1998. He joined Talbots in 1987 as Manager, Direct Marketing Fulfillment. In
1988, he was promoted to the position of Director of Marketing Fulfillment and
in 1991 became Director, Customer Service and Telemarketing. In 1994, he was
promoted to the position of Vice President, Customer Service and Telemarketing.
From 1976 to 1987, he was employed by Johnny Appleseed's serving as manager of
catalog operations and supervising retail distribution and customer service.

         Mr. Richardson joined Talbots in October 1998 as Senior Vice President,
Information Services. From 1997 to 1998, Mr. Richardson was Senior Vice
President and Chief Information Officer for Best Buy Company, Inc. From 1996 to
1997, Mr. Richardson was a Product Manager for Computer Associates
International, Inc. From 1992 to 1996, he was Senior Vice President, Information
Services for Ann Taylor, and spent 10 years with The Limited, Inc. in various
positions at Abercrombie and Fitch, Limited Stores and Lane Bryant.


                                       13
<PAGE>   15
         Mr. Soderholm has been Senior Vice President, Operations since 1989. He
joined Talbots in 1976 as Director of Operations and served as Vice President,
Operations from 1980 to 1989.

         Mr. Stolper joined Talbots in 1989 as Vice President, Human Resources
and assumed the position of Senior Vice President, Human Resources and Assistant
Secretary later that year. From 1988 to 1989, he served as Vice President,
Administration at Jusco USA. Prior to that time, he was Vice President, Human
Resources of the Specialty Retailing Group at General Mills, Inc.

FORWARD LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the
meaning of The Private Securities Litigation Reform Act of 1995. The statements
were made a number of times and may be identified by an "asterisk" ("*") or such
forward-looking terminology as "expect," "look," "believe," "may," "will,"
"intend," "plan," "target," "goal" and similar statements or variations of such
terms. Such forward-looking statements are based on the Company's current
expectations, assumptions, estimates and projections about the Company and
involve certain significant risks and uncertainties including levels of sales,
effectiveness of the Company's brand awareness and marketing programs,
effectiveness and profitability of new concepts, effectiveness of its new
e-commerce site, store traffic, acceptance of Talbots seasonal fashions,
appropriate balance of merchandise offerings, and timing and levels of
markdowns. These and other important factors that may cause actual results to
differ materially from such forward-looking statements are included in the
Company's Current Report on Form 8-K dated October 30, 1996 filed with the
Securities and Exchange Commission (a copy of which may also be obtained from
the Company at 781-741-4500) as well as other periodic reports filed by the
Company with the Securities and Exchange Commission. You are urged to consider
all such factors. In light of the uncertainty inherent in such forward-looking
statements, you should not consider their inclusion to be a representation that
such forward-looking matters will be achieved. The Company assumes no obligation
for updating any such forward-looking statements to reflect actual results,
changes in assumptions or changes in other factors affecting such
forward-looking statements.


                                       14
<PAGE>   16
ITEM 2.    PROPERTIES.

         The table below presents certain information relating to the Company's
properties at February 3, 2001:

<TABLE>
<CAPTION>
Location                       Gross Square Feet       Primary Function                Interest
--------                       -----------------       ----------------                --------
<S>                            <C>                   <C>                               <C>
Hingham, Massachusetts              313,000          Company headquarters              Own (46 acres)
Lakeville, Massachusetts            910,992          Distribution center               Own (110 acres)
Tampa, Florida                       38,437          Systems center                    Lease
Knoxville, Tennessee                 26,069          Telemarketing                     Lease
New York, New York                   28,837          Product development office        Lease
Hong Kong                            10,455          Merchandising and sourcing        Lease
Lincoln, RI                           4,470          Credit and banking facilities     Lease
Ontario, Canada                       1,119          Canadian regional office          Lease
London, U.K.                          1,093          U.K. management office            Lease

Stores throughout the U.S.,
   Canada and U.K.                                   Retail stores                     Own and lease (a)
</TABLE>


(a)   Talbots owns the property for six of its 722 stores.


         Except for retail store space, the Company believes that its operating
facilities and sales offices are adequate and suitable for its current needs. To
address expected future office and distribution space needs, in fiscal 1999, the
Company completed a 75,000 square foot expansion of its Hingham, Massachusetts
offices and commenced construction on 125,000 square foot additional space at
its Lakeville, Massachusetts distribution facility is expected to be completed
in fiscal 2001. Talbots long-term expansion program, if successful, may require
additional office and distribution space to service its operations in the
future.

         At February 3, 2001, Talbots operated 722 stores; all but six were
leased. The leases typically provide for an initial term of between 10 and 15
years, with renewal options permitting the Company to extend the term for
between five and 10 years thereafter. The Company generally has been successful
in renewing its store leases as they expire. Under most leases, the Company pays
a fixed annual base rent plus a contingent rent ("percentage rent") based on the
store's annual sales in excess of specified levels. The percentage rent payment
is typically 4% to 5% of annual sales in excess of the applicable threshold. In
a majority of leases Talbots has a right to terminate earlier than the specified
expiration date if certain sales levels are not achieved; such right is usually
exercisable after five years of operation. Most leases also require Talbots to
pay real estate taxes, insurance and utilities and, in shopping center
locations, to make contributions toward the shopping center's common area
operating costs and marketing programs. The Company has many lease arrangements
that provide for an increase in annual fixed rental payments during the lease
term.


                                       15
<PAGE>   17
         At February 3, 2001, the current terms of Talbots store leases
(assuming solely for this purpose that the Company exercises all lease renewal
options) were as follows:

<TABLE>
<CAPTION>
                Years Lease                                       Number of
                Terms Expire                                     Store Leases(a)
                ------------                                     --------------
<S>                                                              <C>
                2001-2002..................................          124
                2003-2004..................................          122
                2005-2008..................................          217
                2009 and later.............................          220
</TABLE>


(a) Certain leases have more than one store included within the leased premises.


ITEM 3.  LEGAL PROCEEDINGS.

         Talbots is a party to certain legal actions arising in the normal
course of its business. Although the amount of any liability that could arise
with respect to these actions cannot be accurately predicted, in the opinion of
the Company any such liability will not have a material adverse effect on the
financial position, results of operations or liquidity of Talbots.


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

         No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 2000.


                                       16
<PAGE>   18
                                     PART II


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

         Information concerning the market in which the Company's common stock
was traded in fiscal 2000 and the approximate number of record holders of common
stock and certain other information called for by this Item 5 are set forth
under the captions "Selected Quarterly Financial Data" on page 25 and "Market
for Registrant's Common Stock and Related Shareholder Matters" on page 26 of
Talbots Annual Report to Shareholders for the fiscal year ended February 3, 2001
and is incorporated herein by reference.

         At April 5, 2001, Jusco USA held approximately 58.1% of Talbots common
stock.


ITEM 6.  SELECTED FINANCIAL DATA.

         The information called for by this Item 6 is set forth under the
caption "Five Year Financial Summary" on page 2 of Talbots Annual Report to
Shareholders for the fiscal year February 3, 2001 and is incorporated herein by
reference.


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

         The information called for by this Item 7 is set forth under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations" on pages 3 to 7 of Talbots Annual Report to Shareholders for the
fiscal year ended February 3, 2001 and is incorporated herein by reference.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

         The information called for by this Item 7A is set forth under the
caption "Quantitative and Qualitative Disclosures about Market Risk" in the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on page 6 and 7 of Talbots Annual Report to Shareholders for the
fiscal year ended February 3, 2001 and is incorporated herein by reference.


                                       17
<PAGE>   19
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         The report of independent auditors, the consolidated financial
statements of Talbots, the notes to consolidated financial statements, and the
supplementary financial information called for by this Item 8 are set forth on
pages 8 to 24 of Talbots Annual Report to Shareholders for the fiscal year ended
February 3, 2001 and are incorporated herein by reference.


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

         Not applicable.


                                       18
<PAGE>   20
                                    PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         Information concerning Talbots directors under the caption "Election of
Directors" on pages 3 through 5 of Talbots Proxy Statement for Talbots 2001
Annual Meeting of Shareholders, the information concerning Talbots executive
officers set forth in Part I, Item 1 above under the caption "Executive Officers
of the Company," and the information under the caption "Section 16(a) Beneficial
Ownership Reporting Compliance" on page 15 of Talbots Proxy Statement for
Talbots 2001 Annual Meeting of Shareholders, are incorporated herein by
reference.


ITEM 11. EXECUTIVE COMPENSATION.

         The information set forth under the caption "Executive Compensation" on
pages 6 to 11 of Talbots Proxy Statement for Talbots 2001 Annual Meeting of
Shareholders, the information concerning director compensation under the caption
"Director Compensation; Attendance; Committees" on pages 4 and 5 of Talbots
Proxy Statement for Talbots 2001 Annual Meeting of Shareholders, and the
information under the caption "Compensation Committee Interlocks and Insider
Participation" on page 12 of Talbots Proxy Statement for Talbots 2001 Annual
Meeting of Shareholders, are each incorporated herein by reference. The
information included under "Executive Compensation Report on Compensation of
Executive Officers" and "Executive Compensation-Performance Graph" is not
incorporated in this Item 11.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         The information set forth under the caption "Beneficial Ownership of
Common Stock" on pages 14 and 15 of Talbots Proxy Statement for Talbots 2001
Annual Meeting of Shareholders is incorporated herein by reference.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         The information set forth under the caption "Executive Compensation -
Certain Transactions with Related Parties" on pages 12 to 14 of Talbots Proxy
Statement for Talbots 2001 Annual Meeting of Shareholders is incorporated herein
by reference.


                                       19
<PAGE>   21
                                     PART IV


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

(a)(1)          FINANCIAL STATEMENTS: The following Independent Auditors' Report
                and Consolidated Financial Statements of Talbots are
                incorporated herein by reference to pages 8 to 24 of Talbots
                Annual Report to Shareholders for the fiscal year ended February
                3, 2001:

                       Consolidated Statements of Earnings for the Fifty-three
                       Weeks Ended February 3, 2001, the Fifty-two Weeks Ended
                       January 29, 2000 and the Fifty-two Weeks Ended January
                       30, 1999

                       Consolidated Balance Sheets at February 3, 2001 and
                       January 29, 2000

                       Consolidated Statements of Cash Flows for the Fifty-three
                       Weeks Ended February 3, 2001, the Fifty-two Weeks Ended
                       January 29, 2000 and the Fifty-two Weeks Ended January
                       30, 1999

                       Consolidated Statements of Stockholders' Equity for the
                       Fifty-three Weeks Ended February 3, 2001, the Fifty-two
                       Weeks Ended January 29, 2000 and the Fifty-two Weeks
                       Ended January 30, 1999

                       Notes to Consolidated Financial Statements

                       Independent Auditors' Report

(a)(2)          FINANCIAL STATEMENT SCHEDULES: The document and schedule listed
                below are filed as part of this Form 10-K:

                                                               Page in Form 10-K

                Independent Auditors' Report on
                Financial Statement Schedule                                 F-1

                Schedule II - Valuation and Qualifying
                Accounts and Reserves                                        S-1

                All other financial statement schedules have been omitted
                because the required information is either presented in the
                consolidated financial statements or the notes thereto or is not
                applicable, required or material.

(a)(3)          The following Exhibits are filed as part of, or incorporated by
                reference into, this Annual Report:


                                       20
<PAGE>   22
Exhibit

(3)      Articles of Incorporation and By-laws.

         3.1      Certificate of Incorporation, as amended, of Talbots.(1), (13)

         3.2      By-laws of Talbots.(1)

(4)      Instruments Defining the Rights of Security Holders, including
         Indentures.

         4.1      Form of Common Stock Certificate of Talbots.(1)

(10)     Material Contracts.

         10.1     Stockholders Agreement, dated as of November 18, 1993, between
                  Talbots and Jusco USA.(2)

         10.2     Revolving Credit Agreement, dated as of January 25, 1994,
                  between Talbots and The Dai-Ichi Kangyo Bank, Limited, as
                  amended.(2), (4), (5), (6), (7), (11), (15)

         10.3     Revolving Credit Agreement, dated as of January 25, 1994,
                  between Talbots and The Bank of Tokyo-Mitsubishi Trust
                  Company, as amended.(2), (4), (5), (6), (7), (10), (11), (15)

         10.4     Revolving Credit Agreement, dated as of January 25, 1994,
                  between Talbots and The Norinchukin Bank, as amended.(2), (4),
                  (5), (6), (7), (12)

         10.5     Revolving Credit Agreement, dated as of January 25, 1994,
                  between Talbots and The Sakura Bank, Limited, as amended.(2),
                  (4), (5), (6), (7), (8), (11), (15)

         10.6     Revolving Credit Agreement between Talbots and The Dai-Ichi
                  Kangyo Bank, Limited, dated as of April 14, 1998, as
                  amended.(6), (10), (12)

         10.7     Credit Agreement between Talbots and The Bank of
                  Tokyo-Mitsubishi, Ltd., dated as of April 17, 1998, as
                  amended.(6), (7), (10), (12)

         10.8     Letter of Credit Agreement, dated as of August 10, 1993,
                  between Talbots and The First National Bank of Boston.(1)

         10.9     Letter Agreement, dated as of June 1, 1998, concerning credit
                  facilities, between Talbots and BankBoston, N.A.(7)

         10.10    Letter Agreement, dated August 11, 1998, concerning credit
                  facilities, between HSBC Corporate Banking, Marine Midland
                  Bank and Talbots.(7), (13)

         10.11    Trademark Purchase and License Agreement, dated as of November
                  26, 1993, between Jusco (Europe) B.V. and The Classics
                  Chicago, Inc.(2)


                                       21
<PAGE>   23
         10.12    Services Agreement, dated as of November 18, 1993, between
                  Talbots Japan Co., Ltd. and Talbots.(2)

         10.13    Stock Purchase Agreement, dated as of November 26, 1993,
                  between Talbots and Jusco.(2)

         10.14    License Agreement, dated as of November 26, 1993, between The
                  Classics Chicago, Inc., Talbots, Talbots International
                  Retailing Limited, Inc., Talbots (Canada), Inc. and Talbots
                  (U.K.) Retailing Limited.(2)

         10.15    Tax Allocation Agreement, dated as of November 18, 1993,
                  between Jusco USA, Talbots, Talbots International Retailing
                  Limited, Inc., Talbots (U.K.) Retailing Limited and The
                  Classics Chicago, Inc.(2)

         10.16    The Talbots, Inc. Pension Plan for Salaried Employees, as
                  amended and restated January 1, 1989, including amendments
                  through January 1, 1994.(3)*

         10.17    The Talbots, Inc. Retirement Savings Voluntary Plan, as
                  amended and restated, effective as of November 1, 1993.(3),
                  (11)*

         10.18    Services Agreement, dated as of October 29, 1989, between
                  Talbots and Jusco USA.(3)

         10.19    Amendment to License Agreement, dated January 29, 1997, among
                  The Classics Chicago, Inc., Talbots, Talbots International
                  Retailing Limited, Inc., Talbots (Canada), Inc., and Talbots
                  (U.K.) Retailing, Ltd.(5)

         10.20    Money Market Line Commercial Promissory Note dated August 20,
                  1999 from Talbots to BankBoston, N.A.(10)

         10.21    The Talbots, Inc. Supplemental Retirement Plan, as
                  amended.(1), (2), (16)*

         10.22    The Talbots, Inc. Supplemental Savings Plan, as amended.(1),
                  (2), (16)*

         10.23    The Talbots, Inc. Deferred Compensation Plan, as amended.(1),
                  (2), (16)*

         10.24    The Talbots, Inc. Amended and Restated 1993 Executive Stock
                  Based Incentive Plan.(7)*

         10.25    Employment Agreement, dated as of October 22, 1993, between
                  Arnold B. Zetcher and Talbots, as amended by Amendment No. 1
                  dated May 11, 1994.(1), (3)*

         10.26    Change in Control Agreements, between Talbots and certain
                  officers of Talbots.(2), (3)*

         10.27    Employment Agreement, dated as of November 23, 1998, between
                  the Company and H. James Metscher.(7)*


                                       22
<PAGE>   24
         10.28    Consulting and Advisory Services Contract between Jusco USA
                  and Talbots dated as of November 1, 1999. (9)

         10.29    The Talbots, Inc. Restated Directors Stock Plan dated May 25,
                  2000. (13) *

         10.30    Fifth Extension of Share Repurchase Program dated as of June
                  1, 2000 between Talbots and Jusco USA. (14)

         10.31    Sixth Extension of Share Repurchase Program dated as of March
                  14, 2001 between Talbots and Jusco USA. (16)

*        Management contract and compensatory plans and arrangements



(11)     Statement re Computation of Per Share Earnings.

         11.1     Incorporated by reference to footnote 12 "Net Income Per
                  Share" on page 22 of Talbots Annual Report to Shareholders for
                  the fiscal year ended February 3, 2001.


(13)     Annual Report to Security Holders.

         13.1     Excerpts from the 2000 Annual Report of Talbots incorporated
                  into this Annual Report on Form 10-K by reference.


(21)     Subsidiaries.

         21.1     List of subsidiaries of Talbots.


(23)     Consents of Experts and Counsel.

         23.1     Independent Auditors' Consent of Deloitte & Touche LLP.

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

(1)  Incorporated by reference to the exhibits filed with Talbots Registration
     Statement on Form S-1 (No. 33-69082), which Registration Statement became
     effective November 18, 1993.

(2)  Incorporated by reference to the exhibits filed with Current Report on Form
     8-K dated April 25, 1994.

(3)  Incorporated by reference to the exhibits filed with Current Report on Form
     8-K dated April 27, 1995.


                                       23
<PAGE>   25
(4)  Incorporated by reference to the exhibits filed with Current Report on Form
     8-K dated November 21, 1995.

(5)  Incorporated by reference to the exhibits filed with Current Report on Form
     8-K dated May 1, 1997.

(6)  Incorporated by reference to the exhibits filed with Current Report on Form
     8-K dated November 30, 1997.

(7)  Incorporated by reference to the exhibits filed with Current Report on Form
     8-K dated April 29, 1999.

(8)  Incorporated by reference to the exhibits filed with Current Report on Form
     8-K dated May 26, 1999.

(9)  Incorporated by reference to the exhibits filed with Current Report on Form
     8-K dated July 1, 1999.

(10) Incorporated by reference to the exhibits filed with Current Report on Form
     8-K dated November 24, 1999.

(11) Incorporated by reference to the exhibits filed with Current Report on Form
     8-K dated April 25, 2000.

(12) Incorporated by reference to the exhibits filed with Current Report on Form
     8-K dated May 18, 2000.

(13) Incorporated by reference to the exhibits filed with Current Report on Form
     8-K dated June 12, 2000.

(14) Incorporated by reference to the exhibits filed with Current Report on Form
     8-K dated June 30, 2000.

(15) Incorporated by reference to the exhibits filed with Current Report on Form
     8-K dated February 28, 2001.

(16) Incorporated by reference to the exhibits filed with Current Report on Form
     8-K dated April 12, 2001.


(b)  Report on Form 8-K:
     ------------------

     The Company filed a Current Report on Form 8-K on November 1, 2000
     pursuant to Regulation FD.

     The Company filed a Current Report on Form 8-K on April 12, 2001 pursuant
     to which various agreements and documents were filed by the Company, as
     identified therein.

     With the exception of the information incorporated by reference to the
     Annual Report to Shareholders in Items 5, 6, 7 and 8 of Part II and Item
     14 of Part IV of this Annual Report, Talbots 2000 Annual Report to
     Shareholders is not to be deemed filed as part of this Annual Report.


                                       24
<PAGE>   26
                                   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.

Dated: May 2, 2001

           THE TALBOTS, INC.
           (Registrant)


           By  /s/ Edward L. Larsen
              -----------------------------------------------------
              Edward L. Larsen
              Senior Vice President, Finance, Chief
              Financial Officer and Treasurer (Principal
              Financial and Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated as of May 2, 2001.


 /s/ Arnold B. Zetcher
 --------------------------------                 ------------------------------
Arnold B. Zetcher                                 Motoya Okada
Chairman of the Board, President                  Director
and Chief Executive Officer


                                                   /s/ Susan M. Swain
 --------------------------------                 ------------------------------
Toshiji Tokiwa                                    Susan M. Swain
Director                                          Director


 /s/ Elizabeth T. Kennan
 --------------------------------                 ------------------------------
Elizabeth T. Kennan                               Isao Tsuruta
Director                                          Director


                                                  /s/ Mark H. Willes
 --------------------------------                 ------------------------------
Yoichi Kimura                                     Mark H. Willes
Director                                          Director


 /s/ H. James Metscher
 --------------------------------
H. James Metscher
Officer and Director
<PAGE>   27
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549


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




                                    FORM 10-K


                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

                       THE SECURITIES EXCHANGE ACT OF 1934


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



                                THE TALBOTS, INC.


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


                                    EXHIBITS


                                 ---------------
<PAGE>   28
                                  EXHIBIT INDEX

Exhibit

(3)      Articles of Incorporation and By-laws.

         3.1      Certificate of Incorporation, as amended, of Talbots.(1), (13)

         3.2      By-laws of Talbots.(1)

(4)      Instruments Defining the Rights of Security Holders, including
         Indentures.

         4.1      Form of Common Stock Certificate of Talbots.(1)

(10)     Material Contracts.


         10.1     Stockholders Agreement, dated as of November 18, 1993, between
                  Talbots and Jusco USA.(2)

         10.2     Revolving Credit Agreement, dated as of January 25, 1994,
                  between Talbots and The Dai-Ichi Kangyo Bank, Limited, as
                  amended.(2), (4), (5), (6), (7), (11), (15)

         10.3     Revolving Credit Agreement, dated as of January 25, 1994,
                  between Talbots and The Bank of Tokyo-Mitsubishi Trust
                  Company, as amended.(2), (4), (5), (6), (7), (10), (11), (15)

         10.4     Revolving Credit Agreement, dated as of January 25, 1994,
                  between Talbots and The Norinchukin Bank, as amended.(2), (4),
                  (5), (6), (7), (12)

         10.5     Revolving Credit Agreement, dated as of January 25, 1994,
                  between Talbots and The Sakura Bank, Limited, as amended.(2),
                  (4), (5), (6), (7), (8), (11), (15)

         10.6     Revolving Credit Agreement between Talbots and The Dai-Ichi
                  Kangyo Bank, Limited, dated as of April 14, 1998, as
                  amended.(6), (10), (12)

         10.7     Credit Agreement between Talbots and The Bank of
                  Tokyo-Mitsubishi, Ltd., dated as of April 17, 1998, as
                  amended.(6), (7), (10), (12)

         10.8     Letter of Credit Agreement, dated as of August 10, 1993,
                  between Talbots and The First National Bank of Boston.(1)

         10.9     Letter Agreement, dated as of June 1, 1998, concerning credit
                  facilities, between Talbots and BankBoston, N.A.(7)

         10.10    Letter Agreement, dated August 11, 1998, concerning credit
                  facilities, between HSBC Corporate Banking, Marine Midland
                  Bank and Talbots.(7), (13)
<PAGE>   29
         10.11    Trademark Purchase and License Agreement, dated as of November
                  26, 1993, between Jusco (Europe) B.V. and The Classics
                  Chicago, Inc.(2)

         10.12    Services Agreement, dated as of November 18, 1993, between
                  Talbots Japan Co., Ltd. and Talbots.(2)

         10.13    Stock Purchase Agreement, dated as of November 26, 1993,
                  between Talbots and Jusco.(2)

         10.14    License Agreement, dated as of November 26, 1993, between The
                  Classics Chicago, Inc., Talbots, Talbots International
                  Retailing Limited, Inc., Talbots (Canada), Inc. and Talbots
                  (U.K.) Retailing Limited.(2)

         10.15    Tax Allocation Agreement, dated as of November 18, 1993,
                  between Jusco USA, Talbots, Talbots International Retailing
                  Limited, Inc., Talbots (U.K.) Retailing Limited and The
                  Classics Chicago, Inc.(2)

         10.16    The Talbots, Inc. Pension Plan for Salaried Employees, as
                  amended and restated January 1, 1989, including amendments
                  through January 1, 1994.(3)*

         10.17    The Talbots, Inc. Retirement Savings Voluntary Plan, as
                  amended and restated, effective as of November 1, 1993.(3),
                  (11)*

         10.18    Services Agreement, dated as of October 29, 1989, between
                  Talbots and Jusco USA.(3)

         10.19    Amendment to License Agreement, dated January 29, 1997, among
                  The Classics Chicago, Inc., Talbots, Talbots International
                  Retailing Limited, Inc., Talbots (Canada), Inc., and Talbots
                  (U.K.) Retailing, Ltd.(5)

         10.20    Money Market Line Commercial Promissory Note dated August 20,
                  1999 from Talbots to BankBoston, N.A.(10)

         10.21    The Talbots, Inc. Supplemental Retirement Plan, as
                  amended.(1), (2), (16)*

         10.22    The Talbots, Inc. Supplemental Savings Plan, as amended.(1),
                  (2), (16)*

         10.23    The Talbots, Inc. Deferred Compensation Plan, as amended.(1),
                  (2), (16)*

         10.24    The Talbots, Inc. Amended and Restated 1993 Executive Stock
                  Based Incentive Plan.(7)*

         10.25    Employment Agreement, dated as of October 22, 1993, between
                  Arnold B. Zetcher and Talbots, as amended by Amendment No. 1
                  dated May 11, 1994.(1), (3)*

<PAGE>   30
         10.26    Change in Control Agreements, between Talbots and certain
                  officers of Talbots.(2), (3)*

         10.27    Employment Agreement, dated as of November 23, 1998, between
                  the Company and H. James Metscher.(7)*

         10.28    Consulting and Advisory Services Contract between Jusco USA
                  and Talbots dated as of November 1, 1999.(9)

         10.29    The Talbots, Inc. Restated Directors Stock Plan dated May 25,
                  2000.(13)*

         10.30    Fifth Extension of Share Repurchase Program dated as of June
                  1, 2000 between Talbots and Jusco USA.(14)

         10.31    Sixth Extension of Share Repurchase Program dated as of March
                  14, 2001 between Talbots and Jusco USA.(16)

*        Management contract and compensatory plans and arrangements


(11)     Statement re Computation of Per Share Earnings.

         11.1     Incorporated by reference to footnote 12 "Net Income Per
                  Share" on page 22 of Talbots Annual Report to Shareholders for
                  the fiscal year ended February 3, 2001.


(13)     Annual Report to Security Holders.

         13.1     Excerpts from the 2000 Annual Report of Talbots incorporated
                  into this Annual Report on Form 10-K by reference.


(21)     Subsidiaries.

         21.1     List of subsidiaries of Talbots.


(23)     Consents of Experts and Counsel.

         23.1     Independent Auditors' Consent of Deloitte & Touche LLP.

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

(1)  Incorporated by reference to the exhibits filed with Talbots Registration
     Statement on Form S-1 (No. 33-69082), which Registration Statement became
     effective November 18, 1993.

<PAGE>   31
(2)  Incorporated by reference to the exhibits filed with Current Report on Form
     8-K dated April 25, 1994.

(3)  Incorporated by reference to the exhibits filed with Current Report on Form
     8-K dated April 27, 1995.

(4)  Incorporated by reference to the exhibits filed with Current Report on Form
     8-K dated November 21, 1995.

(5)  Incorporated by reference to the exhibits filed with Current Report on Form
     8-K dated May 1, 1997.

(6)  Incorporated by reference to the exhibits filed with Current Report on Form
     8-K dated November 30, 1997.

(7)  Incorporated by reference to the exhibits filed with Current Report on Form
     8-K dated April 29, 1999.

(8)  Incorporated by reference to the exhibits filed with Current Report on Form
     8-K dated May 26, 1999.

(9)  Incorporated by reference to the exhibits filed with Current Report on Form
     8-K dated July 1, 1999.

(10) Incorporated by reference to the exhibits filed with Current Report on Form
     8-K dated November 24, 1999.

(11) Incorporated by reference to the exhibits filed with Current Report on Form
     8-K dated April 25, 2000.

(12) Incorporated by reference to the exhibits filed with Current Report on Form
     8-K dated May 18, 2000.

(13) Incorporated by reference to the exhibits filed with Current Report on Form
     8-K dated June 12, 2000.

(14) Incorporated by reference to the exhibits filed with Current Report on Form
     8-K dated June 30, 2000.

(15) Incorporated by reference to the exhibits filed with Current Report on Form
     8-K dated February 28, 2001.

(16) Incorporated by reference to the exhibits filed with Current Report on Form
     8-K dated April 12, 2001.
<PAGE>   32
INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
The Talbots, Inc.:

We have audited the consolidated financial statements of The Talbots, Inc. and
its subsidiaries (the "Company") as of February 3, 2001 and January 29, 2000,
and for each of the three years in the period ended February 3, 2001, and have
issued our report thereon dated March 14, 2001. Such financial statements and
report are included in your 2000 Annual Report to Stockholders and are
incorporated herein by reference. Our audits also included the financial
statement schedule of The Talbots, Inc. and its subsidiaries, listed in Item 14
(a)(2). This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.


/s/ Deloitte & Touche LLP

Boston, Massachusetts
March 14, 2001


                                       F-1
<PAGE>   33
                           TALBOTS ANNUAL REPORT 2000



FIVE YEAR FINANCIAL SUMMARY
(Dollar amounts in thousands except per share data)

The following selected financial data have been derived from the Company's
consolidated financial statements. The information set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and notes
thereto, included elsewhere herein. Sales for all periods presented have been
reclassified to conform with EITF 00-10 "Accounting for Shipping and Handling
Fees and Costs."

<TABLE>
<CAPTION>
                                                                     YEAR ENDED
                                      -----------------------------------------------------------------------
                                      FEBRUARY 3,    JANUARY 29,    JANUARY 30,    JANUARY 31,    FEBRUARY 1,
                                             2001           2000           1999           1998           1997
                                       (53 WEEKS)     (52 WEEKS)     (52 WEEKS)     (52 WEEKS)     (52 WEEKS)
                                      -----------------------------------------------------------------------
<S>                                   <C>            <C>            <C>            <C>            <C>

STATEMENT OF EARNINGS INFORMATION:

Net sales                              $1,594,996     $1,308,658     $1,157,737     $1,069,071     $1,035,110
Net income                                115,202         58,460         36,668          5,838         63,621
Net income per share
    Basic                              $     1.86     $     0.94     $     0.58     $     0.09     $     0.96
    Assuming dilution                  $     1.80     $     0.92     $     0.57     $     0.09     $     0.96
Weighted average number of
  shares of common stock
  outstanding (in thousands)
    Basic                                  61,823         62,136         63,756         64,772         66,370
    Assuming dilution                      63,995         63,368         63,866         64,872         66,566
Cash dividends per share               $     0.27     $     0.23     $     0.22     $     0.21     $     0.17


BALANCE SHEET INFORMATION:

Working capital                        $  318,365     $  225,855     $  201,521     $  145,101     $  184,442
Total assets                              858,596        693,904        661,219        680,154        625,043
Total long-term debt                      100,000        100,000        100,000         50,000         50,000
Stockholders' equity                      550,771        431,332        402,073        396,466        431,459
</TABLE>

REPORT OF MANAGEMENT RESPONSIBILITY

The management of The Talbots, Inc. is responsible for the fairness and accuracy
of our financial reporting.

The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America, using
management's best estimates and informed judgements where necessary and
appropriate. Management is responsible for the integrity of the information and
the representations contained in our Annual Report.

We have established a system of internal accounting controls that provides
reasonable assurance that, in all material respects, assets are adequately
safeguarded and accounted for in accordance with management's authorization, and
transactions are properly and accurately recorded. Our internal controls provide
for appropriate separation of duties and responsibilities, and there are
documented policies regarding the use of Company assets and proper financial
reporting. These policies demand high ethical conduct from all employees. We
also maintain an internal audit program that independently evaluates and reports
on the adequacy and effectiveness of our internal controls.

The Audit Committee of the Board of Directors, consisting of outside independent
Directors, meets periodically to assess that our management, internal auditors
and independent auditors are properly fulfilling their duties regarding internal
control and financial reporting. Our independent auditors, internal auditors and
financial managers have full and free access to the Audit Committee at any time.

Deliotte & Touche LLP, independent certified public accountants, are retained to
perform an audit of our consolidated financial statements.



/s/ Arnold B. Zetcher                      /s/ Edward L. Larsen

Arnold B. Zetcher                          Edward L. Larsen
Chairman of the Board of Directors,        Senior Vice President, Finance,
President and Chief Executive Officer      Chief Financial Officer and Treasurer



                                      F-2.
<PAGE>   34
                           TALBOTS ANNUAL REPORT 2000



MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
consolidated financial statements of the Company and the notes accompanying the
consolidated financial statements. The 2000 fiscal year had fifty-three weeks
and ended on February 3, 2001. The 1999 and 1998 fiscal years each had fifty-two
weeks and ended on January 29, 2000 and January 30, 1999, respectively. When
making comparable store sales comparisons between fiscal 2000 and fiscal 1999,
the comparable fifty-two week period for fiscal 2000 excludes the fifty-third
week.


RESULTS OF OPERATIONS

The following table sets forth the percentage relationship to net sales of
certain items in the Company's consolidated statements of earnings for the
fiscal periods shown below:

<TABLE>
<CAPTION>
                                                              YEAR ENDED
                                                ---------------------------------------
                                                FEBRUARY 3,   JANUARY 29,   JANUARY 30,
                                                       2001          2000          1999
                                                ---------------------------------------
<S>                                             <C>           <C>           <C>
Net sales                                            100.0%        100.0%        100.0%
Cost of sales, buying and occupancy expenses          58.7%         63.8%         66.0%
Selling, general and administrative expenses          29.3%         28.4%         28.2%
Operating income                                      12.0%          7.8%          5.8%
Interest expense, net                                  0.3%          0.5%          0.6%
Income before taxes                                   11.7%          7.3%          5.1%
Income taxes                                           4.5%          2.8%          2.0%
Net income                                             7.2%          4.5%          3.2%
</TABLE>

FISCAL 2000 COMPARED TO FISCAL 1999

Net sales increased by $286.3 million to $1,595.0 million, or 21.9% over 1999.
Operating income was $191.6 million in 2000 compared to $101.6 million in 1999,
an increase of 88.6%.

Retail store sales in 2000 increased by $226.1 million, to $1,326.0 million, or
20.6% over 1999. The increase in retail store sales was attributable to the 49
net new stores opened in 2000, the first full year of operation of the 35
non-comparable stores that opened in 1999, $17.2 million of sales during the
53rd week in 2000 and a $156.2 million, or 16.3%, increase in comparable store
sales from the previous year. Comparable stores are those which were open for at
least one full fiscal year. When a new Talbots Petites, Woman or Accessories &
Shoes store is opened adjacent to or in close proximity to an existing
comparable Misses store, such Misses store is excluded from the computation of
comparable store sales for a period of 13 months so that the performance of the
full Misses assortment may be properly compared. The Company believes the
increase in comparable store sales can be attributed to continued improvements
in its merchandise offerings coupled with intensified brand building through
increased investment in marketing programs. The percentage of the Company's net
sales derived from its retail stores in 2000 decreased to 83.1% compared to
84.0% in 1999 due to the strength of catalog sales which increased at a higher
rate than store sales.

Catalog sales in 2000 increased by $60.2 million, to $269.0 million, or 28.8%
over 1999. Included in catalog sales are sales generated from the Company's
internet website, www.talbots.com. Catalog productivity, as measured by both
sales per catalog and sales per page distributed, improved over 1999. Sales per
catalog distributed increased 25.8% from $3.37 in 1999 to $4.24 in 2000, on
circulation of approximately 58.2 million catalogs in 2000 from 56.7 million
catalogs in 1999. Sales per page distributed improved 19.0% from $4.21 per
hundred in 1999 to $5.01 per hundred in 2000. Additionally, the Company's
website, which was launched in November 1999, had a full year of sales in 2000,
accounting for approximately 10% of total catalog sales. The percentage of the
Company's net sales derived from its catalog in 2000 increased to 16.9% compared
to 16.0% in 1999.

The Company believes that the increase in catalog sales was due to strong
customer demand and appeal for the Company's merchandise, continuous strong
full-price selling across all major catalogs and sales through the Company's
internet website. The Company attributes the improvement in catalog productivity
to effective customer targeting as shown by a 24.4% increase in response rates
per book and a 27.5% increase in catalog orders for 2000 over 1999.

Cost of sales, buying and occupancy expenses decreased as a percentage of net
sales to 58.7% in 2000 from 63.8% in 1999 due to continuous margin improvements
throughout the year, as well as, continued leverage improvements in store
occupancy expenses.

Selling, general and administrative expenses increased as a percentage of net
sales to 29.3% in 2000 from 28.4% in 1999. The increase in selling, general and
administrative expenses as a percentage of net sales was mainly due to
incremental investment in marketing programs, accelerated spending on store
maintenance expenses and costs associated with the national rollout of the
Company's customer loyalty program (Classic Awards) in January 2001.



                                      F-3.
<PAGE>   35
                           TALBOTS ANNUAL REPORT 2000



Interest expense, net, decreased by $2.2 million, to $4.3 million in 2000 when
compared to 1999. Interest expense increased to $7.7 million in 2000 from $7.4
million in 1999 primarily due to an increase in interest rates. The average
interest rate, including interest on short-term and long-term bank borrowings,
was 7.46% in 2000 compared to 6.28% in 1999. Partially offsetting the increase
in rates was a reduction in average debt levels. The average total debt,
including short-term and long-term bank borrowings, was $103.4 million in 2000
compared to $117.9 million in 1999. Offsetting the increase in interest expense
was a $2.5 million increase in interest income. Strong cash flows produced
higher levels of cash and cash equivalents in fiscal 2000, which were invested
in short-term investments.

The effective tax rate for the Company remained at 38.5% in 2000.


FISCAL 1999 COMPARED TO FISCAL 1998

Net sales increased by $151.0 million, to $1,308.7 million, or 13.0% over 1998.
Operating income was $101.6 million in 1999 compared to $66.9 million in 1998.

Retail store sales in 1999 increased by $126.9 million, to $1,099.9 million, or
13.0% over 1998. The percentage of the Company's net sales derived from its
retail stores in 1999 remained consistent with 1998 at 84.0%. The increase in
retail store sales was attributable to the 35 net new stores opened in 1999, the
first full year of operation of the 35 non-comparable stores that opened in
1998, and a $74.9 million, or 8.7%, increase in comparable store sales from the
previous year. The Company believes the increase in comparable store sales can
be attributed to improvements in its merchandise offerings which more accurately
reflected the styling, fit and colors that appeal to its customer.

Catalog sales in 1999 increased by $24.1 million, to $208.8 million, or 13.0%
over 1998. The percentage of the Company's total sales derived from its catalog
in 1999 remained consistent with 1998 at 16.0%. Catalog productivity, as
measured by both sales per catalog and sales per page distributed, improved over
1998. Sales per catalog distributed increased 4.7%, from $3.22 in 1998 to $3.37
in 1999, on circulation of approximately 56.7 million catalogs in 1999 versus
52.6 million catalogs in 1998. Sales per page distributed improved 17.6%, from
$3.58 per hundred in 1998 to $4.21 per hundred in 1999. In November 1999, the
Company launched its e-commerce website, www.talbots.com.

The Company believes that the increase in catalog sales was primarily due to
continued improvements in its merchandise offerings, which had a stronger appeal
to its customers and more closely met their expectations. The Company attributes
the improvement in catalog productivity to its strategy of reducing catalog
pages, eliminating certain unproductive mailings and more focused customer
targeting.

Cost of sales, buying and occupancy expenses decreased as a percentage of net
sales to 63.8% in 1999 from 66.0% in 1998 due to improved merchandise margins
which resulted from stronger full price selling and reduced markdowns resulting
from more effective inventory management. Additionally, strong full price
selling created increased leverage on occupancy costs.

Selling, general and administrative expenses increased slightly as a percentage
of net sales to 28.4% in 1999 from 28.2% in 1998. The increase in selling,
general and administrative expenses as a percentage of net sales was mainly due
to higher marketing expenses related to the Company's advertising campaign and
higher information services expenses, including its Year 2000 remediation
efforts. This was substantially offset by leverage improvements on catalog
production expenses, including a planned reduction in page count, matched with
increased overall circulation designed to maximize sales productivity per page,
as a percentage of sales.

Interest expense, net, decreased by $0.8 million, to $6.5 million in 1999, due
to lower average debt levels and borrowing rates. Interest expense decreased
from $8.3 million in 1998 to $7.4 million in 1999 due to a combination of lower
debt levels and interest rates. The average total debt, including short-term and
long-term bank borrowings, was $117.9 million in 1999 compared to $125.9 million
in 1998. The decrease in borrowings was mainly due to improved operating cash
flows resulting from an increase in net income and improvements in inventory
management. The average interest rate, including interest on short-term and
long-term bank borrowings, was 6.28% in 1999 compared to 6.58% in 1998.

The effective tax rate for the Company remained at 38.5% in 1999.


SEASONALITY AND QUARTERLY FLUCTUATIONS

The nature of the Company's business is to have two distinct selling seasons,
spring and fall. The first and second quarters make up the spring season and the
third and fourth quarters make up the fall season. Within the spring season,
catalog sales are stronger in the first quarter while retail store sales are
slightly stronger in the second quarter. Within the fall season, catalog sales
and retail store sales are the strongest in the fourth quarter.



                                      F-4.
<PAGE>   36
                           TALBOTS ANNUAL REPORT 2000



The following table sets forth certain items in the Company's unaudited
quarterly consolidated statements of earnings as a percentage of net sales. The
information as to any one quarter is not necessarily indicative of results for
any future period.

<TABLE>
<CAPTION>
                                                              FISCAL QUARTER ENDED
                                                 ------------------------------------------------
                                                 APRIL 29,   JULY 29,   OCTOBER 28,   FEBRUARY 3,
                                                      2000       2000          2000          2001
                                                 ------------------------------------------------
<S>                                              <C>         <C>        <C>           <C>
Net sales                                           100.0%     100.0%        100.0%        100.0%
Cost of sales, buying and occupancy expenses         55.6%      65.4%         54.2%         59.7%
Selling, general and administrative expenses         29.4%      27.7%         31.3%         28.8%
Operating income                                     15.0%       6.8%         14.5%         11.5%
</TABLE>

<TABLE>
<CAPTION>
                                                             FISCAL QUARTER ENDED
                                                 ---------------------------------------------
                                                 MAY 1,   JULY 31,   OCTOBER 30,   JANUARY 29,
                                                   1999       1999          1999          2000
                                                 ---------------------------------------------
<S>                                              <C>      <C>        <C>           <C>
Net sales                                        100.0%     100.0%        100.0%        100.0%
Cost of sales, buying and occupancy expenses      58.1%      71.2%         58.9%         66.4%
Selling, general and administrative expenses      30.7%      26.3%         30.4%         26.7%
Operating income                                  11.2%       2.5%         10.7%          6.9%
</TABLE>

The Company's merchandising strategy focuses on liquidating seasonal inventory
at the end of each selling season. Generally, the Company achieves this goal by
conducting major sale events at the end of the second and fourth quarters. These
events produce an increase in sales volume; however, since marking down the
value of inventory increases expense, the Company's cost of sales, buying and
occupancy expenses as a percentage of net sales is increased. Merchandise
inventories typically peak in the third quarter.

The Company's selling, general and administrative expenses are strongly affected
by the seasonality of sales. The two key elements of this seasonality are (1)
the catalog circulation strategy, which affects catalog sales volume and
produces commensurately high catalog production costs, and (2) the major
semiannual sale events in the second quarter and the fourth quarter, which
require additional store payroll and supplies. Another factor is the store
expansion program, which results in having more stores open in the fall than at
the beginning of the year and, therefore, results in higher store payroll and
operations-related expenses.

The combined effect of the patterns of net sales, cost of sales, buying and
occupancy expenses and selling, general and administrative expenses, described
above, has produced higher operating income margins, as a percentage of sales,
in the first and third quarters.


LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of working capital are cash flows from operating
activities and a line of credit facility from five banks, with maximum available
short-term borrowings of $125.0 million. At February 3, 2001 and January 29,
2000, the Company had no amounts outstanding under this facility. Additionally,
the Company has a revolving credit facility with four banks totaling $100.0
million (the "Facility"). At February 3, 2001 and January 29, 2000, the
Company's outstanding borrowings under the Facility were $100.0 million. Notes
under the Facility currently extend to various periods between April 2002 and
January 2003, subject to annual extensions. The Company's working capital needs
are typically at their lowest during the spring season and peak during the fall
selling season.

Cash provided by operating activities totaled $139.2 million in 2000. The
increase in cash provided by operating activities from the prior year is
primarily due to a $56.7 million increase in net income. Other increases in
operating cash resulted from higher year-end balances in accounts payable which
were offset by increased year-end balances of merchandise inventory. This is the
result of earlier receipts of 2001 spring merchandise in fiscal 2000 as compared
to fiscal 1999.

Cash provided by operating activities totaled $91.8 million in 1999. The
decrease in cash provided by operating activities from 1998 was mainly due to
higher merchandise inventories at year-end, lower balances of accounts payable
and increased balances of Talbots customer accounts receivable. These uses of
cash were partially offset by the increase in net income.

Cash used in investing activities was $77.8 million in 2000 and consisted
entirely of net additions of property, plant and equipment. Approximately $45.1
million was used for leasehold improvements, furniture, fixtures and other
related expenditures for opening new stores and expanding, renovating and
relocating existing stores. Additionally, $21.0 million was used for the
expansion and renovation of the Company's Hingham and Lakeville corporate
facilities.


                                      F-5.
<PAGE>   37
                           TALBOTS ANNUAL REPORT 2000



Cash used in investing activities for 1999 was $55.2 million. Of this amount,
approximately $30.2 million was used for leasehold improvements, furniture,
fixtures and other related expenditures for opening new stores and expanding,
renovating and relocating existing stores. Additionally, approximately $13.6
million was used for the expansion of the Company's Hingham and Lakeville
corporate facilities.

Capital expenditures for fiscal 2001 are currently expected to be approximately
$85.0 million. The Company currently plans to open at least 78 new stores during
fiscal 2001. Approximately $59.0 million is expected to be used for opening new
stores and expanding, renovating and relocating existing stores. Approximately
$12.0 million is expected to be used to enhance the Company's computer
information systems, and $11.0 million is expected to be used for the continued
expansion and renovation of the Company's Hingham and Lakeville corporate
facilities. The remaining expenditures will be for other capital needs in the
normal course of business. The actual amount of such capital expenditures will
depend on the number and type of stores being opened, expanded, renovated and
relocated, and the schedule for such activity during 2001.*

Cash used in financing activities totaled $13.0 million in 2000. During fiscal
2000, the Company paid cash dividends of $0.27 per share. Additionally, the
Company repurchased 1,135,234 shares of the Company's common stock under
repurchase programs at an average price per share of $26.32. This completed a
$20.0 million repurchase program that was approved in January 2000 and another
$20.0 million repurchase program that was approved in May 2000. On March 6,
2001, the Board of Directors approved another extension of the stock repurchase
program which allows the Company to purchase an additional $100.0 million in
Company stock, from time to time, over the next two years.

Cash used in financing activities totaled $34.9 million in 1999. During fiscal
1999, the Company paid cash dividends of $0.23 per share and repurchased
1,938,160 shares of Company common stock under its repurchase program at an
average price per share of $18.74.

On October 10, 2000, the Company's Board of Directors authorized a two-for-one
stock split of its common stock. The stock split was effected by issuing one
additional share of common stock for each outstanding share of common stock and
each treasury share of common stock. The stock split was effective as of the
close of business on November 7, 2000 to shareholders of record on October 25,
2000. All historic share information contained herein has been adjusted to
reflect the impact of the stock split.

In 2000 and 1999, cash from operating activities was sufficient to meet cash
required for investing and financing activities. The Company's usage of the line
of credit facility peaked at $30.0 million in 1999. In fiscal 2000, the
Company's usage of the line of credit peaked at $25.0 million in the first
quarter and was not drawn upon during the remainder of the year. The Company's
primary ongoing cash requirements will be to fund new stores and the expansions,
renovations and relocations of existing stores; expansions of the Company's
Hingham and Lakeville corporate facilities; to finance working capital build-ups
during peak selling seasons and to pay cash dividends that may be declared from
time to time.*

For the current and next fiscal years, the Company believes its expected cash
flows from operating activities and, if necessary, from funds available under
its credit facilities will be sufficient to meet expected cash required for
capital expenditures, dividends and the purchase of treasury stock.*


INFLATION AND CHANGING PRICES

Because the Company sells a wide range of products, which by their nature, are
subject to constantly changing business strategies and competitive positioning,
it is not possible to attribute increases in retail sales or catalog sales to
specific changes in prices, changes in volume or changes in product mix.

The Company has not experienced any significant impact from inflationary
factors.


EXCHANGE RATES

Most foreign purchase orders are denominated in U.S. dollars. Accordingly, the
Company has not experienced any significant impact from changes in exchange
rates.


QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The market risk inherent in the Company's financial instruments and in its
financial position represents the potential loss arising from adverse changes in
interest rates. The Company does not enter into financial instruments for
trading purposes.

At February 3, 2001, the Company has $100.0 million of variable rate borrowings
outstanding under its revolving credit agreements, which approximate fair market
value. A hypothetical 10% adverse change in interest rates for this variable
rate debt would have an approximate $0.3 million negative impact on the
Company's earnings and cash flows.



                                      F-6.
<PAGE>   38
                           TALBOTS ANNUAL REPORT 2000



The Company has market risk exposure from foreign currency fluctuations to the
extent that intercompany balances are settled in the form of foreign currency.
The Company does not believe its foreign currency market risk, in this regard,
is material.


NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 significantly modifies
accounting and reporting standards for derivatives and hedging activities. SFAS
No. 137 and 138 delayed and modified the original pronouncement. These
statements do not have a material impact on the Company's consolidated financial
statements.

Effective October 29, 2000, the Company adopted the Emerging Issues Task Force
("EITF") Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs."
The EITF stated that a seller of goods should classify amounts billed to the
customer for shipping and handling as revenue and the costs incurred by the
seller for performing such services as an element of expense. To comply with the
consensus, shipping and handling fees and costs, which were previously reported
net in selling, general and administrative expenses, were reclassified to net
sales and cost of sales, buying and occupancy expense. All prior periods were
revised to comply with the consensus. Such revisions had no impact on previously
reported operating earnings, net earnings, stockholders' equity or cash flows.


FORWARD-LOOKING INFORMATION

*This Annual Report to Shareholders' contains forward-looking statements within
the meaning of The Private Securities Litigation Reform Act of 1995. The
statements were made a number of times and may be identified by an "asterisk"
("*") or such forward-looking terminology as "expect," "look," "believe," "may,"
"will," "intend," "plan," "target," "goal" and similar statements or variations
of such terms. Such forward-looking statements are based on the Company's
current expectations, assumptions, estimates and projections about the Company
and involve certain significant risks and uncertainties including levels of
sales, effectiveness of the Company's brand awareness and marketing programs,
effectiveness and profitability of new concepts, effectiveness of its new
e-commerce site, store traffic, acceptance of Talbots seasonal fashions,
appropriate balance of merchandise offerings, and timing and levels of
markdowns. These and other important factors that may cause actual results to
differ materially from such forward-looking statements are included in the
Company's Current Report on Form 8-K dated October 30, 1996 filed with the
Securities and Exchange Commission (a copy of which may also be obtained from
the Company at 781-741-4500) as well as other periodic reports filed by the
Company with the Securities and Exchange Commission. You are urged to consider
all such factors. In light of the uncertainty inherent in such forward-looking
statements, you should not consider their inclusion to be a representation that
such forward-looking matters will be achieved. The Company assumes no obligation
for updating any such forward-looking statements to reflect actual results,
changes in assumptions or changes in other factors affecting such
forward-looking statements.






                                      F-7.
<PAGE>   39
                           TALBOTS ANNUAL REPORT 2000



CONSOLIDATED STATEMENTS OF EARNINGS
(Dollar amounts in thousands except per share data)

<TABLE>
<CAPTION>
                                                                  YEAR ENDED
                                                 ---------------------------------------------
                                                 FEBRUARY 3,      JANUARY 29,      JANUARY 30,
                                                        2001             2000             1999
                                                  (53 WEEKS)       (52 weeks)       (52 weeks)
                                                 ---------------------------------------------
<S>                                              <C>              <C>              <C>
NET SALES                                         $1,594,996       $1,308,658       $1,157,737

COSTS AND EXPENSES -
    Cost of sales, buying and occupancy              936,010          835,026          763,787
    Selling, general and administrative              467,396          372,064          327,019
                                                  ----------       ----------       ----------

OPERATING INCOME                                     191,590          101,568           66,931

INTEREST -
    Interest expense                                   7,706            7,403            8,281
    Interest income                                    3,437              892              973
                                                  ----------       ----------       ----------

INTEREST EXPENSE - net                                 4,269            6,511            7,308
                                                  ----------       ----------       ----------

INCOME BEFORE TAXES                                  187,321           95,057           59,623

INCOME TAXES                                          72,119           36,597           22,955
                                                  ----------       ----------       ----------

NET INCOME                                        $  115,202       $   58,460       $   36,668
                                                  ==========       ==========       ==========

NET INCOME PER SHARE -
    BASIC                                         $     1.86       $     0.94       $     0.58
                                                  ==========       ==========       ==========

    ASSUMING DILUTION                             $     1.80       $     0.92       $     0.57
                                                  ==========       ==========       ==========

WEIGHTED AVERAGE NUMBER OF SHARES OF
  COMMON STOCK OUTSTANDING (in thousands) -
    BASIC                                             61,823           62,136           63,756
                                                  ==========       ==========       ==========
    ASSUMING DILUTION                                 63,995           63,368           63,866
                                                  ==========       ==========       ==========
</TABLE>


                See notes to consolidated financial statements.


                                      F-8.
<PAGE>   40
                           TALBOTS ANNUAL REPORT 2000



CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands except per share data)


<TABLE>
<CAPTION>
                                                                          FEBRUARY 3,      JANUARY 29,
                                                                                 2001             2000
                                                                          ----------------------------
<S>                                                                       <C>              <C>
ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                                                 $  69,986        $  22,001
  Customer accounts receivable - net                                          135,528          116,737
  Merchandise inventories                                                     233,948          183,614
  Deferred catalog costs                                                        9,236            8,360
  Due from affiliates                                                           8,878            8,445
  Deferred income taxes                                                        13,749            9,516
  Prepaid and other current assets                                             35,080           21,113
                                                                            ---------        ---------
    Total current assets                                                      506,405          369,786

PROPERTY AND EQUIPMENT - net                                                  234,802          203,206

GOODWILL - net                                                                 36,857           38,201

TRADEMARKS - net                                                               78,268           80,652

DEFERRED INCOME TAXES                                                           2,264            2,059
                                                                            ---------        ---------
TOTAL ASSETS                                                                $ 858,596        $ 693,904
                                                                            =========        =========



LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                                                          $  82,676        $  56,604
  Accrued liabilities                                                         105,364           87,327
                                                                            ---------        ---------
    Total current liabilities                                                 188,040          143,931

LONG-TERM DEBT                                                                100,000          100,000

DEFERRED RENT UNDER LEASE COMMITMENTS                                          19,785           18,641

COMMITMENTS

STOCKHOLDERS' EQUITY:
  Common stock, $0.01 par value; 100,000,000 authorized;
    74,396,884 shares and 72,015,946 shares issued, respectively, and
    63,106,806 shares and 61,884,502 shares outstanding, respectively             744              720
  Additional paid-in capital                                                  366,290          314,378
  Retained earnings                                                           364,800          266,390
  Accumulated other comprehensive income (loss)                                (3,658)          (2,037)
  Restricted stock awards                                                      (1,372)          (2,140)
  Treasury stock, at cost                                                    (176,033)        (145,979)
                                                                            ---------        ---------
    Total stockholders' equity                                                550,771          431,332
                                                                            ---------        ---------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                  $ 858,596        $ 693,904
                                                                            =========        =========
</TABLE>


                See notes to consolidated financial statements.


                                      F-9.
<PAGE>   41
                           TALBOTS ANNUAL REPORT 2000



CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)

<TABLE>
<CAPTION>
                                                                          YEAR ENDED
                                                          --------------------------------------------
                                                          FEBRUARY 3,     JANUARY 29,      JANUARY 30,
                                                                 2001            2000             1999
                                                           (53 WEEKS)      (52 WEEKS)       (52 WEEKS)
                                                          --------------------------------------------
<S>                                                       <C>             <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income                                                  $ 115,202        $ 58,460        $  36,668
Adjustments to reconcile net income to net cash
provided by operating activities:
  Depreciation and amortization                                45,830          43,377           40,035
  Deferred rent                                                 1,170           2,027            1,950
  Net non-cash compensation activity                              705             931              914
  Loss on disposal of property and equipment                    3,514           1,883            2,314
  Deferred income taxes                                        (4,488)            627            1,187
  Changes in current assets and liabilities:
     Customer accounts receivable                             (18,845)         (9,097)          (3,558)
     Merchandise inventories                                  (50,615)        (10,421)          18,608
     Deferred catalog costs                                      (876)             40            3,460
     Due from affiliates                                         (433)         (1,792)           1,915
     Tax benefit from options exercised                        18,210           4,372              292
     Prepaid and other current assets                         (14,222)             10            9,046
     Accounts payable                                          25,721         (11,481)           8,617
     Accrued liabilities                                       18,301          12,825           14,972
                                                            ---------        --------        ---------
  NET CASH PROVIDED BY OPERATING ACTIVITIES                   139,174          91,761          136,420
                                                            ---------        --------        ---------


CASH FLOWS FROM INVESTING ACTIVITIES:

Additions to property and equipment, net of disposals         (77,756)        (55,171)         (45,065)
                                                            ---------        --------        ---------
  NET CASH USED IN INVESTING ACTIVITIES                       (77,756)        (55,171)         (45,065)
                                                            ---------        --------        ---------


CASH FLOWS FROM FINANCING ACTIVITIES:

Payments under notes payable to banks                              --              --         (100,000)
Borrowings of long-term debt                                       --              --           50,000
Cash dividends                                                (16,792)        (14,388)         (14,007)
Proceeds from options exercised                                33,624          15,806            2,271
Purchase of treasury stock                                    (29,880)        (36,316)         (20,050)
                                                            ---------        --------        ---------
  NET CASH USED IN FINANCING ACTIVITIES                       (13,048)        (34,898)         (81,786)
                                                            ---------        --------        ---------

EFFECT OF EXCHANGE RATE CHANGES ON CASH                          (385)            114              (54)
                                                            ---------        --------        ---------

NET INCREASE IN CASH AND CASH EQUIVALENTS                      47,985           1,806            9,515

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                   22,001          20,195           10,680
                                                            ---------        --------        ---------

CASH AND CASH EQUIVALENTS, END OF YEAR                      $  69,986        $ 22,001        $  20,195
                                                            =========        ========        =========
</TABLE>



                See notes to consolidated financial statements.


                                     F-10.
<PAGE>   42
                           TALBOTS ANNUAL REPORT 2000



CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollar amounts in thousands except share data)


<TABLE>
<CAPTION>
                                                                                ACCUMULATED
                                      COMMON STOCK   ADDITIONAL                       OTHER
                              --------------------      PAID-IN   RETAINED    COMPREHENSIVE
                                  SHARES    AMOUNT      CAPITAL   EARNINGS     INCOME (LOSS)
                              --------------------------------------------------------------
<S>                           <C>           <C>      <C>          <C>         <C>
BALANCE AT
JANUARY 31, 1998              69,910,358      $699     $287,058   $199,657          ($1,998)
Cash dividends paid                    -         -            -    (14,007)               -
Common stock issued as
  restricted stock award         513,000         5        4,012          -                -
Amortization of restricted
  stock awards                         -         -            -          -                -
Stock options exercised,
  including tax benefit          219,732         2        2,559          -                -
Purchase of 1,825,756
  shares of common stock               -         -            -          -                -
Other equity transactions              -         -          107          -                -
Comprehensive income:
    Net income                         -         -            -     36,668                -
    Translation adjustment             -         -            -          -             (433)
Comprehensive income                   -         -            -          -                -
                              ----------      ----     --------   --------          -------
BALANCE AT
JANUARY 30, 1999              70,643,090       706      293,736    222,318           (2,431)
Cash dividends paid                    -         -            -    (14,388)               -
Amortization of restricted
  stock awards                         -         -            -          -                -
Stock options exercised,
  including tax benefit        1,372,856        14       20,164          -                -
Purchase of 1,938,160
  shares of common stock               -         -            -          -                -
Other equity transactions              -         -          478          -                -
Comprehensive income:
    Net income                         -         -            -     58,460                -
    Translation adjustment             -         -            -          -              394
Comprehensive income                   -         -            -          -                -
                              ----------      ----     --------   --------          -------
BALANCE AT
JANUARY 29, 2000              72,015,946       720      314,378    266,390           (2,037)
Cash dividends paid                    -         -            -    (16,792)               -
Amortization of restricted
  stock awards                         -         -            -          -                -
Stock options exercised,
  including tax benefit        2,380,110        24       51,834          -                -
Purchase of 1,135,234
  shares of common stock               -         -            -          -                -
Other equity transactions            828         -           78          -                -
Comprehensive income:
    Net income                         -         -            -    115,202                -
    Translation adjustment             -         -            -          -           (1,621)
Comprehensive income                   -         -            -          -                -
                              ----------      ----     --------   --------          -------
BALANCE AT
FEBRUARY 3, 2001              74,396,884      $744     $366,290   $364,800          ($3,658)
                              ==========      ====     ========   ========          =======
</TABLE>

<TABLE>
<CAPTION>

                              RESTRICTED                                        TOTAL
                                   STOCK    TREASURY    COMPREHENSIVE    STOCKHOLDERS'
                                  AWARDS       STOCK           INCOME          EQUITY
                              --------------------------------------------------------
<S>                           <C>           <C>         <C>              <C>
BALANCE AT
JANUARY 31, 1998                   ($529)   ($88,421)                        $396,466
Cash dividends paid                    -           -                          (14,007)
Common stock issued as
  restricted stock award          (4,015)          -                                2
Amortization of restricted
  stock awards                     1,137           -                            1,137
Stock options exercised,
  including tax benefit                -           -                            2,561
Purchase of 1,825,756
  shares of common stock               -     (20,050)                         (20,050)
Other equity transactions            250        (628)                            (271)
Comprehensive income:
    Net income                         -           -          $36,668          36,668
    Translation adjustment             -           -             (433)           (433)
                                                             --------
Comprehensive income                   -           -           36,235               -
                                 -------   ---------         --------        --------
BALANCE AT
JANUARY 30, 1999                  (3,157)   (109,099)                         402,073
Cash dividends paid                    -           -                          (14,388)
Amortization of restricted
  stock awards                       700           -                              700
Stock options exercised,
  including tax benefit                -           -                           20,178
Purchase of 1,938,160
  shares of common stock               -     (36,316)                         (36,316)
Other equity transactions            317        (564)                             231
Comprehensive income:
    Net income                         -           -           58,460          58,460
    Translation adjustment             -           -              394             394
                                                             --------
Comprehensive income                   -           -           58,854               -
                                 -------   ---------         --------        --------
BALANCE AT
JANUARY 29, 2000                  (2,140)   (145,979)                         431,332
Cash dividends paid                    -           -                          (16,792)
Amortization of restricted
  stock awards                       594           -                              594
Stock options exercised,
  including tax benefit                -           -                           51,858
Purchase of 1,135,234
  shares of common stock               -     (29,880)                         (29,880)
Other equity transactions            174        (174)                              78
Comprehensive income:
    Net income                         -           -          115,202         115,202
    Translation adjustment             -           -           (1,621)         (1,621)
                                                             --------
Comprehensive income                   -           -         $113,581               -
                                 -------   ---------         --------        --------
BALANCE AT
FEBRUARY 3, 2001                 ($1,372)  ($176,033)                        $550,771
                                 =======   =========         ========        ========
</TABLE>


                See notes to consolidated financial statements.


                                     F-11.
<PAGE>   43
                           TALBOTS ANNUAL REPORT 2000



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands except per share data)


1.DESCRIPTION OF BUSINESS

The Talbots, Inc. (together with its subsidiaries, the "Company") is a specialty
retailer with a direct marketing catalog operation and internet website. JUSCO
(U.S.A.), Inc. is the Company's majority shareholder, owning approximately 58.1%
of the Company's outstanding common stock at February 3, 2001.

The year ended February 3, 2001 was a fifty-three week reporting period and the
years ended January 29, 2000 and January 30, 1999 were fifty-two week reporting
periods. The Company conforms to the National Retail Federation's fiscal
calendar.


2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES - The financial statements were prepared in conformity with
accounting principles generally accepted in the United States that require
management to make 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 revenue and
expenses during the reporting period. Actual results could differ from those
estimates. Significant estimates within the consolidated financial statements
include sales return reserve, inventory reserve, allowance for doubtful
accounts, and the lives of intangible assets.

PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. All material
intercompany accounts and transactions have been eliminated.

CASH AND CASH EQUIVALENTS - The Company considers all highly liquid debt
instruments with a purchased maturity of three months or less to be cash
equivalents.

CUSTOMER ACCOUNTS RECEIVABLE - Customer accounts receivable are amounts due from
customers on the Company's credit card, net of an allowance for doubtful
accounts. Concentration of credit risk with respect to customer accounts
receivable is limited due to the large number of customers to whom the Company
extends credit. Ongoing credit evaluation of customers' financial positions is
performed. Collateral is not required as a condition of credit. At February 3,
2001 and January 29, 2000, allowances for doubtful accounts were $2,100 and
$1,700, respectively.

ADVERTISING - Advertising costs, which include media, production and catalogs
totaled $88,866, $73,858 and $62,517 in the years ended February 3, 2001,
January 29, 2000 and January 30, 1999, respectively. Media and production costs
are expensed in the period in which the advertising first takes place, while
catalog costs are amortized over the estimated productive selling life of the
catalog, which is generally three months.

PREOPENING EXPENSES - Costs associated with the opening of new stores are
expensed as incurred.

MERCHANDISE INVENTORIES - Inventories are stated at the lower of average cost or
market using the retail inventory method on a FIFO (first-in, first-out) basis.

PROPERTY AND EQUIPMENT - Property and equipment is recorded at cost.
Depreciation and amortization are provided over the following estimated useful
lives using the straight-line method:


<TABLE>
<CAPTION>
                    DESCRIPTION               YEARS
                    ------------------------------------------------------------
<S>                                           <C>
                    Buildings                 15-50
                    Fixtures and equipment     3-10
                    Software                    3-7
                    Leasehold improvements     5-15 or term of lease, if shorter
                    Leasehold interests        4-20
</TABLE>

Leasehold interests were established in June 1988 and represent the present
value of the excess of market rental rates over actual rents payable over the
remaining lives of certain leases.

Expenditures for new properties and improvements to existing facilities are
capitalized, while the cost of maintenance is charged to expense. The cost of
property retired, or otherwise disposed of, and the accumulated depreciation are
eliminated from the related accounts, and the resulting gain or loss is
reflected in earnings.

GOODWILL - The excess of purchase price over net assets acquired is being
amortized over 40 years using the straight-line method. The recoverability of
this intangible asset is assessed by determining whether the goodwill balance
can be recovered over its remaining useful life through undiscounted future
operating cash flows. The amount of goodwill impairment, if any, would be
measured based on projected discounted future operating cash flows using a
discount rate reflecting the Company's average cost of funds. At February 3,
2001 and January 29, 2000, accumulated amortization of goodwill was $16,903 and
$15,559, respectively.



                                     F-12.
<PAGE>   44
                           TALBOTS ANNUAL REPORT 2000



TRADEMARKS - In November 1993, the Company purchased certain trademarks,
including the Talbots trade name, from JUSCO (Europe) B.V., a related party (see
Note 5). The trademarks, which are registered with the U.S. Patent and Trademark
Office and may be renewed indefinitely, are being amortized over 40 years using
the straight-line method. At February 3, 2001 and January 29, 2000, accumulated
amortization on the trademarks was $17,102 and $14,718, respectively.

FAIR VALUE OF FINANCIAL INSTRUMENTS - The Company's financial instruments
consist primarily of current assets (except inventories), current liabilities
and long-term debt. The carrying value of current assets and current liabilities
approximates their fair market values; long-term debt, which has variable
interest rate terms, is therefore at current market interest rates, and its
carrying value approximates its fair market value.

FINANCE CHARGE INCOME - Finance charge income on customer accounts receivable is
treated as a reduction of selling, general and administrative expense. For the
years ended February 3, 2001, January 29, 2000 and January 30, 1999, the amounts
were $19,031, $16,232 and $15,333, respectively.

STOCK-BASED COMPENSATION - The Company accounts for stock-based compensation
awards to employees using the intrinsic value method in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (See Note 4).

FOREIGN CURRENCY TRANSLATION - The functional currency of the Company's foreign
operations is the applicable local currency. The translation of the applicable
foreign currency into U.S. dollars is performed for balance sheet accounts using
current exchange rates in effect at the balance sheet date, and for revenue and
expense accounts using the average rates of exchange prevailing during the year.
Adjustments resulting from such translation are included as a separate component
of comprehensive income. Foreign currency transaction gains or losses, whether
realized or unrealized, are recorded directly to the Consolidated Statement of
Earnings.

INCOME TAXES - In accordance with Statement of Financial Accounting Standard
("SFAS") No. 109, deferred income taxes are provided to recognize the effect of
temporary differences between tax and financial statement reporting. Such taxes
are provided for at the anticipated tax rates that will be in place when such
temporary differences arise.

BASIC AND DILUTED NET INCOME PER SHARE - Basic net income per share is computed
by dividing net income by the weighted average number of shares of common stock
outstanding. Diluted net income per share is computed by dividing net income by
the weighted average number of shares of common stock outstanding plus the
effect of all dilutive potential common shares, including contingently
returnable shares (as determined by the treasury stock method which may include
the tax benefit on assumed stock option exercises and assumed vesting of
restricted stock).

COMPREHENSIVE INCOME - The Company's comprehensive net income is comprised of
reported net income plus the impact of changes in the cumulative foreign
currency translation adjustment. Comprehensive income is included in the
Consolidated Balance Sheets and Statements of Stockholders' Equity.

REVENUE RECOGNITION - The Company recognizes revenue at the point-of-sale or
upon shipment. The Company provides for estimated returns. Finance charge
revenue on customer accounts receivable is recognized in the period it is
earned.

SUPPLEMENTAL CASH FLOW INFORMATION - Interest paid on a cash basis for the years
ended February 3, 2001, January 29, 2000 and January 30, 1999 was $7,557, $7,363
and $7,538, respectively. Income tax payments during the years ended February 3,
2001, January 29, 2000 and January 30, 1999 were $60,419, $33,418 and $19,457,
respectively.

NEW ACCOUNTING PRONOUNCEMENTS - In June 1998, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." SFAS No. 133 significantly modifies accounting and
reporting standards for derivatives and hedging activities. SFAS No. 137 and 138
delayed and modified the original pronouncement. These statements do not have a
material impact on the Company's consolidated financial statements.

Effective October 29, 2000, the Company adopted the Emerging Issues Task Force
("EITF") Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs."
The EITF stated that a seller of goods should classify amounts billed to the
customer for shipping and handling as revenue and the costs incurred by the
seller for performing such services as an element of expense. To comply with the
consensus, shipping and handling fees and costs, which were previously reported
net in selling, general and administrative expenses, were reclassified to net
sales and cost of sales, buying and occupancy expense. All prior periods were
revised to comply with the consensus. Such revisions had no impact on previously
reported operating earnings, net earnings, stockholders' equity or cash flows.

RECLASSIFICATIONS - Certain reclassifications have been made to the January 29,
2000 and January 30, 1999 consolidated financial statements to conform with the
February 3, 2001 presentation.



                                     F-13.
<PAGE>   45

                           TALBOTS ANNUAL REPORT 2000

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

3.EQUITY TRANSACTIONS

During the years ended February 3, 2001, January 29, 2000 and January 30, 1999,
the Company declared and paid dividends totaling $0.27 per share, $0.23 per
share, and $0.22 per share, respectively.

At the 2000 Annual Meeting, shareholders approved an amendment to the Company's
Certificate of Incorporation to increase the authorized shares from 40 million
shares to 100 million shares.

On October 10, 2000, the Company's Board of Directors authorized a two-for-one
stock split of its common stock. The stock split was effected by issuing one
additional share of common stock for each outstanding share of common stock and
each treasury share of common stock. The stock split was effective as of the
close of business on November 7, 2000 to shareholders of record on October 25,
2000. All historic share information contained herein has been adjusted to
reflect the impact of the stock split.

On February 21, 1995, the Company adopted a stock repurchase plan authorizing
the purchase of shares of its common stock. Subsequently, the Company's Board of
Directors has approved six extensions to the original plan. During fiscal 2000,
617,220 shares were purchased, completing the fourth extension and 518,014
shares were purchased under a fifth extension. On March 6, 2001, the Board of
Directors approved a sixth extension of the stock repurchase program which
allows the Company to purchase an additional $100 million in stock, from time to
time, over the next two years. At February 3, 2001 and January 29, 2000, the
Company held 11,290,078 and 10,131,444 shares, respectively, as treasury shares.
Treasury shares also include shares forfeited under the Company's restricted
stock plan.


4.STOCK OPTIONS

In 1995, the Company implemented a stock option plan for its non-employee
members of its Board of Directors. In April 2000, the Company's Board of
Directors approved a Restated Directors Plan (the "Restated Plan") under which a
total of 1,060,000 shares of common stock were reserved for issuance. The
Restated Plan was approved by shareholders at the 2000 Annual Meeting. Stock
options granted under the Restated Plan generally vest over a three year period
and expire within ten years from the grant date. The stock options are granted
at a price equal to the fair market value of the Company's common stock at the
date of grant.

On November 18, 1993, the Company reserved 5,300,000 shares of common stock for
issuance pursuant to the Company's 1993 Executive Stock Based Incentive Plan
(the "Plan"). In February 1998, the Company's Board of Directors amended the
Plan (the "Amendment") to increase the number of shares of common stock
authorized, thereunder, by 6,620,000 shares to 11,920,000 shares. The Amendment
was approved by shareholders at the 1998 Annual Meeting.

In accordance with the Plan, the Company has issued stock options which vest
over a three year period and expire no later than ten years from the grant date.
These stock options have been granted at fair market value at the date of grant.

A summary of option activity in the Company's stock option plans during the
years ended February 3, 2001, January 29, 2000 and January 30, 1999 is presented
below.

<TABLE>
<CAPTION>
                                                                             YEAR ENDED
                                                                             ----------
                                             FEBRUARY 3, 2001            JANUARY 29, 2000               JANUARY 30, 1999
                                             ----------------            ----------------               ----------------
                                                        WEIGHTED                      WEIGHTED                       WEIGHTED
                                                         AVERAGE                       AVERAGE                        AVERAGE
                                                          OPTION                        OPTION                         OPTION
                                         NUMBER OF     PRICE PER       NUMBER OF     PRICE PER       NUMBER OF      PRICE PER
                                            SHARES         SHARE          SHARES         SHARE          SHARES          SHARE
                                            ------         -----          ------         -----          ------          -----
<S>                                     <C>            <C>            <C>            <C>             <C>            <C>
Outstanding at beginning of year         4,757,982       $ 12.96       5,203,024       $ 12.58       4,813,386       $ 13.62
Granted                                  3,062,000         19.64       1,119,000         12.82       1,098,000          8.14
Exercised                               (2,380,110)        14.12      (1,372,856)        11.51        (219,732)        10.33
Forfeited                                 (111,536)        14.49        (191,186)        12.51        (488,630)        13.82
                                         ---------       -------       ---------       -------       ---------       -------
Outstanding at end of year               5,328,336       $ 16.25       4,757,982       $ 12.96       5,203,024       $ 12.58
                                         =========       =======       =========       =======       =========       =======
Exercisable at end of year               1,338,622       $ 12.06       2,795,136       $ 14.07       3,273,878       $ 13.84
                                         =========       =======       =========       =======       =========       =======
</TABLE>

                                      F-14.
<PAGE>   46
                           TALBOTS ANNUAL REPORT 2000

The following table summarizes information regarding stock options outstanding
at February 3, 2001.

<TABLE>
<CAPTION>
                                        OPTIONS OUTSTANDING                        OPTIONS EXERCISABLE
                                        -------------------                        -------------------
                           NUMBER OF          WEIGHTED          WEIGHTED       NUMBER OF          WEIGHTED
RANGE OF                     OPTIONS           AVERAGE           AVERAGE         OPTIONS           AVERAGE
EXERCISE PRICES          OUTSTANDING    REMAINING LIFE    EXERCISE PRICE     EXERCISABLE    EXERCISE PRICE
---------------          -----------    --------------    --------------     -----------    --------------
<S>                      <C>            <C>               <C>                <C>            <C>
$  7.40 - $10.22             547,688         7.0 years            $ 7.51         291,673            $ 7.44
$10.23 - $15.33            1,648,640         7.2 years            $12.84         978,279            $13.10
$15.34 - $20.45            2,971,674         9.0 years            $18.91          67,337            $16.79
$20.46 - $25.56               17,334         8.7 years            $23.27           1,333            $23.06
$25.57 - $30.67              107,000         9.3 years            $29.21               -                 -
$30.68 - $35.79               16,000         9.6 years            $33.09               -                 -
$51.13                        20,000         9.8 years            $51.13               -                 -
                           ---------         ---------            ------       ---------            ------
Total                      5,328,336         8.2 years            $16.25       1,338,622            $12.06
                           =========         =========            ======       =========            ======
</TABLE>

Under the provisions of the Plan, the Company has issued to certain key
management personnel shares of restricted stock. The purchase price of the
restricted stock is $0.01 per share. The difference between the market price of
the shares on the date of grant and management's cost of $0.01 per share is
recorded as deferred compensation and is amortized over a five-year service
period. Such shares are contingently returnable, at the $0.01 par value, if the
employee does not fulfill his or her service obligation.

A summary of the changes in restricted shares outstanding for the years ended
February 3, 2001, January 29, 2000 and January 30, 1999, is presented below.

<TABLE>
<CAPTION>
                                                                        YEAR ENDED
                                                                        ----------
                                         FEBRUARY 3, 2001           JANUARY 29, 2000         JANUARY 30, 1999
                                         ----------------           ----------------         ----------------
                                                    WEIGHTED                   WEIGHTED                  WEIGHTED
                                                     AVERAGE                    AVERAGE                   AVERAGE
                                                      MARKET                     MARKET                    MARKET
                                                    PRICE OF                   PRICE OF                  PRICE OF
                                                   SHARES ON                  SHARES ON                 SHARES ON
                                       NUMBER OF     DATE OF      NUMBER OF     DATE OF     NUMBER OF     DATE OF
                                          SHARES       GRANT         SHARES       GRANT        SHARES       GRANT
                                          ------       -----         ------       -----        ------       -----
<S>                                    <C>         <C>            <C>         <C>           <C>         <C>
  Outstanding at beginning of year       433,600      $ 7.91        501,600      $ 7.96       113,066      $10.04
  Granted                                      -           -              -           -       513,000        7.83
  Vested                                       -           -              -           -      (90,684)        9.75
  Forfeited                             (23,400)        7.40       (68,000)        8.30      (33,782)        8.13
                                         -------      ------        -------      ------       -------     -------
  Outstanding at end of year             410,200      $ 7.93        433,600      $ 7.91       501,600     $  7.96
                                         =======      ======        =======      ======       =======     =======
</TABLE>

The Company uses the intrinsic value method to measure compensation expense
associated with grants of stock options to employees. Had the Company used the
fair value method to value compensation, as set forth in SFAS No. 123,
"Accounting for Stock-Based Compensation," the Company's net income and net
income per share would have been reported as follows:

<TABLE>
<CAPTION>
                                                                          YEAR ENDED
                                                                          ----------
                                                         FEBRUARY 3,     JANUARY 29,     JANUARY 30,
                                                                2001            2000            1999
                                                                ----            ----            ----
<S>                                                      <C>             <C>             <C>
  Net income                                                $106,819         $54,911         $33,058
  Net income per share - basic                                 $1.73           $0.89           $0.52
  Net income per share - assuming dilution                     $1.67           $0.87           $0.52
</TABLE>

The fair value of options on their grant date is measured using the
Black/Scholes option pricing model. The estimated weighted average fair value of
options granted during fiscal 2000, 1999 and 1998 were $9.80, $6.56, and $3.67
per option, respectively. Key assumptions used to apply this pricing model are
as follows:

<TABLE>
<CAPTION>
                                                                                YEAR ENDED
                                                                                ----------
                                                               FEBRUARY 3,     JANUARY 29,     JANUARY 30,
                                                                      2001            2000            1999
                                                                      ----            ----            ----
<S>                                                            <C>             <C>             <C>
Weighted average risk free interest rate                              6.3%            5.3%            5.5%
Weighted average expected life of option grants                 5.25 years      6.50 years      8.00 years
Weighted average expected volatility of underlying stock             54.0%           56.3%           47.4%
Weighted average expected dividend payment rate, as a
  percentage of the stock price on the date of grant                  1.4%            1.9%            2.8%
</TABLE>

                                      F-15.
<PAGE>   47
                           TALBOTS ANNUAL REPORT 2000

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

The option pricing model used was designed to value readily tradable stock
options with relatively short lives and no vesting restrictions. In addition,
option valuation models require the input of highly subjective assumptions
including the expected price volatility. Because the options granted to
employees are not tradable, have contractual lives of ten years and changes in
the subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the models do not necessarily provide a reliable
measure of fair value of the options issued under the Company's stock plans.


5.RELATED PARTY AND AFFILIATES

In November 1993, the Company purchased certain trademarks, including the
Talbots trade name, from JUSCO (Europe) B.V., a related party. JUSCO (Europe)
B.V. has retained rights to certain trademarks in specified Asian territories.

JUSCO Company, Ltd. owns and operates stores in Japan under the name of Talbots
Japan Co., Ltd. ("Talbots Japan"). The Company provides certain services, under
normal trade terms, for Talbots Japan and is reimbursed for expenses incurred.
At February 3, 2001 and January 29, 2000 the Company was owed $8,860 and $8,433,
respectively, for these costs and for merchandise inventory purchases made on
behalf of Talbots Japan.


6.PROPERTY AND EQUIPMENT

Property and equipment consists of the following:


<TABLE>
<CAPTION>
                                                            FEBRUARY 3,     JANUARY 29,
                                                                   2001            2000
                                                                   ----            ----
<S>                                                         <C>             <C>
Land                                                         $   11,218      $   11,584
Buildings                                                        50,890          41,065
Fixtures and equipment                                          241,585         219,117
Software                                                         17,279          10,547
Leasehold improvements                                          116,244         114,348
Leasehold interests                                               5,553           5,919
Construction in progress                                         44,098          23,419
                                                             ----------      ----------
Property and equipment - gross                                  486,867         425,999
Less accumulated depreciation and amortization                (252,065)        (222,793)
                                                             ----------      ----------
Property and equipment - net                                 $  234,802      $  203,206
                                                             ==========      ==========
</TABLE>

7.DEBT

REVOLVING CREDIT - The revolving credit agreements with four banks have maximum
available borrowings of $100,000, have two year terms and can be extended
annually. Interest terms on the revolving credit agreements are negotiable, at
the Company's option, for periods of one, three or six months. At February 3,
2001, the Company had $100,000 outstanding under its revolving credit
agreements. None of the outstanding balance is currently payable.

A summary of the amounts outstanding, the current interest terms and the loan
maturities under the revolving credit agreements at February 3, 2001 follows:


<TABLE>
<CAPTION>
OUTSTANDING     INTEREST RATE          MATURITY
-----------     -------------          --------
<S>             <C>                <C>
  $  18,000            6.105%      January 2003
     14,000            6.181%        April 2002
     10,000            6.355%      January 2003
      8,000            6.335%      January 2003
     18,000            7.355%        April 2002
     14,000            7.370%        April 2002
      6,000            7.604%      January 2003
     12,000            7.585%        April 2002
  ---------
  $ 100,000
  =========
</TABLE>

NOTES PAYABLE TO BANKS - The Company also has available a $125,000 unsecured
line-of-credit facility with five banks. At February 3, 2001 and January 29,
2000, no amounts were outstanding on this facility. The weighted average
interest rate for the years ended February 3, 2001 and January 29, 2000 was
6.63% and 5.79%, respectively.

                                      F-16.
<PAGE>   48
                           TALBOTS ANNUAL REPORT 2000

LETTERS OF CREDIT - The Company has two letter-of-credit banking agreements
totaling $140,000, which it uses primarily for the purchase of merchandise
inventories. At February 3, 2001 and January 29, 2000, the Company held $96,431
and $74,303, respectively, in purchase commitments.


8.INCOME TAXES

The provision for income taxes for the years ended February 3, 2001, January 29,
2000 and January 30, 1999, consists of the following:

<TABLE>
<CAPTION>
                                                YEAR ENDED
                                FEBRUARY 3,     JANUARY 29,     JANUARY 30,
                                       2001            2000            1999
                                       ----            ----            ----
<S>                             <C>             <C>             <C>
Currently payable:
    Federal                         $67,600         $32,871         $20,088
    State                             8,957           3,103           1,680
                                    -------         -------         -------
Total currently payable              76,557          35,974          21,768
                                    -------         -------         -------

Deferred:
    Federal                         (3,896)             229           1,374
    State                             (542)             394            (187)
                                    -------         -------         -------
Total deferred                      (4,438)             623           1,187
                                    -------         -------         -------
Total income tax expense            $72,119         $36,597         $22,955
                                    =======         =======         =======
</TABLE>

The effect of temporary differences which gives rise to deferred income tax
balances at February 3, 2001 and January 29, 2000, respectively, are as follows:

<TABLE>
<CAPTION>
                                                      FEBRUARY 3, 2001                          JANUARY 29, 2000
                                                      ----------------                          ----------------
                                           ASSETS    LIABILITIES          TOTAL         ASSETS    LIABILITIES          TOTAL
                                           ------    -----------          -----         ------    -----------          -----
<S>                                      <C>         <C>               <C>            <C>         <C>               <C>
UNITED STATES:
Current:
  Merchandise inventories                $  4,550             --       $  4,550       $  3,335             --       $  3,335
  Deferred catalog costs                       --       ($ 1,124)        (1,124)            --       ($ 1,259)        (1,259)
  Accrued vacation pay                      2,813             --          2,813          2,409             --          2,409
  Deferred compensation                     4,674             --          4,674          3,596             --          3,596
  Other                                     3,888         (1,052)         2,836          2,101           (666)         1,435
                                          -------        -------        -------        -------        -------        -------
Total current                              15,925         (2,176)        13,749         11,441         (1,925)         9,516
                                          -------        -------        -------        -------        -------        -------
Noncurrent:
  Depreciation & amortization                  --         (7,006)        (7,006)            --         (6,691)        (6,691)
  Lease commitments                         6,528             --          6,528          6,012             --          6,012
  Other                                     1,583             --          1,583          1,579             --          1,579
                                          -------        -------        -------        -------        -------        -------
Total noncurrent                            8,111         (7,006)         1,105          7,591         (6,691)           900
                                          -------        -------        -------        -------        -------        -------
FOREIGN:
Noncurrent:
  Subsidiary tax loss carryforwards         3,276             --          3,276          4,077             --          4,077
  Less: valuation allowance                (2,117)            --         (2,117)        (2,918)            --         (2,918)
                                          -------        -------        -------        -------        -------        -------
Total noncurrent                            1,159             --          1,159          1,159             --          1,159
                                          -------        -------        -------        -------        -------        -------
Total deferred income taxes               $25,195        ($9,182)       $16,013        $20,191        ($8,616)       $11,575
                                          =======        =======        =======        =======        =======        =======
</TABLE>

At February 3, 2001, a consolidated foreign subsidiary of the Company had a net
operating loss carryforward that began to expire in fiscal year 1998. Management
records a valuation allowance each year reflecting the likelihood of the
realization of the related deferred tax asset. For the year ended February 3,
2001, the valuation allowance was reduced by $801.

                                      F-17.
<PAGE>   49
                           TALBOTS ANNUAL REPORT 2000

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

For the years ended February 3, 2001, January 29, 2000 and January 30, 1999,
total income tax expense differs from that computed by multiplying income before
taxes by the United States federal income tax rates as follows:

<TABLE>
<CAPTION>
                                                                         YEAR ENDED
                                            ----------------------------------------------------------------------
                                            FEBRUARY 3, 2001           JANUARY 29, 2000           JANUARY 30, 1999
                                            ----------------           ----------------           ----------------
                                              TAX         RATE           TAX         RATE           TAX         RATE
                                              ---         ----           ---         ----           ---         ----
<S>                                       <C>             <C>        <C>             <C>        <C>             <C>
Expected tax expense                      $65,562         35.0%      $33,270         35.0%      $20,868         35.0%
Adjustments resulting from:
  State income taxes, net of federal
    tax benefit                             5,469          2.9         2,273          2.4           970          1.6
  Goodwill amortization                       470          0.3           470          0.5           470          0.8
  Other                                       618          0.3           584          0.6           647          1.1
                                          -------         ----       -------         ----       -------         ----
Actual tax expense                        $72,119         38.5%      $36,597         38.5%      $22,955         38.5%
                                          =======         ====       =======         ====       =======         ====
</TABLE>

9.SEGMENT INFORMATION

The Company has segmented its operations in a manner that reflects how its chief
operating decision-maker reviews the results of the operating segments that make
up the consolidated entity.

The Company has two reportable segments, its retail stores (the "Stores
Segment"), which include the Company's United States, Canada and United Kingdom
retail store operations, and its catalog operations (the "Catalog Segment"),
which includes both catalog and internet operations.

The Company's reportable segments offer similar products; however, each segment
requires different marketing and management strategies. The Stores Segment
derives its revenues from the sale of women's and children's classic apparel,
accessories and shoes, through its retail stores, while the Catalog Segment
derives its revenues through its approximately 29 distinct catalog mailings per
year and, beginning in November 1999, through its e-commerce site at
www.talbots.com.

The Company evaluates the operating performance of its identified segments based
on a direct profit measure. The accounting policies of the segments are
generally the same as those described in the summary of significant accounting
policies, except as follows: direct profit is calculated as net sales less cost
of goods sold and direct expenses, such as payroll, occupancy and other direct
costs. Indirect expenses are not allocated on a segment basis; therefore, no
measure of segment net income or loss is available. Assets are not allocated
between segments; therefore, no measure of segment assets is available.

The following is segment information as of and for the years ended February 3,
2001, January 29, 2000 and January 30, 1999:

<TABLE>
<CAPTION>
                                FEBRUARY 3, 2001
                          --------------------------------
                          STORES      CATALOG        TOTAL
                          ------      -------        -----
<S>                   <C>            <C>        <C>
Net sales             $1,325,961     $269,035   $1,594,996
Direct profit            262,133       49,422      311,555
</TABLE>

<TABLE>
<CAPTION>
                                JANUARY 29, 2000
                          --------------------------------
                          STORES      CATALOG        TOTAL
                          ------      -------        -----
<S>                   <C>            <C>        <C>
Net sales             $1,099,929     $208,729   $1,308,658
Direct profit            174,083       28,143      202,226
</TABLE>

<TABLE>
<CAPTION>
                                   JANUARY 30, 1999
                          --------------------------------
                          STORES      CATALOG        TOTAL
                          ------      -------        -----
<S>                    <C>           <C>        <C>
Net sales              $ 972,974     $184,763   $1,157,737
Direct profit            134,258       18,644      152,902
</TABLE>

The following reconciles direct profit to consolidated net income before taxes
as of and for the years ended February 3, 2001, January 29, 2000 and January 30,
1999:

<TABLE>
<CAPTION>
                                                            FEBRUARY 3,     JANUARY 29,     JANUARY 30,
                                                                   2001            2000            1999
                                                                   ----            ----            ----
<S>                                                         <C>             <C>             <C>
Total direct profit or loss for reportable segments            $311,555        $202,226        $152,902
Less: indirect expenses                                         124,234         107,169          93,279
                                                               --------        --------        --------
Consolidated net income before taxes                           $187,321        $ 95,057        $ 59,623
                                                               ========        ========        ========
</TABLE>

                                     F-18.
<PAGE>   50
                           TALBOTS ANNUAL REPORT 2000


As a retailer that sells to the general public, the Company has no single
customer who accounts for greater than 10% of the Company's consolidated net
sales.

The following is geographical information as of and for the years ended February
3, 2001, January 29, 2000 and January 30, 1999:

<TABLE>
<CAPTION>
                                    FEBRUARY 3,  JANUARY 29,  JANUARY 30,
                                           2001         2000         1999
                                    -----------  -----------  -----------
<S>                                 <C>          <C>          <C>
SALES
United States                        $1,544,258   $1,265,511   $1,116,626
Foreign                                  50,738       43,147       41,111
                                     ----------   ----------   ----------
Total consolidated revenues          $1,594,996   $1,308,658   $1,157,737
                                     ==========   ==========   ==========
LONG-LIVED ASSETS
United States                         $ 344,171    $ 314,149    $ 302,607
Foreign                                   5,756        7,910        9,483
                                    -----------  -----------  -----------
Total long-lived assets               $ 349,927    $ 322,059    $ 312,090
                                     ==========   ==========   ==========
</TABLE>

The classification "Foreign" is comprised of the Company's Canada and United
Kingdom retail store operations and the classification "United States" is
comprised of the Company's United States retail store operations and the
Company's catalog operations.

10. BENEFIT PLANS

The Company sponsors a non-contributory defined benefit pension plan covering
substantially all salaried and hourly employees. The plan provides retirement
benefits for employees who have attained age 21 and completed one year of
service. The benefit formula for salaried and hourly corporate employees is a
final average pay benefit formula and the benefit formula for store employees is
a career pay formula. The Company's general funding policy is to contribute the
greater of amounts that are deductible for federal income tax purposes or
required by law. Plan assets for the pension plan consist principally of fixed
income and equity securities.

The following sets forth the funded status and prepaid pension cost for the
Company's pension plan:

<TABLE>
<CAPTION>
                                                           FEBRUARY 3,          JANUARY 29,
                                                                 2001                 2000
                                                           -----------          -----------
<S>                                                        <C>                  <C>
Change in benefit obligation:
Projected benefit obligation at beginning of year            ($34,971)            ($32,726)
    Service cost                                               (3,471)              (3,236)
    Interest cost                                              (3,092)              (2,514)
    Actuarial (loss)/gain                                      (3,056)               2,926
    Benefits paid                                                 839                  579
                                                             --------             --------
Projected benefit obligation at end of year                  ($43,751)            ($34,971)
                                                             ========             ========

Change in assets:
Fair value at the beginning of year                          $ 33,371             $ 27,792
    Actual return on plan assets                               (1,684)               3,158
    Employer contributions                                      3,500                3,000
    Benefits paid                                                (839)                (579)
                                                             --------             --------
Fair value at end of year                                    $ 34,348             $ 33,371
                                                             ========             ========
Funded status:
    Projected benefit obligation                             ($43,751)            ($34,971)
    Fair value of plan assets                                  34,348               33,371
                                                             --------             --------
    Funded status                                              (9,403)              (1,600)
    Unrecognized prior service cost                               853                1,016
    Unrecognized net loss                                       8,219                  407
                                                             --------             --------
Accrued benefit cost                                         ($   331)            ($   177)
                                                             ========             ========
</TABLE>

The accumulated benefit obligation at February 3, 2001 and January 29, 2000 was
$37,728 and $26,576, respectively.

                                     F-19.
<PAGE>   51
                           TALBOTS ANNUAL REPORT 2000


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

Net pension cost for the fiscal years ended February 3, 2001, January 29, 2000
and January 30, 1999 included the following components:

<TABLE>
<CAPTION>
                                                                             YEAR ENDED
                                                         ---------------------------------------------------
                                                         FEBRUARY 3,         JANUARY 29,         JANUARY 30,
                                                               2001                2000                1999
                                                         -----------         -----------         -----------
<S>                                                      <C>                 <C>                 <C>
Service cost - benefits earned during the period            $ 3,471             $ 3,236             $ 2,489
Interest cost on projected benefit obligation                 3,092               2,514               2,034
Expected return on plan assets                               (3,072)             (2,575)             (2,041)
Net amortization and deferral                                   163                 407                 176
                                                            -------             -------             -------
Net pension expense                                         $ 3,654             $ 3,582             $ 2,658
                                                            =======             =======             =======
</TABLE>

The Company also has a non-qualified supplemental executive retirement plan
("SERP") for key executives impacted by Internal Revenue Code limits on benefits
and compensation. The plan is not funded.

The following sets forth the liability status and accrued benefit cost for the
Company's SERP plan.

<TABLE>
<CAPTION>
                                                            FEBRUARY 3,         JANUARY 29,
                                                                  2001                2000
                                                            -----------         -----------
<S>                                                         <C>                 <C>
Change in benefit obligation:
  Projected benefit obligation at beginning of year            ($3,533)            ($3,123)
    Service cost                                                  (273)               (233)
    Interest cost                                                 (340)               (243)
    Actuarial (loss)/gain                                         (725)                 66
    Benefits paid                                                   --                  --
                                                               -------             -------
  Projected benefit obligation at end of year                  ($4,871)            ($3,533)
                                                               =======             =======
Funded status:
  Projected benefit obligation                                 ($4,871)            ($3,533)
  Fair value of plan assets                                         --                  --
                                                               -------             -------
  Funded status                                                 (4,871)             (3,533)
  Unrecognized prior service cost                                  136                 182
  Unrecognized net loss                                          1,087                 444
                                                               -------             -------
Accrued pension liability                                      ($3,648)            ($2,907)
                                                               =======             =======
</TABLE>

Net SERP cost for the fiscal years ended February 3, 2001, January 29, 2000 and
January 30, 1999 included the following components:

<TABLE>
<CAPTION>
                                                                      YEAR ENDED
                                                      -------------------------------------------
                                                      FEBRUARY 3,     JANUARY 29,     JANUARY 30,
                                                            2001            2000            1999
                                                      -----------     -----------     -----------
<S>                                                   <C>             <C>             <C>
Service cost - benefits earned during the period            $273            $233            $176
Interest cost on projected benefit obligation                340             243             195
Net amortization and deferral                                128              96              56
                                                            ----            ----            ----
Net SERP expense                                            $741            $572            $427
                                                            ====            ====            ====
</TABLE>

The following summarizes the assumptions used in determining both the net
pension and SERP expense is as follows:

<TABLE>
<CAPTION>
                                                                             YEAR ENDED
                                                         ---------------------------------------------------
                                                         FEBRUARY 3,         JANUARY 29,         JANUARY 30,
                                                               2001                2000                1999
                                                         -----------         -----------         -----------
<S>                                                      <C>                 <C>                 <C>
Discount rate                                                  7.50%               6.75%               7.25%
Discount rate used to determine present value
    of projected benefit obligation                            7.50%               7.50%               6.75%
Expected long-term rate of return on plan assets               9.00%               9.00%               9.00%
Rate of future compensation increases                          4.50%               4.50%               4.00%
</TABLE>

                                     F-20.
<PAGE>   52
                           TALBOTS ANNUAL REPORT 2000


The Company has a qualified defined contribution 401(k) plan which covers
substantially all employees. Employees make contributions to the plan, and the
Company makes a contribution that matches 50% of an employee's contribution up
to a maximum of 6% of the employee's actual compensation. Company contributions
for the years ended February 3, 2001, January 29, 2000 and January 30, 1999 were
$3,190, $2,569 and $2,431, respectively.

The Company provides certain medical benefits for most retired employees. The
following sets forth the funded status and accrued benefit cost for the medical
plan.

<TABLE>
<CAPTION>
                                                            FEBRUARY 3,         JANUARY 29,
                                                                  2001                2000
                                                            -----------         -----------
<S>                                                         <C>                 <C>
Change in benefit obligation:
  Projected benefit obligation at beginning of year            ($2,734)            ($2,392)
    Service cost                                                  (283)               (285)
    Interest cost                                                 (210)               (184)
    Actuarial gain                                                 173                  98
    Benefits paid                                                   65                  29
                                                               -------             -------
  Projected benefit obligation at end of year                  ($2,989)            ($2,734)
                                                               =======             =======
Funded status:
  Projected benefit obligation                                 ($2,989)            ($2,734)
  Fair value of plan assets                                         --                  --
                                                               -------             -------
  Funded status                                                 (2,989)             (2,734)
  Unrecognized net (gain) loss                                     (95)                 79
                                                               -------             -------
  Accrued postretirement liability                             ($3,084)            ($2,655)
                                                               =======             =======
</TABLE>

The net cost of the plan for the fiscal years ended February 3, 2001, January
29, 2000 and January 30, 1999 included the following components:

<TABLE>
<CAPTION>
                                                                      YEAR ENDED
                                                      -------------------------------------------
                                                      FEBRUARY 3,     JANUARY 29,     JANUARY 30,
                                                            2001            2000            1999
                                                      -----------     -----------     -----------
<S>                                                   <C>             <C>             <C>
Service cost - benefits earned during the period            $283            $285            $224
Interest cost on projected benefit obligation                210             184             156
                                                            ----            ----            ----
Net expense                                                 $493            $469            $380
                                                            ====            ====            ====
</TABLE>

Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plan. A one-percentage-point change in assumed cost
escalation rate would have the following effects:

<TABLE>
<CAPTION>
                                                            1% INCREASE     1% DECREASE
                                                            -----------     -----------
<S>                                                         <C>             <C>
Effect on total of service and interest cost components            $ 56            $ 49
Effect on the postretirement benefit obligation                     296             263
</TABLE>

The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.50% at February 3, 2001, 7.50% at
January 29, 2000 and 6.75% at January 30, 1999. Additionally, assumed cost
escalation rates that start at 8.10% and grade down gradually to 5.00% were used
for the year ended February 3, 2001. Assumed cost escalation rates that start at
6.48% and grade down gradually to 4.75% were used for the year ended January 29,
2000 and assumed cost escalation rates that start at 7.00% and grade down
gradually to 4.75% were used for the year ended January 30, 1999.

The Company provides postemployment benefits to certain employees on short-term
disability. The Company's obligation at February 3, 2001 and January 29, 2000
was $404 and $328, respectively.

11. COMMITMENTS

The Company conducts the major part of its operations in leased premises with
lease terms expiring at various dates through 2020. Most store leases provide
for base rentals plus contingent rentals which are a function of sales volume
and provide that the Company pay real estate taxes, maintenance and other
operating expenses applicable to the leased premises. Additionally, most store
leases provide renewal options and contain rent escalation clauses. These
escalation clauses are factored into a calculation of the future rental stream.
This stream is recorded on a straight-line basis over the life of the original
lease. The "deferred rent under lease commitments"

                                     F-21.
<PAGE>   53
                           TALBOTS ANNUAL REPORT 2000


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Dollar amounts in thousands except per share data)

caption represents rent expensed in excess of cash paid. Management expects that
in the normal course of business expiring leases will be renewed or replaced by
other leases.

The aggregate minimum future annual rental commitments under noncancelable
operating leases at February 3, 2001 are as follows:

<TABLE>
<S>                                                         <C>
      2001...............................................   $ 78,346
      2002...............................................     78,603
      2003...............................................     75,795
      2004...............................................     71,819
      2005...............................................     67,238
      Thereafter.........................................    201,054
</TABLE>

Rent expense for the years ended February 3, 2001, January 29, 2000 and January
30, 1999 was $78,467, $72,719 and $67,316, respectively, and includes $3,629,
$2,227 and $1,734, respectively, of contingent rental expense.

12. NET INCOME PER SHARE

The weighted average shares used in computing basic and diluted net income per
share are presented in the table below. Options to purchase 36,000, 21,000 and
3,415,378 shares of common stock at prices ranging from $12.47 to $51.13 per
share were outstanding during the years ended February 3, 2001, January 29, 2000
and January 30, 1999, respectively, but were not included in the computation of
diluted net income per share because the options' exercise prices were greater
than the average market prices of the common shares.

<TABLE>
<CAPTION>
                                                                         YEAR ENDED (IN THOUSANDS)
                                                              -----------------------------------------------
                                                              FEBRUARY 3,       JANUARY 29,       JANUARY 30,
                                                                    2001              2000              1999
                                                              -----------       -----------       -----------
<S>                                                           <C>               <C>               <C>
Shares for computation of basic net income per share              61,823            62,136            63,756
Effect of stock compensation plans                                 2,172             1,232               110
                                                                  ------            ------            ------
Shares for computation of diluted net income per share            63,995            63,368            63,866
                                                                  ======            ======            ======
</TABLE>

                                     F-22.
<PAGE>   54
                           TALBOTS ANNUAL REPORT 2000


REPORT OF THE AUDIT COMMITTEE

The Audit Committee of the Board of Directors is comprised entirely of
independent outside directors. Its primary function is to oversee the Company's
system of internal controls, financial reporting practices and audits to ensure
their quality, integrity and objectivity are sufficient to protect shareholder
assets.

The Audit Committee met on four occasions in fiscal 2000, during which it
reviewed the overall audit scope, plans and results of the internal audit
department and the independent auditors, officer expenses and emerging
accounting issues. The Committee also met separately without management present
with both the internal auditors and the independent auditors to discuss the
year's audits. In addition, the Committee reviewed and discussed the Company's
annual financial statements with management before issuance. Audit Committee
results were reported to the entire Board of Directors.

The Audit Committee has discussed with the independent auditors the matters
required to be discussed by Statement on Auditing Standard No. 61 and the Audit
Committee has received the written disclosures and a letter from the independent
auditors as required by Independence Standards Board Standard No. 1 and has
discussed with the auditors the auditors' independence.

Based on its review, the Audit Committee has satisfied itself that the internal
control system is adequate and that the shareholders of The Talbots, Inc. are
adequately protected by the appropriate accounting and auditing procedures.

The Audit Committee recommended to the Board of Directors that the audited
financial statements be included in the Company's Annual Report on Form 10-K for
the fiscal year 2000 for filing with the Securities and Exchange Commission.

Audit Committee
of the Board of Directors



/s/ Elizabeth T. Kennan

Elizabeth T. Kennan, Chairperson
Mark H. Willes
Susan M. Swain (since March, 2001)

                                     F-23.
<PAGE>   55
                           TALBOTS ANNUAL REPORT 2000


Independent Auditors' Report

Board of Directors and Stockholders of The Talbots, Inc.:


We have audited the accompanying consolidated balance sheets of The Talbots,
Inc. and its subsidiaries as of February 3, 2001 and January 29, 2000, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the three years in the period ended February 3, 2001. 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 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 consolidated financial statements present fairly, in all
material respects, the financial position of The Talbots, Inc. and its
subsidiaries as of February 3, 2001 and January 29, 2000, and the results of
their operations and their cash flows for each of the three years in the period
ended February 3, 2001, in conformity with accounting principles generally
accepted in the United States of America.




/s/ Deloitte & Touche LLP

Deloitte & Touche LLP
March 14, 2001
Boston, Massachusetts

                                     F-24.
<PAGE>   56
                           TALBOTS ANNUAL REPORT 2000


SELECTED QUARTERLY FINANCIAL DATA
(Dollar amounts in thousands except per share data)

The following table shows certain unaudited quarterly information for the
Company during fiscal 2000 and fiscal 1999. The unaudited quarterly information
includes all normal recurring adjustments which management considers necessary
for a fair presentation of the information shown. The operating results for any
quarter are not necessarily indicative of results for any future period.
Quarterly per share amounts may not total the full year amount due to changes in
the number of shares outstanding. Sales and expenses for all periods presented
have been reclassified to conform with EITF 00-10 "Accounting for Shipping and
Handling Fees and Costs."

<TABLE>
<CAPTION>
                                                             FISCAL 2000 QUARTER ENDED
                                      ---------------------------------------------------------------------
                                      APRIL 29,            JULY 29,         OCTOBER 28,         FEBRUARY 3,
                                          2000                2000                2000                2001
                                      ---------------------------------------------------------------------
<S>                                   <C>                 <C>               <C>                 <C>
Net sales                             $363,498            $361,244            $397,143            $473,111
Gross profit                           161,460             124,878             181,968             190,680
Net income                              32,653              14,618              34,909              33,022

Net income per share
    Basic                             $   0.53            $   0.24            $   0.56            $   0.53
    Assuming dilution                 $   0.52            $   0.23            $   0.54            $   0.51

Weighted average common shares
  outstanding (in thousands)
    Basic                               61,134              61,475              62,156              62,478
    Assuming dilution                   62,824              63,599              64,506              65,003

Cash dividends per share              $  0.060            $  0.070            $  0.070            $  0.070

Market price data
    High                              $ 31.156            $ 30.000            $ 38.844            $ 53.500
    Low                               $ 14.125            $ 21.188            $ 24.781            $ 38.500
</TABLE>

<TABLE>
<CAPTION>
                                                            FISCAL 1999 QUARTER ENDED
                                      ---------------------------------------------------------------------
                                         MAY 1,            JULY 31,         OCTOBER 30,         JANUARY 29,
                                          1999                1999                1999                2000
                                      ---------------------------------------------------------------------
<S>                                   <C>                 <C>               <C>                 <C>
Net sales                             $297,749            $308,805            $321,479            $380,625
Gross profit                           124,731              88,896             132,052             127,953
Net income                              19,378               3,760              20,024              15,298

Net income per share
    Basic                             $   0.31            $   0.06            $   0.32            $   0.25
    Assuming dilution                 $   0.31            $   0.06            $   0.31            $   0.24

Weighted average common shares
  outstanding (in thousands)
    Basic                               62,476              62,358              62,716              62,334
    Assuming dilution                   62,682              63,114              63,594              63,924

Cash dividends per share              $  0.055            $  0.055            $  0.060            $  0.060

Market price data
    High                              $ 16.063            $ 19.750            $ 24.063            $ 26.375
    Low                               $ 11.813            $ 15.719            $ 15.000            $ 16.438
</TABLE>

                                     F-25.
<PAGE>   57
                                                                     SCHEDULE II

                       The Talbots, Inc. and Subsidiaries

                 Valuation and Qualifying Accounts and Reserves

                       Three Years Ended February 3, 2001

                                 (in thousands)





<TABLE>
<CAPTION>
                                          COLUMN A        COLUMN B     COLUMN C      COLUMN D        COLUMN E

                                                                 Additions
                                                         --------------------------
                                          Balance at     Charged to    Charged to
                                         Beginning of    Costs and        Other      Deductions       Balance at
Description                                 Period       Expenses       Accounts         (A)        End of Period
------------------------------------------------------------------------------------------------------------------

<S>                                      <C>             <C>         <C>             <C>             <C>
Year Ended February 3, 2001



Allowance for doubtful accounts
(deducted from accounts receivable)        $1,700         3,089              --           2,689         $2,100



Year Ended January 29, 2000



Allowance for doubtful accounts
(deducted from accounts receivable)        $1,600         2,715              --           2,615         $1,700



Year Ended January 30, 1999



Allowance for doubtful accounts
(deducted from accounts receivable)
                                           $1,400         3,152              --           2,952         $1,600
</TABLE>


(A) Write-off of uncollectible accounts net of recoveries.


                                       S-1