<PAGE>

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                      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

                  For the fiscal year ended December 31, 1999

                        Commission file number 1-12246

                        NATIONAL GOLF PROPERTIES, INC.
            (Exact name of registrant as specified in its charter)

<TABLE>
<S>                       <C>
        Maryland                            95-4549193
(State of incorporation)       (I.R.S. Employer Identification No.)
</TABLE>

<TABLE>
<S>                                       <C>
      2951 28th Street, Suite 3001
            Santa Monica, CA                                  90405
(Address of principal executive offices)                    (Zip Code)
</TABLE>

                                (310) 664-4100
             (Registrant's telephone number, including area code)

          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 $.01 par value             New York Stock Exchange
</TABLE>

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

  Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]

  Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of 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]

  As of February 28, 2000, the aggregate market value of the voting stock held
by nonaffiliates of the registrant was approximately $239.9 million, based
upon the closing price ($21.6875) on the New York Stock Exchange on that date.
(For this computation, the registrant has excluded the market value of all
shares of its common stock reported as owned by executive officers and
directors of the registrant and certain other stockholders; such exclusion
shall not be deemed to constitute an admission that any such person is an
"affiliate" of the registrant.)

  Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:

  12,204,245 shares of common stock, $.01 par value, as of February 28, 2000

                      Documents Incorporated By Reference

  Portions of the registrant's Proxy Statement in connection with its Annual
Meeting of Stockholders to be held June 13, 2000, are incorporated by
reference in Part III.

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<PAGE>

                                    PART I

Item 1. BUSINESS

  a) General Development of Business

  National Golf Properties, Inc. (the "Company") commenced operations
effective with the completion of its initial public stock offering (the
"Offering") of common stock, par value $.01 per share (the "Common Stock"), on
August 18, 1993. The Company qualifies as a Real Estate Investment Trust
("REIT") under the Internal Revenue Code of 1986, as amended (the "Code").

  The Company became the general partner in National Golf Operating
Partnership, L.P. (the "Operating Partnership") when the Operating Partnership
was formed as a Delaware limited partnership in June 1993. On July 8, 1994,
the Operating Partnership acquired an 89% general partner interest in Royal
Golf, L.P. II ("Royal Golf"). Royal Golf owns four golf courses on Hilton Head
Island, South Carolina. Unless the context otherwise requires, all references
to the Company's business and properties include the business and properties
of the Operating Partnership and Royal Golf.

  In 1997, the Company acquired a 50% general partnership interest in Pumpkin
Ridge Joint Venture ("Pumpkin Ridge"). Pumpkin Ridge owns two golf courses in
Cornelius, Oregon. The Company accounts for its investment in Pumpkin Ridge
under the equity method of accounting.

  The Company is the sole general partner in the Operating Partnership and
currently owns 58% of the common partnership interest in the Operating
Partnership. The limited partners are individuals, partnerships, corporations
and trusts who have contributed their properties in exchange for units of
common partnership interest ("Common Units") or who have contributed cash in
exchange for units of preferred partnership interest ("Preferred Units").

  In 1999, the Company purchased five golf courses for an aggregate initial
investment of approximately $26.9 million, excluding the Acquired Cobblestone
Courses, described below, which investment was financed by approximately $5
million of cash from operations, $13.7 million of advances under the Company's
credit facility and $8.2 million of proceeds from sale of properties. Between
December 31, 1999 and February 28, 2000, the Company purchased one golf course
for an initial investment of approximately $3.6 million, which the Company
financed with approximately $1.9 million of advances under the Company's
credit facility and $1.7 million of proceeds from sale of properties. The
Company sold three golf courses and one recreational facility for
approximately $11 million in 1999. Between December 31, 1999 and February 28,
2000, the Company sold two golf courses in a single transaction for
approximately $3.2 million.

  On March 31, 1999, the Company purchased fee interests in 15 golf courses,
long-term leasehold interests in two golf courses and leasehold rights in
three golf courses and made a participating mortgage loan secured by an
additional golf course (collectively, the "Acquired Cobblestone Courses")
previously owned or leased by subsidiaries of Meditrust Corporation and
Meditrust Operating Company (collectively, "Meditrust") comprising the
"Cobblestone Golf Group" for an aggregate initial investment of approximately
$186.5 million, which investment was financed by approximately $11.8 million
of cash from operations, approximately $169 million of advances under the
Company's credit facility, and approximately $5.7 million of assumed notes.
The Company's acquisition of interests in these golf courses was part of a
larger transaction in which a subsidiary of our affiliate American Golf
Corporation ("AGC") and a subsidiary of ClubCorp International ("ClubCorp")
formed Golf Acquisitions, L.L.C., a new limited liability company ("Golf
Acquisitions"), to purchase from Meditrust the subsidiaries comprising the
Cobblestone Golf Group. Golf Acquisitions closed this purchase on March 31,
1999, and immediately thereafter sold interests in 23 golf courses to
subsidiaries of ClubCorp, sold interests in the Acquired Cobblestone Courses
to the Company and sold to AGC short-term interests in three golf course
facilities and a portion of the personal property assets related to the
Acquired Cobblestone Courses. Three of the Acquired Cobblestone Courses are
leasehold rights in the golf courses at Carmel Mountain Ranch Country Club and
Sweetwater Country Club, in which the Company already owned the fee interest
and had previously leased such properties to a subsidiary of Meditrust.
<PAGE>

  Concurrently with closing its purchase of the Acquired Cobblestone Courses,
the Company entered into agreements to lease or sublease 18 of the Acquired
Cobblestone Courses to AGC and two of the Acquired Cobblestone Courses to Golf
Enterprises, Inc. ("GE"). AGC also entered into a separate agreement to lease
the golf course which secures the Company's participating mortgage loan to a
subsidiary of Golf Acquisitions. The Company financed a portion of its
acquisition of the Acquired Cobblestone Courses with borrowings under a new
$300 million credit facility. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."

  The following diagram depicts the beneficial ownership of the Company, the
Operating Partnership, Royal Golf and Pumpkin Ridge as of February 28, 2000:

<TABLE>
<S>                              <C>                                                          <C>
                                    National Golf Properties, Inc.
                                 .  91% owned by public stockholders
                                 .   3% owned by David G. Price
                                 .   6% owned by employees of
                                         National Golf Properties and
                                         American Golf Corporation
                                              |
                                              |
                                              |
                                    National Golf Operating Partnership, L.P.
                                 .  58% owned by National Golf
                                         Properties, the managing general
                                         partner of National Golf Operating
                                         Partnership
                                 .  16% owned by David G. Price
                                 .  26% owned by limited partners
                                              |
       _______________________________________|___________________________________________________________
       |                                      |                                                           |
       |                                 Royal Golf, L.P. II                                     Pumpkin Ridge Joint Venture*
       |
       |                         .  89% owned by National Golf Operating                      .  50% owned by National Golf
       |                                Partnership, the managing                                     Operating Partnership
       |                                general partner of Royal Golf, L.P. II                .  50% owned by two other general
       |                         .  11% owned by a limited partner                                     partners
     ____________________________________________________________           |                             |
     |                                                          |           |                             |
2 Golf Courses    1 Golf Course      1 Golf Course     140 Golf Courses**   4 Golf Courses             2 Golf Courses
 . 100% owned by   . 100% owned by    . 100% owned by   . 100% owned by      . 100% owned by          . 100% owned by
  National Golf     National Golf      National Golf     National Golf        Royal Golf                  Pumpkin
  Operating         Operating          Operating         Operating                                         Ridge
  Partnership       Partnership        Partnership       Partnership
    |                    |                 |                   |                    |                       |
    |                    |                 |                   |                    |                       |
    |                    |                 |                   _____________________________________________
    |                    |                 |                                                |
    |                    |                 |                                                |
  Golf               The Links      Evergreen Alliance                                 American Golf
Enterprises, Inc.    Group, Inc.      Golf Limited                                      Corporation

   (Lessee)           (Lessee)          (Lessee)                                         (Lessee)
</TABLE>
-------
 * The Company accounts for its investment in Pumpkin Ridge under the equity
   method of accounting.
** The Company has participating mortgage loans on two golf courses which it
   does not own.

                                       2


<PAGE>

  b) Narrative Description of Business

  The Company is a self-administered REIT specializing in the ownership and
acquisition of golf course properties. As of February 28, 2000, the Company's
portfolio consisted of the ownership of interests in 148 golf courses (the
"Golf Courses"), including the two golf courses owned by Pumpkin Ridge, in 134
separate locations in 25 states and two participating mortgage loans, which
are collateralized by mortgages on the golf courses. As a self-administered
REIT, the Company's own employees perform its administrative and management
functions, rather than the Company relying on an outside manager for these
services.

  The Golf Courses include facilities such as clubhouses with restaurants,
banquet space, locker rooms and retail pro shops, driving ranges, pools,
tennis courts and fitness facilities. Services provided at such properties
include golf cart rentals, golf and tennis lessons, banquets and tournaments.
In order to maintain qualification as a REIT, the Company's income must be
derived from real property-related sources, including rents from real property
and generally excluding income from the operation of a golf course.
Accordingly, the Company is generally precluded from operating golf courses
and, as a consequence, leases the Golf Courses to experienced and creditworthy
golf course operators. In selecting operators, the Company considers factors
such as the number of years that the company has been in operation, the
experience of the management team, the number of golf courses currently owned,
leased or managed by the operator, the operator's net worth or ability to
provide credit support to the Company's satisfaction, and the operator's
ability to maximize the revenues of the golf course and to improve the long-
term value of the golf course.

Business Objectives and Operating Strategies

  The Company's primary business objective is to maximize stockholder return
through the ownership and acquisition of quality golf courses and the
subsequent lease of such properties to experienced and creditworthy operators.
The Company focuses on the ownership and acquisition of golf course properties
that have strong revenue and cash flow growth potential and expects to hold
such properties for long-term investment and capital appreciation. The
Company's business and operating strategies include:

  .  Increasing income and portfolio value by continuing the strategic
     expansion of its golf course portfolio through the selective acquisition
     of golf course properties in major metropolitan areas or resort
     locations having strong golf characteristics, which properties
     demonstrate potential for significant revenue and cash flow increases.
     For the period August 18, 1993 to December 31, 1999, the Company
     purchased 113 Golf Courses, including the two Golf Courses owned by
     Pumpkin Ridge and the three leasehold rights in the Golf Courses at
     Carmel Mountain Ranch Country Club and Sweetwater Country Club, in which
     the Company already owned the fee interest, for an aggregate initial
     investment of approximately $687.6 million. For the period January 1,
     2000 to February 28, 2000, the Company purchased one Golf Course for
     approximately $3.6 million;

  .  Structuring favorable leases for the Company with experienced and
     creditworthy golf course operators under which the operators pay base
     rent and percentage rent based on revenues and pay substantially all
     expenses in connection with the operation of such properties, including
     all real and personal property taxes, utility costs, insurance costs,
     irrigation costs, maintenance costs and other operating expenses;

  .  Working with golf course operators on strategies to increase revenues,
     which in turn would increase percentage rent to the Company;

  .  Working with golf course operators on strategies to improve and enhance
     golf course holdings through proper maintenance and capital
     improvements;

  .  Monitoring on an ongoing basis the operating performance of the Golf
     Courses, compliance by its operators with their lease obligations and
     other market factors that could affect the financial performance of its
     courses; and

                                       3
<PAGE>

  .  Maintaining a ratio of debt-to-total market capitalization of 50% or
     less. Such ratio is calculated as total debt of the Company as a
     percentage of the market value of issued and outstanding shares of
     Common Stock, Preferred Units and interests in the Operating Partnership
     that are exchangeable for shares of Common Stock plus total debt. At
     December 31, 1999, the Company's total debt constituted approximately
     46% of its total market capitalization.

Seasonality

  Although the results of operations of the Company and its predecessors have
not been significantly impacted by seasonality, the Company generally expects
that its results of operations may be adversely affected as a function of
reduced payments of percentage rent in the first and fourth quarters of each
year due to adverse weather conditions and the scheduled closure of the Golf
Courses located in harsh winter climates.

Tenant and Leases

  All but four of the Golf Courses in the Company's portfolio are currently
leased to AGC pursuant to long-term triple net leases (the "Leases"). AGC is
one of the largest and most experienced operators of golf courses and related
facilities in the world and currently manages and operates 293 golf courses
and related facilities in 29 states. In addition, AGC, through its subsidiary
American Golf (U.K.) Limited, manages 36 golf courses and related facilities
in the United Kingdom. AGC operates a diverse portfolio of golf courses for a
variety of golf course owners including municipalities, counties and others.
AGC was founded in 1973 by David G. Price, the Chairman of the Company's Board
of Directors and AGC's Chairman and principal shareholder. Including the Golf
Courses, AGC manages 235 daily fee golf courses and 94 private club courses.
AGC oversees the management and operations of championship golf courses
throughout the United States and manages municipal golf courses for such
cities as Atlanta, New York and San Diego and for the County of Los Angeles.

  AGC does not own any golf courses, but rather manages and operates golf
courses either as a lessee under leases, generally triple net, or pursuant to
management agreements. AGC derives revenues from the operation of golf courses
principally through the receipt of green fees, membership initiation fees,
membership dues, golf cart rentals, driving range charges and sales of food,
beverages and merchandise.

  Each Lease is for an initial term, depending upon the Golf Course, ranging
between 15 and 20 years. The Leases are triple net leases which require AGC to
pay substantially all expenses associated with the operation of the Golf
Courses, such as all real and personal property taxes, utility costs,
insurance costs, irrigation costs, maintenance costs and other operating
expenses. In addition, AGC has options to extend the term of each Lease for
one to three five-year terms. Each Lease permits AGC to operate the leased
property as a golf course, along with a clubhouse and other activities
customarily associated with or incidental to the operation of a golf course.

  The base rent for the first year for each Golf Course under the Leases is
initially set at a fixed amount. Generally for the Leases entered into by the
Company with respect to its initial portfolio of 43 golf courses at the time
of the Offering (the "Initial Golf Courses"), base rent is increased each year
by 4% or, if lower, 150% of the annual percentage increase in the Consumer
Price Index ("CPI") (the "Base Rent Escalation"). In addition, generally
percentage rent is paid each year in the amount, if any, by which the sum of
35% of Course Revenue in excess of a baseline amount and 5% of Other Revenue
in excess of a baseline amount exceeds the cumulative Base Rent Escalation
since the commencement date of such Leases. "Course Revenue" is generally
defined in the Leases to include all revenue received from the operation of
the applicable Golf Course, including revenues from memberships, initiation
fees, dues, green fees, guest fees, driving range charges and golf cart
rentals, but excluding those revenues described as Other Revenue. "Other
Revenue" is generally defined in the Leases to include all revenue received
from food and beverage and merchandise sales and other revenue not directly
related to golf activities. Generally, the baseline amounts for the Initial
Golf Courses were established based on revenues for each of such Golf Courses
for the twelve months ended February 28, 1993. Payment of percentage rent
based upon the revenues of the Golf Courses will enable the Company to
participate in growth in revenues at the Golf Courses.

                                       4
<PAGE>

  For the Leases entered into subsequent to the Offering, the rent generally
is based upon the greater of (a) the base rent or (b) a specified percentage
of Course Revenue and Other Revenue. The base rent under these Leases is
increased for specified years during the Lease term based upon increases in
the CPI, provided that each such annual CPI increase shall not exceed five
percent. The Leases for the Acquired Cobblestone Courses specify that the base
rent for such properties will increase by a fixed 0.5% each year for specified
years during the term of each Lease.

  The Leases for the Initial Golf Courses require AGC to post and maintain an
irrevocable letter of credit in an amount equal to approximately $13.6
million, which is comprised of six monthly installments of the annual rent, to
collateralize its obligations under such Leases. AGC's obligation to post and
maintain such letter of credit will be suspended, subject to reinstatement, at
such time as AGC achieves: (i) a Fixed Charge Coverage Ratio, as defined, of
not less than 1.5 to 1.0 for two consecutive fiscal quarters and (ii) a
minimum Tangible Net Worth, as defined, of at least $30,000,000 or, following
a change in control, $30,000,000 increased by 4% per annum compounded annually
from the commencement date of the Leases to the date of a change in control of
AGC.

  The obligations of AGC under each Lease are cross-defaulted to each of the
other Leases with respect to monetary defaults and all other defaults except
those not within the reasonable control of AGC. The Company has general
recourse to AGC under the Leases, but such Leases are not collateralized by
any assets of AGC. The stockholders of the Company have no recourse to AGC
under the Leases.

  The Independent Committee, comprised of all four independent directors of
the Company, oversees the selection of operators and approves transactions
between the Company and David G. Price and his affiliates.

  The Company continues to explore the use of operators other than AGC for
certain of its new acquisitions. In addition to AGC, the Company leases four
of its Golf Courses to three other operators: GE; The Links Group, Inc.
("TLG"); and Evergreen Alliance Golf Limited ("EAGL"). Unless the context
otherwise requires, all references to the Leases include the leases with GE,
TLG and EAGL.

  GE operates Sweetwater Country Club (two courses) near Houston, Texas. GE,
which is owned by David G. Price and Dallas P. Price, is a golf course
operating company with 19 properties under management in eight states.

  TLG operates Colonial Charters Golf Course near Myrtle Beach, South
Carolina. TLG is a golf course operating company that operates nine golf
courses in two states.

  EAGL operates San Geronimo Golf Course near San Francisco, California. EAGL
is a golf course acquisition and operating company with 41 properties under
ownership or management in 12 states.

Competitive Conditions

  The Golf Courses are, and any additional golf courses and related facilities
acquired by the Company will be, subject to competition for players and
members from other golf courses located in the same geographic areas,
including golf courses owned by municipalities or third parties that are
operated by the lessees. The number and quality of golf courses in a
particular area also could have a material effect on the revenues of the Golf
Courses. In addition, revenues of the Golf Courses will be affected by a
number of factors including the demand for golf and the availability of other
forms of recreation.

  According to its published data (1999 editions), the National Golf
Foundation, an independent industry organization, estimates that the number of
golfers in the United States is approximately 26.4 million. In addition,
favorable demographic trends offer encouraging growth prospects for the golf
course industry. The National Golf Foundation reports that the annual average
rounds played per golfer increases significantly as golfers age. Golfers in
their fifties generally play twice as many rounds annually as golfers in their
thirties. Golfers age 65 and older generally play three times as many rounds
annually as golfers in their thirties. Currently, approximately 75% of

                                       5
<PAGE>

all golfers are less than 50 years old and approximately 45% of all golfers
are between the ages of 30 and 49. Accordingly, the Company expects an
increase in the demand for golf as the younger segment of the golfing
population reaches its prime golfing age over the next 20 years. In addition,
the children of the baby boom generation are entering their twenties and
thirties, an age range in which they are most likely to begin playing golf.

  The Company is also subject to competition for the acquisition of golf
courses and related facilities with other purchasers of golf course
properties, including other golf course acquisition companies. According to
the National Golf Foundation, there are approximately 16,000 golf courses in
the United States. Ownership of these courses is extremely fragmented. The
Company believes that the nation's 15 largest golf course owners and operators
collectively own, lease, or manage approximately five percent of the courses
in the United States. This fragmentation provides an excellent opportunity for
the selective acquisition of quality golf course properties; however, the
market for golf course acquisitions remains competitive.

  In certain markets, construction of new golf courses has increased in the
last several years. Although such construction activity may add excess
capacity to some local markets, the Company's experience indicates that well-
managed and properly located facilities should continue to generate stable
revenue growth. The Company's courses are generally located in communities
with populations sufficient to absorb additional course development or in
areas with significant barriers to new course construction (i.e., limited
supply of suitable land, governmental restrictions, etc.). Consequently, new
course development has not materially affected the Company's portfolio. In
addition, the Company expects that new course development will provide
numerous acquisition opportunities. Moreover, the new courses offer improved
access for golfers, particularly beginners, women and juniors, which should
ultimately increase the pool of golf customers.

Employees

  As of February 28, 2000, the Company and the Operating Partnership had 13
full-time employees including two regional vice presidents and two directors
of business development who are dedicated on a full-time basis to the
identification of golf courses to be acquired or financed.

  The President of the Company is employed and compensated by both the
Operating Partnership and the Company. The Company believes that the
allocation of his compensation between the Company and the Operating
Partnership reflects the services provided by him with respect to each entity.
The remainder of the employees are employed solely by the Operating
Partnership. Royal Golf has no employees.

  The Company and the Operating Partnership have entered into a services
agreement pursuant to which the Operating Partnership provides the Company
with administrative, accounting and other services relating to the operations
and administration of the Company at a rate equal to the cost (including
allocable overhead) to the Operating Partnership of providing such services
plus 15% of such costs.

Government Regulation

  Environmental Matters. Under various federal, state and local laws,
ordinances and regulations, an owner or operator of real property may become
liable for the costs of removal or remediation of any hazardous substances
released on its property. These laws often impose liability without regard to
whether the owner or operator knew of, or was responsible for, the release of
hazardous substances. The presence of such substances, or the failure to
remediate such substances properly when released, may adversely affect the
owner's ability to sell or rent such real estate or to borrow using such real
estate as collateral.

  The Company has not been notified by any governmental authority of any
material non-compliance, liability or other claim in connection with any of
the Golf Courses. The Company is not aware of any other environmental
condition with respect to any of the Golf Courses that is likely to be
material to the Company. All of the Golf Courses have been subjected to a
preliminary environmental investigation. Such investigation generally involves

                                       6
<PAGE>

an examination of public records for ownership, use and current permitting
status, site visits, visual inspections for indications of contamination or
potential contamination and interviews with the on-site managers. Such
investigation generally does not involve invasive procedures, such as soil
sampling or ground water analysis. No assurance can be given that such
investigation would reveal all potential environmental liabilities, that no
prior owner or adjacent landowner created any material environmental condition
not known to the Company or that future uses or conditions (including, without
limitation, changes in applicable environmental laws and regulations) will not
result in imposition of environmental liability. Also, environmental
conditions, liabilities or compliance concerns may have arisen at a Golf
Course after the related review was completed. Although the Leases provide
that the lessees will indemnify the Company for certain potential
environmental liabilities at the Golf Courses, there can be no assurance that
the indemnification provided by such Leases would be sufficient to satisfy all
environmental liabilities.

  Americans with Disabilities Act. The Golf Courses are subject to the
Americans with Disabilities Act of 1990 (the "ADA"). The ADA has separate
compliance requirements for "public accommodations" and "commercial
facilities" but generally requires that public facilities such as clubhouses
and recreation areas be made accessible to people with disabilities.
Noncompliance could result in imposition of fines or an award of damages to
private litigants. Under the Leases, the lessees are required to make any
necessary modifications or improvements to comply with the ADA. The lessees
and the Company have undertaken, where necessary, a capital improvement
program to cause the public facilities at the Golf Courses to comply with the
ADA. The expenditures for the modifications and improvements have not been
material to the lessees.

Item 2. PROPERTIES

  As of February 28, 2000, the Golf Courses consisted of 148 golf courses that
are geographically diversified and located in 25 states, with 25 Golf Courses
in each of California and Texas, 19 in Arizona, seven in Ohio, six in each of
Georgia, South Carolina and Virginia, five in each of Minnesota and
Pennsylvania, four in each of Colorado, Florida, Illinois, Kansas, Oregon and
Washington, three in each of Nevada and New Jersey, two in each of Maryland,
Missouri, New Mexico, North Carolina, Oklahoma and Tennessee and one in each
of Idaho and Louisiana. In addition, the Company holds participating mortgages
on two Golf Courses, one in each of California and Nevada. The distribution of
the Golf Courses reflects the Company's belief that geographic diversification
provides stability of our income and helps insulate the portfolio from
regional economic and climatic influences. Substantially all of the Golf
Courses are located in areas with populations in excess of 250,000 people.

  Of the Company's 148 Golf Courses owned as of February 28, 2000, 94 are
daily fee courses and 54 are private club courses. All of the Golf Courses are
owned 100% in fee by either the Operating Partnership, Royal Golf or Pumpkin
Ridge except for the three Golf Courses at Bear Creek Golf World, which are
leased by the Operating Partnership under a ground lease expiring in 2022;
Mesquite Golf & Country Club, of which a portion of the golf course is leased
under various ground leases expiring between 2041 and 2043; Ridgeview Ranch
Golf Course which is leased by the Operating Partnership under a ground lease
expiring in 2025; and The Vineyard at Escondido Golf Club which is leased by
the Operating Partnership under a ground lease expiring in 2025.

  Daily Fee Courses. Daily fee courses are open to the public and related
amenities generally include practice facilities, small clubhouses with pro
shops offering limited merchandise and a moderate food and beverage operation.
Daily fee courses generate revenues principally through green fees, golf cart
rentals and food, beverage and merchandise sales. Daily fee courses, excluding
the Acquired Cobblestone Courses, generated $54 million of rent revenues to
the Company in 1999 compared to $50.2 million in 1998.

  Private Club Courses. Private club courses are generally closed to the
public and related amenities typically include practice facilities, large
clubhouses with pro shops offering extensive merchandise, locker room
facilities and multiple food and beverage outlets, including grills,
restaurants and banquet facilities. Private club courses generate revenues
principally through initiation fees, membership dues, guest fees, and food,
beverage

                                       7
<PAGE>

and merchandise sales. As of December 31, 1999, the Company's private club
courses had approximately 41,000 members. Private club courses, excluding the
Acquired Cobblestone Courses, generated $35.6 million of rent revenues to the
Company in 1999 compared to $33.1 million in 1998.

  The following table sets forth certain information regarding the Golf
Courses as of February 28, 2000. The number of locations (134) differs from
the number of Golf Courses because in some cases there is more than one Golf
Course at a specific location. The number of courses at each location is
indicated for locations with more than one course.

                                       8
<PAGE>

                      The Golf Courses--Daily Fee Courses

<TABLE>
<CAPTION>
                                                          No. of      1999
            Course Name          Location (City, State)   Holes  Rent Revenues
            -----------          ----------------------   ------ --------------
                                                                 (In thousands)
 <C> <S>                        <C>                       <C>    <C>
  1  Canoa Hills Golf
     Course..................   Green Valley, Arizona       18       $   --(1)
  2  Continental Golf
     Course..................   Scottsdale, Arizona         18          450
  3  Coyote Lakes Golf Club..   Surprise, Arizona           18          120
  4  Desert Lakes Golf Club..   Fort Mojave, Arizona        18          413
  5  El Caro Golf Club.......   Phoenix, Arizona            18          255
  6  Foothills Golf Club,
     The.....................   Phoenix, Arizona            18           --(2)
  7  Kokopelli Golf Resort...   Gilbert, Arizona            18          744
  8  Lakes at Ahwatukee Golf
     Club, The...............   Phoenix, Arizona            18           --(2)
  9  Legend at Arrowhead,
     The.....................   Glendale, Arizona           18          629
 10  London Bridge Golf Club
     (2 Courses) ............   Lake Havasu City, Arizona   36          596
 11  Stonecreek Golf Course..   Phoenix, Arizona            18        1,074
 12  Superstition Springs
     Golf Club...............   Mesa, Arizona               18          664
 13  Villa De Paz Golf
     Course..................   Phoenix, Arizona            18          316
 14  Aptos Seascape Golf
     Course..................   Aptos, California           18        1,639
 15  BlackLake Golf Course...   Nipomo, California          27        1,131
 16  Camarillo Springs Golf
     Course..................   Camarillo, California       18        1,159
 17  Carmel Mountain Ranch
     Country Club............   San Diego, California       18          200
 18  Casta del Sol Golf
     Course..................   Mission Viejo, California   18          205
 19  Eagle Crest Golf Club...   Escondido, California       18           --(2)
 20  Lomas Santa Fe Executive
     Golf Course.............   Solana Beach, California    18          568
 21  Mesquite Golf & Country
     Club....................   Palm Springs, California    18          711
 22  Oakhurst Country Club...   Clayton, California         18          976
 23  Rancho San Joaquin Golf
     Course..................   Irvine, California          18        2,571
 24  San Geronimo Golf
     Course..................   San Geronimo, California    18          668
 25  Summitpointe Golf Club..   Milpitas, California        18        1,199
 26  Upland Hills Country
     Club....................   Upland, California          18          961
 27  Vineyard at Escondido
     Golf Club, The..........   Escondido, California       18           --(2)
 28  Vista Valencia Golf
     Course (2 Courses) .....   Valencia, California        27          956
 29  Arrowhead Golf Club.....   Littleton, Colorado         18        1,247
 30  Eagle Golf Club.........   Broomfield, Colorado        18          403
 31  Arrowhead Golf & Sports
     Club....................   Davie, Florida              18          374
 32  Baymeadows Golf Club....   Jacksonville, Florida       18          483
 33  Binks Forest Country
     Club....................   Wellington, Florida         18          407(3)
 34  Sabal Palm Golf Course..   Tamarac, Florida            18          547
 35  Summerfield Crossing
     Golf Club...............   Tampa, Florida              18          286
 36  Bradshaw Farm, The Golf
     Club at.................   Woodstock, Georgia          18          721
 37  Goshen Plantation
     Country Club............   Augusta, Georgia            18          330
 38  River's Edge Golf Club..   Fayetteville, Georgia       18          461
 39  Trophy Club of
     Appalachee, The.........   Dacula, Georgia             18           --(2)
 40  Trophy Club of Atlanta,
     The.....................   Alpharetta, Georgia         18           --(2)
 41  Ruffled Feathers Golf
     Course..................   Lemont, Illinois            18        1,110
 42  Tamarack Golf Club......   Naperville, Illinois        18          558
 43  Sugar Ridge Golf
     Course..................   Lawrenceburg, Indiana       18          126(3)
 44  Deer Creek Golf Club....   Overland Park, Kansas       18          886
 45  Dub's Dread Golf
     Course..................   Kansas City, Kansas         18          425
 46  Westwinds Country Club..   New Market, Maryland        18          339
</TABLE>
--------
(1) Purchased in 2000
(2) Acquired Cobblestone Courses
(3) Sold in 1999

                                       9
<PAGE>

<TABLE>
<CAPTION>
                                                                   No. of      1998
            Course Name               Location (City, State)       Holes  Rent Revenues
            -----------               ----------------------       ------ --------------
                                                                          (In thousands)
 <C> <S>                        <C>                                <C>    <C>
 47  Majestic Oaks Golf
     Club....................   Ham Lake, Minnesota                  45        1,237
      (3 Courses)
 48  Links at Northfork,
     The.....................   Ramsey, Minnesota                    18          408
 49  Woodland Creek Golf
     Course..................   Andover, Minnesota                    9           55
 50  Royal Meadows Golf
     Course..................   Kansas City, Missouri                27          288
      (2 Courses)
 51  Las Vegas National Golf
     Club....................   Las Vegas, Nevada                    18        2,568
 52  Painted Desert Golf
     Course..................   Las Vegas, Nevada                    18        1,005
 53  Wildhorse Country Club..   Henderson, Nevada                    18        1,319
 54  Beaver Brook Country
     Club....................   Clinton, New Jersey                  18          884
 55  Brigantine Golf Links...   Brigantine, New Jersey               18          419
 56  Rancocas Golf Club......   Willingboro, New Jersey              18          535
 57  Paradise Hills Golf
     Course..................   Albuquerque, New Mexico              18          573
 58  Carolina Shores Golf &
     Country Club............   Calabash, North Carolina             18          709
 59  Pawtuckett Golf Club....   Charlotte, North Carolina            18          190
 60  Bent Tree Golf Club.....   Columbus, Ohio                       18          473
 61  Fowler's Mill Golf
     Course..................   Chesterland, Ohio                    27          715
 62  Royal American Golf
     Links...................   Township of Harlem, Ohio             18           50
 63  Country Club of Hershey,
     South Course............   Hershey, Pennsylvania                18          260
 64  Golden Oaks Country
     Club....................   Fleetwood, Pennsylvania              18          608
 65  Hickory Heights Golf
     Club....................   Bridgeville, Pennsylvania            18          313
 66  Colonial Charters Golf
     Course..................   Longs, South Carolina                18          510
 67  Port Royal Golf &
     Racquet Club............   Hilton Head Island, South Carolina   54        2,920
      (3 Courses)
 68  Shipyard Golf Club......   Hilton Head Island, South Carolina   27        1,444
 69  Stono Ferry, The Links
     at......................   Charleston, South Carolina           18          181
 70  Forrest Crossing Golf
     Course..................   Nashville, Tennessee                 18          348
 71  Bear Creek Golf World...   Houston, Texas                       54        1,585
      (3 Courses)
 72  Blackstone Golf Club....   Frisco, Texas                        18           -- (2)
 73  Lake Houston Golf Club..   Huffman, Texas                       18          219 (4)
 74  Longwood Golf Club......   Houston, Texas                       27        1,135
 75  Pecan Valley Golf Club..   San Antonio, Texas                   18          607
 76  Ridgeview Ranch Country
     Club....................   Plano, Texas                         18           -- (2)
 77  Riverchase Golf Club....   Coppell, Texas                       18        1,181
 78  Riverside Golf Club.....   Grand Prairie, Texas                 18          760
 79  Southwyck Golf Club.....   Pearland, Texas                      18          606
 80  Woodlake Country Club...   San Antonio, Texas                   18           -- (2)(4)
 81  Chesapeake Golf Club....   Chesapeake, Virginia                 18          499
 82  Honey Bee Golf Club.....   Virginia Beach, Virginia             18          575
 83  Kiskiack Golf Club......   Williamsburg, Virginia               18           -- (2)
 84  Reston National Golf
     Course..................   Reston, Virginia                     18        1,060
 85  Virginia Oaks Golf
     Club....................   Gainesville, Virginia                18           -- (2)
 86  Capitol City Golf Club..   Olympia, Washington                  18          330
 87  Classic Golf Club, The..   Spanaway, Washington                 18          268
 88  Lake Wilderness Golf
     Course..................   Maple Valley, Washington             18          272
                                                                             -------
        Total Daily Fee
        Courses..............                                                $54,017
                                                                             =======
</TABLE>
--------
(2) Acquired Cobblestone Courses
(4) Sold in 2000

                                       10
<PAGE>

                     The Golf Courses--Private Club Courses

<TABLE>
<CAPTION>
                                                             No. of      1999
            Course Name            Location (City, State)    Holes  Rent Revenues
            -----------            ----------------------    ------ --------------
                                                                    (In thousands)
 <C> <S>                        <C>                          <C>    <C>
  1  Ahwatukee Country Club..   Phoenix, Arizona               18      $     --(2)
  2  Ancala Country Club.....   Scottsdale, Arizona            18           999
  3  Arrowhead Country Club..   Glendale, Arizona              18           617
     Red Mountain Ranch
  4  Country Club............   Mesa, Arizona                  18            --(2)
  5  Tatum Ranch Golf Club...   Cave Creek, Arizona            18         1,165
     Canyon Oaks Country
  6  Club....................   Chico, California              18           480
  7  Escondido Country Club..   Escondido, California          18           812
  8  Monterey Country Club...   Palm Desert, California        27           924
     Palm Valley Country Club
  9  (2 Courses).............   Palm Desert, California        36         1,648
 10  SeaCliff Country Club...   Huntington Beach, California   18         1,717
     Spanish Hills Country
 11  Club....................   Camarillo, California          18         1,759
     Sunset Hills Country
 12  Club....................   Thousand Oaks, California      18         1,407
 13  Wood Ranch Golf Club....   Simi Valley, California        18         1,299
     Heather Ridge Country
 14  Club....................   Aurora, Colorado               18           345
 15  Pinery Country Club.....   Denver, Colorado               27           650
     Crescent Oaks Country
 16  Club....................   Clearwater, Florida            18           140 (3)
     Brookstone Golf &
 17  Country Club............   Acworth, Georgia               18           794
     The Plantation Golf
 18  Club....................   Boise, Idaho                   18           294
     Eagle Brook Country
 19  Club....................   Geneva, Illinois               18         1,009
     Mission Hills Country
 20  Club....................   Northbrook, Illinois           18           861
     Highlands Golf & Supper
 21  Club....................   Hutchinson, Kansas             18           110
 22  Tallgrass Country Club..   Wichita, Kansas                18           347
     Shenandoah Country
 23  Club....................   Baton Rouge, Louisiana         18           215
 24  Hunt Valley Golf Club...   Phoenix, Maryland              27         1,790
 25  Tanoan Country Club.....   Albuquerque, New Mexico        27         1,412
     Brandywine Country
 26  Club....................   Maumee, Ohio                   27           779
 27  Ivy Hills Country Club..   Cincinnati, Ohio               18           205
 28  Oakhurst Country Club...   Grove City, Ohio               18           461
 29  Royal Oak Country Club..   Cincinnati, Ohio               18           429
     Meadowbrook Country
 30  Club....................   Tulsa, Oklahoma                18           464
 31  The Trails..............   Norman, Oklahoma               18           273
 32  Creekside Golf Club.....   Salem, Oregon                  18           652
 33  Oregon Golf Club, The...   West Linn, Oregon              18         1,173
     Country Club of Hershey
 34  (2 Courses).............   Hershey, Pennsylvania          36         1,119
     Gettysvue Polo, Golf &
 35  Country Club............   Knoxville, Tennessee           18           289
     Berry Creek Country
 36  Club....................   Georgetown, Texas              18           614
     Diamond Oaks Country
 37  Club....................   Fort Worth, Texas              18           574
 38  Eldorado Country Club...   McKinney, Texas                18           870
     Great Southwest Golf
 39  Club....................   Grand Prairie, Texas           18           916
 40  Los Rios Country Club...   Plano, Texas                   18            --(2)
 41  Oakridge Country Club...   Garland, Texas                 18           440
     Pecan Grove Country
 42  Club....................   Richmond, Texas                27            --(2)
     Sonterra, The Club at (2
 43  Courses)................   San Antonio, Texas             36         2,945
     Sweetwater Country Club
 44  (2 Courses).............   Sugarland, Texas               36           486
 45  Thorntree Country Club..   DeSoto, Texas                  18            --(2)
</TABLE>
--------
(2) Acquired Cobblestone Course

(3) Sold in 1999

                                       11
<PAGE>

<TABLE>
<CAPTION>
                                                          No. of      1999
             Course Name          Location (City, State)  Holes  Rent Revenues
             -----------          ----------------------  ------ --------------
                                                                 (In thousands)
 <C> <S>                          <C>                     <C>    <C>
     Walden on Lake Houston
 46  Country Club..............   Humble, Texas             18           428
 47  Willow Fork Country Club..   Katy, Texas               18           398
 48  Woodhaven Country Club....   Forth Worth, Texas        18           321
 49  Brandermill Country Club..   Midlothian, Virginia      18            --(2)
 50  Bear Creek Country Club...   Woodinville, Washington   18           933
                                                                    --------
     Total Private Club
     Courses...................                                     $ 35,563
                                                                    ========
     Acquired Cobblestone
     Courses...................                                     $ 17,102
                                                                    ========
     Total All Courses.........                                     $106,682
                                                                    ========
</TABLE>
--------
(2) Acquired Cobblestone Courses

                    The Golf Courses-Owned by Joint Venture

<TABLE>
<CAPTION>
                                         Location (City,    No. of   Type of
     Course Name                             State)         Holes     Course
     -----------                         ---------------    ------ ------------
 <C> <S>                              <C>                   <C>    <C>
     Pumpkin Ridge Golf Club (Ghost
  1  Creek)........................   Cornelius, Oregon       18   Daily Fee
     Pumpkin Ridge Golf Club (Witch
  2  Hollow).......................   Cornelius, Oregon       18   Private Club

                         Participating Mortgage Loans

<CAPTION>
                                                                       1999
                                         Location (City,    No. of   Interest
     Course Name                             State)         Holes     Income
     -----------                         ---------------    ------ ------------
                                                                       (In
                                                                    thousands)
 <C> <S>                              <C>                   <C>    <C>
  1  El Camino Country Club........   Oceanside, California   18      $  833
  2  Badlands Golf Course..........   Las Vegas, Nevada       27       1,315
                                                                   ------------
                                                                      $2,148
                                                                   ============
</TABLE>

Capital Improvements

  Under the Leases, the lessees are required to maintain each Golf Course in
good order, repair and appearance. Capital improvements for which the Company
is responsible would be limited to projects that the Company agreed to fund at
the time a property was acquired or projects subsequently identified by the
Company or its operators that enhance the revenue potential and long-term
value of a property. For the Golf Courses acquired through February 28, 2000,
the Company is required under the Leases to pay for various remaining capital
improvements totaling approximately $20.1 million, $19.7 million of which will
be paid by the end of the year 2001. The Company believes these improvements
will add value to the Golf Courses and bring the quality of the Golf Courses
up to our expected standards. Upon the Company's funding of such capital
improvements, the base rent payable under the Leases with respect to these
Golf Courses will be adjusted to reflect, over the term of the Leases, the
Company's investment in such improvements. Any subsequent capital improvements
are the responsibility of the lessees.

Item 3. LEGAL PROCEEDINGS

  Owners and operators of golf courses are subject to a variety of legal
proceedings arising in the ordinary course of operating a golf course,
including proceedings relating to personal injury and property damage. Such
proceedings are generally brought against the operator of a golf course, but
may also be brought against the owner. Although neither the Company nor the
predecessor owners of the Golf Courses are currently parties to any legal
proceedings relating to the Golf Courses that would have a material adverse
effect upon the Company's business or financial position, it is possible that
in the future the Company could become a party to such

                                      12
<PAGE>

proceedings. The lessees are a party to certain litigation relating to the
Golf Courses arising in the ordinary course of operations. The lessees have
advised the Company that they do not believe that such litigation, if resolved
against the lessees, would have a material adverse effect upon their business
or financial position. The Leases provide that the lessees are responsible for
claims based on personal injury and property damage at the Golf Courses and
require the lessees to maintain insurance for such purposes.

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

  None.

                                    PART II

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

  a) Market Information

  The following table sets forth for periods shown the high and low sales
price for the Company's Common Stock on the New York Stock Exchange under the
symbol "TEE" and distributions declared.

<TABLE>
<CAPTION>
                                                    High     Low    Distribution
                                                  -------- -------- ------------
   <S>                                            <C>      <C>      <C>
   1999
   Fourth quarter................................ $  22.25 $18.6875     $.45
   Third quarter.................................  24.4375  20.4375      .45
   Second quarter................................    27.50    23.00      .44
   First quarter.................................    29.25  21.3125      .44

   1998
   Fourth quarter................................ $ 29.375 $ 24.875     $.44
   Third quarter.................................  31.1875  23.4375      .44
   Second quarter................................  32.0625    28.50      .43
   First quarter.................................  32.9375  28.5625      .43
</TABLE>

  b) Holders

  The number of record holders of the Company's Common Stock was 718 as of
February 28, 2000. The number of street name stockholders is estimated at
14,500.

  c) Distributions

  The Company paid distributions to stockholders of $1.77 per share in 1999,
of which $1.56 represents ordinary income and $0.21 represents return of
capital on a tax basis. On a book basis, calculated using basic earnings per
share, $0.36 per share represents return of capital. In 1998, the Company paid
distributions to stockholders of $1.73 per share, of which $1.61 represents
ordinary income and $0.12 represents return of capital on a tax basis. On a
book basis, calculated using basic earnings per share, $0.40 per share
represents return of capital. In order to maintain its qualification in 1999
and 1998 as a REIT for federal income tax purposes, the Company was required
to make distributions to its stockholders of at least $1.44 and $1.46 per
share, respectively. In addition, on January 18, 2000, the Company declared a
quarterly distribution for the fourth quarter of 1999 of $0.45 per share to
stockholders of record on January 31, 2000, which was paid on February 15,
2000.

                                      13
<PAGE>

Item 6. SELECTED FINANCIAL DATA

  The selected financial data included in this table is derived from the
Company's consolidated financial statements for the years presented, which have
been audited by PricewaterhouseCoopers LLP.

<TABLE>
<CAPTION>
                                        Year ended December 31,
                              ------------------------------------------------
                                1999      1998      1997      1996      1995
                              --------  --------  --------  --------  --------
                                 (In thousands, except per share data)
<S>                           <C>       <C>       <C>       <C>       <C>
Statement of Operations
 Data:
Revenues
  Rent......................  $106,682  $ 83,350  $ 74,316  $ 58,898  $ 45,931
  Equity in income from
   joint venture............       428       385       119       --        --
  Gain on sale of
   properties...............     3,216       --        158     1,199     1,893
                              --------  --------  --------  --------  --------
    Total revenues..........   110,326    83,735    74,593    60,097    47,824
                              ========  ========  ========  ========  ========
Expenses
  General & administrative..     4,933     5,156     5,336     4,734     4,258
  Depreciation &
   amortization.............    36,398    27,079    24,758    19,124    14,027
                              --------  --------  --------  --------  --------
    Total...................    41,331    32,235    30,094    23,858    18,285
                              --------  --------  --------  --------  --------
  Interest expense..........   (34,030)  (20,350)  (19,810)  (14,067)   (8,793)
  Interest income...........     2,640     1,170       364     2,110     4,144
  Gain on property
   condemnation.............       --      1,493       --        --        --
  Gain on insurance
   proceeds.................     2,002       --      2,231       --        --
  Treasury lock settlement..    (2,016)      --        --        --        --
  Other income..............       267       352       521       238       114
                              --------  --------  --------  --------  --------
Income before provision for
 taxes and minority
 interest...................    37,858    34,165    27,805    24,520    25,004
Provision for taxes.........        19      (231)     (223)     (256)     (352)
                              --------  --------  --------  --------  --------
Income before minority
 interest...................    37,877    33,934    27,582    24,264    24,652
Minority interest...........   (20,617)  (17,292)  (12,003)  (10,852)  (11,366)
                              --------  --------  --------  --------  --------
Net income..................  $ 17,260  $ 16,642  $ 15,579  $ 13,412  $ 13,286
                              ========  ========  ========  ========  ========
Basic earnings per share....  $   1.41  $   1.33  $   1.26  $   1.19  $   1.25
Weighted average number of
 shares.....................    12,245    12,497    12,368    11,317    10,622
Diluted earnings per share..  $   1.37  $   1.32  $   1.25  $   1.17  $   1.25
Weighted average number of
 shares.....................    12,598    12,599    12,512    11,420    10,643
</TABLE>

<TABLE>
<CAPTION>
                                                  December 31,
                                  --------------------------------------------
                                    1999     1998     1997     1996     1995
                                  -------- -------- -------- -------- --------
                                     (In thousands, except per share data)
<S>                               <C>      <C>      <C>      <C>      <C>
Balance Sheet Data:
Real estate before accumulated
 depreciation.................... $878,070 $663,018 $601,882 $515,794 $362,068
Total assets.....................  781,905  597,295  535,314  469,945  347,967
Total debt.......................  450,331  283,405  299,032  230,590  144,983
Minority interest................  194,071  166,655   96,007   98,551   90,609
Stockholders' equity.............  121,501  132,224  134,890  137,670  110,298
Cash distributions declared per
 share...........................     1.78     1.74     1.70     1.66     1.61
</TABLE>

                                       14
<PAGE>

<TABLE>
<CAPTION>
                                       Year ended December 31,
                            -------------------------------------------------
                              1999       1998      1997      1996      1995
                            ---------  --------  --------  --------  --------
                                (In thousands, except property data)
<S>                         <C>        <C>       <C>       <C>       <C>
Other Data:
Company's funds from
 operations(1)............. $  34,087  $ 31,203  $ 27,851  $ 23,215  $ 19,641
Cash flows from (used in):
  Operating activities.....    68,228    60,333    55,576    44,217    36,383
  Investing activities.....  (204,343)  (77,483)  (94,408)  (68,481)  (76,019)
  Financing activities.....   136,895    17,163    29,306    28,399    42,639
Number of courses..........       149       130       123       114        81
Number of locations........       135       116       112       104        72
</TABLE>
--------
(1) The Company believes that to facilitate a clear understanding of the
    historical consolidated operating results, funds from operations should be
    examined in conjunction with net income. Funds from operations is
    considered by the Company's management as an appropriate measure of the
    performance of an equity REIT because it is predicated on cash flow
    analyses, which the Company's management believes is more reflective of
    the value of real estate companies such as the Company rather than a
    measure predicated on generally accepted accounting principles which gives
    effect to non-cash expenditures such as depreciation. Funds from
    operations is generally defined as net income (loss) plus certain non-cash
    items, primarily depreciation and amortization. Funds from operations
    should not be considered as an alternative to net income as an indication
    of the Company's performance or as an alternative to cash flow, as defined
    by generally accepted accounting principles, as a measure of liquidity.
    The funds from operations presented may not be comparable to funds from
    operations for other REITs. The following table summarizes the Company's
    funds from operations for the years ended December 31, 1999, 1998, 1997,
    1996 and 1995.

<TABLE>
<CAPTION>
                                       For the year ended December 31,
                                   -------------------------------------------
                                    1999     1998     1997     1996     1995
                                   -------  -------  -------  -------  -------
                                               (In thousands)
<S>                                <C>      <C>      <C>      <C>      <C>
  Net income...................... $17,260  $16,642  $15,579  $13,412  $13,286
  Distributions--Preferred Units..  (7,392)  (4,797)     --       --       --
  Minority interest...............  20,617   17,292   12,003   10,852   11,366
  Depreciation and amortization...  36,758   27,472   24,883   19,124   14,027
  Gain on property condemnation...     --    (1,493)     --       --       --
  Gain on insurance proceeds......  (2,002)     --    (2,231)     --       --
  Gain on sale of properties......  (3,216)     --      (158)  (1,199)  (1,893)
  Treasury lock...................   2,016      --       --       --       --
  Straight-line rents.............  (3,391)     --       --       --       --
  Deferred compensation plan
   adjustment.....................    (589)     --       --       --       --
  Excess land sales...............    (259)    (342)    (469)     --       --
  Write off of option payable.....     --       --       --       --      (101)
  Amortization--loan costs........     --      (241)    (227)    (147)    (195)
  Depreciation--corporate.........     (74)     (87)     (69)     (47)     (43)
                                   -------  -------  -------  -------  -------
  Funds from operations........... $59,728  $54,446  $49,311  $41,995  $36,447
  Company's share of funds from
   operations.....................   57.07%   57.31%   56.48%   55.28%   53.89%
                                   -------  -------  -------  -------  -------
  Company's funds from
   operations..................... $34,087  $31,203  $27,851  $23,215  $19,641
                                   =======  =======  =======  =======  =======
</TABLE>

  In order to maintain its qualification as a REIT for federal income tax
  purposes, the Company is required to make distributions to its
  stockholders. The Company's distributions to stockholders have been less
  than the total funds from operations because the Company is obligated to
  make certain payments with respect to principal debt and capital
  improvements. Management believes that funds from operations in excess of
  distributions, principal reductions and capital improvement expenditures
  should be used to pay down debt, to buy-back the Company's Common Stock if
  authorized by the Board of Directors, or to invest in assets

                                      15
<PAGE>

  expected to generate returns on investment to the Company commensurate with
  the Company's investment objectives and policies.

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

Overview

  The following discussion should be read in conjunction with the accompanying
Consolidated Financial Statements and Notes thereto. The forward-looking
statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MD&A") relating to certain matters
involve risks and uncertainties, including anticipated financial performance,
business prospects, anticipated capital expenditures and other similar
matters, which reflect management's best judgement based on factors currently
known. Actual results and experience could differ materially from the
anticipated results or other expectations expressed in the Company's forward-
looking statements as a result of a number of factors, including but not
limited to those discussed in MD&A.

  The discussion of the results of operations compares the year ended December
31, 1999 with the year ended December 31, 1998 and the year ended December 31,
1998 with the year ended December 31, 1997.

Results of Operations

 Comparison of year ended December 31, 1999 to year ended December 31, 1998

  Net income increased by $618,000 to $17,260,000 for the year ended December
31, 1999 compared to $16,642,000 for the year ended December 31, 1998. The
increase was primarily attributable to an increase in (i) rent revenues of
approximately $23,332,000; (ii) gain on sale of properties of approximately
$3,216,000; (iii) interest income of approximately $1,470,000; and (iv) gain
on insurance proceeds of approximately $2,002,000, which was offset by (i) an
increase in depreciation and amortization expense of approximately $9,319,000;
(ii) a decrease in gain on property condemnation of approximately $1,493,000;
(iii) an increase in interest expense of approximately $13,680,000; (iv) an
increase in treasury lock settlement of $2,016,000; and (v) an increase in
income applicable to minority interest of approximately $3,325,000.

  The increase in rent revenues is due to (i) the acquisition of 22 golf
course properties and three leasehold rights during 1999, which accounted for
approximately $18,628,000 of the increase; (ii) a full year of rent in 1999 on
seven golf course properties acquired in 1998, which accounted for
approximately $2,684,000 of the increase; (iii) an increase in base rent of
approximately $405,000 for the Golf Courses owned as of December 31, 1997; and
(iv) an increase in percentage rent of approximately $1,615,000 for the Golf
Courses owned as of December 31, 1997. The increase in depreciation and
amortization expense was due to an increase in depreciation expense of
approximately $7,870,000 and an increase in amortization expense of
approximately $1,449,000. The increase in depreciation expense was primarily
due to (i) the acquisition of 22 golf course properties during 1999, which
accounted for approximately $6,047,000 of the increase and (ii) a full year of
depreciation expense in 1999 on seven golf course properties acquired in 1998,
which accounted for approximately $1,468,000 of the increase, which is offset
by a decrease in depreciation expense due to the sale of three Golf Courses,
which accounted for approximately $163,000 of the decrease. The increase in
amortization expense was primarily due to the acquisition of three leasehold
rights, which accounted for approximately $1,758,000 of the increase.

  The increase in interest income was primarily due to (i) the participating
mortgage loan of approximately $12.6 million made during the year and (ii) a
full year of interest income in 1999 on the participating mortgage loan made
in 1998. The increase in gain on insurance proceeds was due to various claims
made at seven of the Golf Courses. The Company plans on applying the insurance
proceeds to repairs and improvements at such Golf Courses.

                                      16
<PAGE>

  The increase in interest expense was primarily due to the increase in
outstanding advances and LIBOR and base rate margins under the Company's
credit facility. At April 30, 1999, the Operating Partnership settled its
treasury lock swap transaction, resulting in a loss of approximately
$2,345,000. Such loss was netted with a gain of approximately $329,000 from
two other treasury lock swap transactions, resulting in a net loss of
approximately $2,016,000 which was recorded in the statement of operations.
The increase in income applicable to minority interest was primarily due to
income allocated to holders of Preferred Units.

 Comparison of year ended December 31, 1998 to year ended December 31, 1997

  Net income increased by $1,063,000 to $16,642,000 for the year ended
December 31, 1998 compared to $15,579,000 for the year ended December 31,
1997. The increase was primarily attributable to an increase in (i) rent
revenues of approximately $9,034,000; (ii) interest income of approximately
$806,000; and (iii) gain on property condemnation of approximately $1,493,000,
which was offset by (i) an increase in depreciation and amortization expense
of approximately $2,321,000; (ii) a decrease in gain on insurance proceeds of
approximately $2,231,000; (iii) an increase in interest expense of
approximately $540,000; and (iv) an increase in income applicable to minority
interest of approximately $5,289,000.

  The increase in rent revenues is due to (i) the acquisition of seven golf
course properties during 1998, which accounted for approximately $1,758,000 of
the increase; (ii) a full year of rent in 1998 on nine golf course properties
acquired in 1997, which accounted for approximately $4,129,000 of the
increase; (iii) an increase in base rent of approximately $2,573,000 for the
Golf Courses owned as of December 31, 1996; and (iv) an increase in percentage
rent of approximately $574,000 for the Golf Courses owned as of December 31,
1996. The increase in depreciation and amortization expense was due to an
increase in depreciation expense of approximately $2,559,000, which was offset
by a decrease in amortization expense of approximately $238,000. The increase
in depreciation expense was primarily due to (i) the acquisition of seven golf
course properties during 1998, which accounted for approximately $812,000 of
the increase and (ii) a full year of depreciation expense in 1998 on nine golf
course properties acquired in 1997, which accounted for approximately
$2,075,000 of the increase. The decrease in amortization expense was primarily
due to certain covenants becoming fully amortized.

  The increase in interest income was primarily due to the participating
mortgage loan of approximately $22.6 million made during the year. The
increase in gain on property condemnation was due to the State of North
Carolina condemning four golf holes at one of the Company's Golf Courses for a
state highway project. The Company purchased land adjacent to the Golf Course
sufficient to replace the condemned holes and the condemnation proceeds were
used to acquire the land and design and construct the new golf holes. The
decrease in gain on insurance proceeds was due to a fire completely destroying
a clubhouse at one of the Golf Courses during 1997. The Company applied the
insurance proceeds to rebuild the clubhouse. The increase in interest expense
was primarily attributable to the increase in outstanding advances under the
Company's credit facility. The increase in income applicable to minority
interest was primarily due to income allocated to holders of Preferred Units.

Liquidity and Capital Resources

  At December 31, 1999, the Company had approximately $2.7 million in cash and
investments, mortgage loans of approximately $27.9 million, mortgage
indebtedness of approximately $30.9 million and unsecured indebtedness of
approximately $419.4 million. The $450.3 million aggregate principal amount of
mortgage and unsecured indebtedness bears interest at a weighted average rate
of 8.48%. Of the $450.3 million of debt, $196 million is fixed-rate debt and
is payable either monthly, quarterly, semi-annually or annually and matures
between 2000 and 2008.

  In order to maintain its qualification as a REIT for federal income tax
purposes, the Company is required to make substantial distributions to its
stockholders. The following factors, among others, will affect cash flow from
operations and will influence the decisions of the Company's Board of
Directors regarding distributions: (i) increase in debt service resulting from
additional indebtedness; (ii) scheduled increases in base rent under the
Leases with respect to the Golf Courses; (iii) any payment to the Company of
percentage rent under the Leases

                                      17
<PAGE>

with respect to the Golf Courses; and (iv) increase in preferred distributions
resulting from the issuance of Preferred Units. Although the Company receives
most of its rental payments on a monthly basis, it has and intends to continue
to pay distributions quarterly.

  The Company anticipates that its cash from operations and its bank line of
credit, described below, will provide adequate liquidity to conduct its
operations, fund administrative and operating costs, interest payments,
capital improvements and acquisitions and allow distributions to the Company's
stockholders in accordance with the Code's requirements for qualification as a
REIT and to avoid any corporate level federal income or excise tax. Capital
improvements for which the Company is responsible are limited to projects that
the Company agreed to fund at the time a property was acquired or projects
subsequently identified by the Company or its operators that enhance the
revenue potential and long-term value of a property. For the Golf Courses
acquired through February 28, 2000, the Company is required under the Leases
to pay for various remaining capital improvements totaling approximately $20.1
million, $19.7 million of which will be paid during the next two years. The
Company believes these improvements will add value to the Golf Courses and
bring the quality of the Golf Courses up to the Company's expected standards
in order to enhance revenue growth. Upon the Company's funding of the capital
improvements, the base rent payable under the Leases with respect to these
Golf Courses will be adjusted to reflect, over the term of the Leases, the
Company's investment in such improvements. Any subsequent capital improvements
are the responsibility of the lessees.

  Future acquisitions will be made subject to the Company's investment
objectives and policies established to maximize both current income and long-
term growth in income. The Company's liquidity requirements with respect to
future acquisitions may be reduced to the extent the Company uses Common Stock
or Common Units as consideration for such purchases.

  In September 1999, the Board of Directors authorized, subject to certain
business and market conditions, the purchase of up to $20 million of the
Company's Common Stock. At February 28, 2000, the number of shares purchased
under this authorization was 444,800 for a total cost of approximately $9.1
million. The shares repurchased are considered "authorized but unissued."

  On July 30, 1999, the Company amended its $300 million unsecured revolving
credit facility with a group of lenders led by The First National Bank of
Chicago, as Administrative Agent (now known as Bank One). The amended credit
facility splits the $300 million revolving credit facility into (i) a $200
million revolver (the "Revolver") and (ii) a $100 million term note (the "Term
Note") (collectively, the "New Credit Facility"). Advances under the New
Credit Facility bear interest at the Administrative Agent's alternate base
rate plus the then-applicable base rate margin or, at the option of the
Company, LIBOR plus the then-applicable LIBOR rate margin. The Administrative
Agent's alternate base rate for any day means the greater of (i) a rate per
annum equal to the corporate base rate of interest announced by the
Administrative Agent from time to time, and (ii) the federal funds rate as
published by the Federal Reserve Bank plus one-half percent (0.50%) per annum.
With respect to advances under the Revolver, the amount of the base rate
margin and LIBOR rate margin vary depending upon the amount of the Company's
outstanding indebtedness compared to its capitalization. The initial rate of
interest for borrowings made under the Revolver will be equal to LIBOR plus a
margin of 2.25% or the alternate base rate plus 1.00%. The Revolver terminates
on March 29, 2002, but may be extended by the Company for an additional year
if approved by a specified number of the lenders under the New Credit
Facility. The rate of interest for the Term Note will be equal to LIBOR plus a
margin of 3.00% or the alternate base rate plus 1.75%. The Term Note
terminates on March 29, 2004. The New Credit Facility eliminates the
requirement under the old credit facility for the Company to obtain certain
modifications of the covenants applicable to its $175 million fixed-rate
unsecured senior notes. At December 31, 1999 and February 28, 2000 there were
outstanding advances under the New Credit Facility of $249 million and $259
million, respectively.

  On July 28, 1999, the Operating Partnership completed the private placement
of 1,400,000 9.3% Series B Cumulative Redeemable Preferred Units ("Series B
Preferred Units"), representing limited partnership interests in the Operating
Partnership, to institutional investors in exchange for a contribution to the
Operating Partnership of $35 million. The Series B Preferred Units, which may
be called by the Operating Partnership at par on or

                                      18
<PAGE>

after July 28, 2004, have no stated maturity or mandatory redemption and pay a
cumulative, quarterly dividend at an annualized rate of 9.3%. The Series B
Preferred Units are not convertible into Common Stock, but are convertible
into preferred stock of the Company under certain circumstances. The Operating
Partnership used the proceeds from such private placement to reduce
outstanding indebtedness under the Operating Partnership's revolving credit
facility.

  The Company may finance future acquisitions of golf course properties with
additional borrowings under the Revolver or with issuances of the Company's or
the Operating Partnership's equity or debt securities. In the future, the
Company also may refinance a portion of the New Credit Facility with issuances
of such debt or equity securities. Any such offering which involves the sale
of the equity securities of the Company could adversely affect the market
price of shares of the Company's Common Stock held by the Company's existing
stockholders.

  In 1999, the Company purchased 25 Golf Courses, including the long-term
leasehold interests in five golf courses, for an aggregate initial investment
of approximately $200.8 million and made one participating mortgage loan of
approximately $12.6 million, which investment was financed by approximately
$16.8 million of cash from operations, approximately $182.7 million of
advances under the Company's credit facility, $8.2 million of proceeds from
sale of properties, and $5.7 million of assumed notes. Between December 31,
1999 and February 28, 2000, the Company purchased one Golf Course for an
initial investment of approximately $3.6 million, which the Company financed
with approximately $1.9 million of advances under the Company's credit
facility and $1.7 million of proceeds from sale of properties.

  The limited partners of the Operating Partnership have the right, in each
twelve-month period ending August 18, to sell up to one-third of their Common
Units to the Company or exchange for shares of Common Stock up to the greater
of 75,000 Common Units or one-third of their Common Units. If the Common Units
are sold for cash, the Company will have the option to pay for such Common
Units with available cash, borrowed funds or from the proceeds of an offering
of Common Stock. If the Common Units are exchanged for shares of Common Stock,
the limited partners will receive one share of Common Stock for each Common
Unit exchanged.

 Comparison of cash flow statement for year ended December 31, 1999 to year
ended December 31, 1998

  Net cash provided by operating activities increased by $7,895,000 to
$68,228,000 for the year ended December 31, 1999 compared to $60,333,000 for
the year ended December 31, 1998. The increase was primarily attributable to
an increase in rent revenues of approximately $23,332,000, which was offset by
an increase in interest expense of approximately $13,680,000.

  Net cash used by investing activities increased by $126,860,000 to
$204,343,000 for the year ended December 31, 1999 compared to $77,483,000 for
the year ended December 31, 1998. The increase was primarily attributable to
an increase in the purchase of Golf Courses of approximately $153,728,000.

  Net cash provided by financing activities increased by $119,732,000 to
$136,895,000 for the year ended December 31, 1999 compared to $17,163,000 for
the year ended December 31, 1998. The increase was primarily attributable to
an increase in proceeds from notes payable of approximately $490,850,000,
which was offset by (i) an increase in principal payments on notes payable of
approximately $313,823,000, and (ii) a decrease in net proceeds from Preferred
Units of approximately $38,943,000.

Comparison of cash flow statement for year ended December 31, 1998 to year
ended December 31, 1997

  Net cash provided by operating activities increased by $4,757,000 to
$60,333,000 for the year ended December 31, 1998 compared to $55,576,000 for
the year ended December 31, 1997. The increase was primarily attributable to
an increase in rent revenues of approximately $9,034,000, which was offset by
a decrease in changes in other assets of approximately $4,194,000.

                                      19
<PAGE>

  Net cash used by investing activities decreased by $16,925,000 to
$77,483,000 for the year ended December 31, 1998 compared to $94,408,000 for
the year ended December 31, 1997. The decrease was primarily attributable to
(i) an increase in issuance of mortgage loans of approximately $22,649,000;
(ii) a decrease in the purchase of Golf Courses of approximately $32,754,000;
and (iii) a decrease in investment in joint venture of approximately
$8,109,000.

  Net cash provided by financing activities decreased by $12,143,000 to
$17,163,000 for the year ended December 31, 1998 compared to $29,306,000 for
the year ended December 31, 1997. The decrease was primarily attributable to
(i) an increase in principal payments on notes payable of approximately
$31,259,000; (ii) a decrease in proceeds from notes payable of approximately
$48,650,000; (iii) an increase in net proceeds from Preferred Units of
approximately $73,010,000; and (iv) an increase in limited partners' cash
distributions of approximately $4,391,000.

Year 2000

  The Year 2000 issue is the result of computer software and embedded chips
using two digits, instead of four digits, to identify the applicable year. Any
of the Company's computers, computer software and other equipment that have
date-sensitive software may recognize a date using "00" as the year 1900
instead of 2000. If any of the Company's systems or equipment that have date-
sensitive software use only two digits, system failures or miscalculations may
result causing disruptions of operations.

  The Company has not experienced a business interruption or other adverse
affects as a result of the calendar change to the year 2000. The Company has
contacted its tenants and has been informed that there have been no
significant year 2000 events which would cause a business interruption or
failure. However, the Company is continuing to monitor its tenants.

  The forward-looking statements regarding Year 2000 involve risks and
uncertainties, which reflect the Company's management's best judgment based on
factors currently known. Actual results and experience could differ materially
from the anticipated results or other expectations expressed in the Company's
forward-looking statements as a result of a number of factors, including but
not limited to those discussed above.

Other Data

  The Company believes that to facilitate a clear understanding of the
historical consolidated operating results, funds from operations should be
examined in conjunction with net income as presented in the audited
Consolidated Financial Statements. Funds from operations is considered by
management as an appropriate measure of the performance of an equity REIT
because it is predicated on cash flow analyses, which management believes is
more reflective of the value of real estate companies such as the Company
rather than a measure predicated on generally accepted accounting principles
which gives effect to non-cash expenditures such as depreciation. Funds from
operations is generally defined as net income (loss) plus certain non-cash
items, primarily depreciation and amortization. Funds from operations should
not be considered as an alternative to net income as an indication of the
Company's performance or as an alternative to cash flow, as defined by
generally accepted accounting principles, as a measure of liquidity.

                                      20
<PAGE>

  The funds from operations presented may not be comparable to funds from
operations for other REITs. The following table summarizes the Company's funds
from operations for the years ended December 31, 1999, 1998 and 1997.

<TABLE>
<CAPTION>
                                                     For the year ended
                                                        December 31,
                                                   ---------------------------
                                                    1999      1998      1997
                                                   -------   -------   -------
                                                       (In thousands)
<S>                                                <C>       <C>       <C>
Net income........................................ $17,260   $16,642   $15,579
Distributions--Preferred Units....................  (7,392)   (4,797)      --
Minority interest.................................  20,617    17,292    12,003
Depreciation and amortization.....................  36,758    27,472    24,883
Gain on property condemnation.....................     --     (1,493)      --
Gain on insurance proceeds........................  (2,002)      --     (2,231)
Gain on sale of properties........................  (3,216)      --       (158)
Treasury lock.....................................   2,016       --        --
Straight-line rents...............................  (3,391)      --        --
Deferred compensation plan adjustment.............    (589)      --        --
Excess land sales.................................    (259)     (342)     (469)
Amortization--loan costs..........................     --       (241)     (227)
Depreciation--corporate...........................     (74)      (87)      (69)
                                                   -------   -------   -------
Funds from operations............................. $59,728   $54,446   $49,311
Company's share of funds from operations..........   57.07 %   57.31 %   56.48 %
                                                   -------   -------   -------
Company's funds from operations................... $34,087   $31,203   $27,851
                                                   =======   =======   =======
</TABLE>

  In order to maintain its qualification as a REIT for federal income tax
purposes, the Company is required to make distributions to its stockholders.
The Company's distributions to stockholders have been less than the total
funds from operations because the Company is obligated to make certain
payments with respect to principal debt and capital improvements. Management
believes that funds from operations in excess of distributions, principal
reductions and capital improvement expenditures should be used to pay down
debt, to buy-back the Company's Common Stock if authorized by the Board of
Directors, or to invest in assets expected to generate returns on investment
to the Company commensurate with the Company's investment objectives and
policies.

 Comparison of funds from operations for year ended December 31, 1999 to year
ended December 31, 1998

  Funds from operations increased by $5,282,000 to $59,728,000 for the year
ended December 31, 1999 compared to $54,446,000 for the year ended December
31, 1998. The increase was primarily attributable to an increase in rent
revenues of approximately $23,332,000, which was offset by an increase in (i)
interest expense of approximately $13,680,000 and (ii) distributions on
Preferred Units of approximately $2,595,000.

 Comparison of funds from operations for year ended December 31, 1998 to year
ended December 31, 1997

  Funds from operations increased by $5,135,000 to $54,446,000 for the year
ended December 31, 1998 compared to $49,311,000 for the year ended December
31, 1997. The increase was primarily attributable to an increase in rent
revenues of approximately $9,034,000, which was offset by an increase in
distributions on Preferred Units of approximately $4,797,000.

Inflation

  All the Leases of the Golf Courses provide for base and participating rent
features. All of such Leases are triple net leases requiring the lessees to
pay for all maintenance and repair, insurance, utilities and services, and,
subject to certain limited exceptions, all real and personal property taxes,
thereby minimizing the Company's exposure to increases in costs and operating
expenses resulting from inflation.

                                      21
<PAGE>

New Pronouncements Issued But Not Yet Effective

  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 133 will require the
Company to recognize all derivatives on the balance sheet at fair value. The
accounting for the changes in the fair values of such derivatives would depend
on the use of the derivative and whether it qualifies for hedge accounting.
SFAS 133 is effective for the Company's financial statements issued for
periods beginning January 1, 2000. However, SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date
of FASB Statement No. 133," defers the effective date for one year to January
1, 2001. The Company anticipates that implementing SFAS 133 will not
materially impact the Company's financial condition or results of operations.
As of February 28, 2000, the Company is not participating in any such
activities and does not have any such instruments recorded on the balance
sheet.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

  The Company's primary market risk exposure is interest rate risk. The
Company has and will continue to manage interest rate risk by (1) maintaining
a conservative ratio of fixed-rate, long-term debt to total debt such that
variable-rate exposure is kept at an acceptable level, (2) using interest rate
fixing strategies where appropriate to fix rates on anticipated debt
transactions, and (3) taking advantage of favorable market conditions for
long-term debt and/or equity.

  The following table sets forth the Company's long-term debt obligations,
principal cash flows by scheduled maturity, weighted average interest rates
and estimated fair value ("FV") at December 31, 1999 (dollars in thousands):

<TABLE>
<CAPTION>
                              For the Year Ended December 31,
                          -------------------------------------------
                           2000    2001      2002     2003     2004    Thereafter  Total       FV
                          ------  -------  --------  ------  --------  ---------- --------  --------
<S>                       <C>     <C>      <C>       <C>     <C>       <C>        <C>       <C>
Long-term debt:
  Fixed-rate............  $8,563  $26,037  $  7,172  $7,744  $ 46,060   $100,407  $195,983  $189,077
  Average interest
   rate.................    7.72%    7.09%     8.39%   8.39%     8.59%      8.21%     8.12%
  Variable-rate.........     161      179   149,199     221   100,246      4,342   254,348   254,348
  Average interest
   rate.................   10.74%   10.74%     8.43%  10.74%     9.12%     10.74%     8.75%
                          ------  -------  --------  ------  --------   --------  --------  --------
   Total debt...........  $8,724  $26,216  $156,371  $7,965  $146,306   $104,749  $450,331  $443,425
                          ======  =======  ========  ======  ========   ========  ========  ========
</TABLE>

  In addition, the Company has assessed the market risk for its variable-rate
debt and believes that a 1% increase in interest rates would have an
approximate $2.5 million increase in interest expense based on $254.3 million
outstanding at December 31, 1999.

  The estimated fair value of the Company's long-term debt is estimated based
on discounted cash flows at interest rates that the Company's management
believes reflects the risks associated with long-term debt of similar risk and
duration.

                                      22
<PAGE>

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of National Golf Properties, Inc.

  In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 47 present fairly, in all material
respects, the financial position of National Golf Properties, Inc. at December
31, 1999 and 1998, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 1999 in
conformity with accounting principles generally accepted in the United States.
In addition, in our opinion, the financial statement schedule listed in the
index appearing under Item 14(a)(2) on page 47 presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States, which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.

  As described in Note 1(i), the Company changed their method of accounting
for contingent rental income during the year ended December 31, 1998.

                                          PricewaterhouseCoopers LLP

Los Angeles, California
March 13, 2000

                                      23
<PAGE>

                         NATIONAL GOLF PROPERTIES, INC.

                          CONSOLIDATED BALANCE SHEETS
                       (In thousands, except share data)

<TABLE>
<CAPTION>
                                                             December 31,
                                                          --------------------
                                                            1999       1998
                                                          ---------  ---------
<S>                                                       <C>        <C>
                         ASSETS
                         ------

Property
  Land................................................... $  98,918  $  77,317
  Buildings..............................................   255,833    202,920
  Ground improvements....................................   417,941    332,066
  Furniture, fixtures and equipment......................    49,893     39,341
  Leasehold rights.......................................    31,543        --
  Construction in progress...............................    23,942     11,374
                                                          ---------  ---------
                                                            878,070    663,018
  Less: accumulated depreciation.........................  (152,974)  (121,095)
                                                          ---------  ---------
    Net property.........................................   725,096    541,923
Cash and cash equivalents................................     2,491      1,711
Investments..............................................       200      1,295
Mortgage notes receivable................................    27,855     24,849
Investment in joint venture..............................     7,286      7,630
Due from affiliate.......................................       --         958
Other assets, net........................................    18,977     18,929
                                                          ---------  ---------
    Total assets......................................... $ 781,905  $ 597,295
                                                          =========  =========

          LIABILITIES AND STOCKHOLDERS' EQUITY
          ------------------------------------

Notes payable............................................ $ 450,331  $ 283,405
Accounts payable and other liabilities...................     9,632     15,011
Due to affiliate.........................................     6,370        --
                                                          ---------  ---------
    Total liabilities....................................   466,333    298,416
                                                          ---------  ---------
Minority interest........................................   194,071    166,655
                                                          ---------  ---------

Commitments and contingencies (Note 8)

Stockholders' Equity:
  Preferred stock, $.01 par value, 5,000,000 shares
   authorized--none issued...............................       --         --
  Common stock, $.01 par value, 40,000,000 shares
   authorized, 12,204,245 and 12,519,745 shares issued
   and outstanding at December 31, 1999 and 1998,
   respectively .........................................       122        125
  Additional paid in capital.............................   125,597    135,205
  Unamortized restricted stock compensation..............    (4,218)   ( 3,106)
                                                          ---------  ---------
    Total stockholders' equity...........................   121,501    132,224
                                                          ---------  ---------
    Total liabilities and stockholders' equity........... $ 781,905  $ 597,295
                                                          =========  =========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       24
<PAGE>

                         NATIONAL GOLF PROPERTIES, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                       For the year ended
                                                          December 31,
                                                   ----------------------------
                                                     1999      1998      1997
                                                   --------  --------  --------
<S>                                                <C>       <C>       <C>
Revenues:
  Rent from affiliate............................. $104,817  $ 79,652  $ 71,087
  Rent............................................    1,865     3,698     3,229
  Equity in income from joint venture.............      428       385       119
  Gain on sale of properties......................    3,216       --        158
                                                   --------  --------  --------
    Total revenues................................  110,326    83,735    74,593
                                                   --------  --------  --------
Expenses:
  General and administrative......................    4,933     5,156     5,336
  Depreciation and amortization...................   36,398    27,079    24,758
                                                   --------  --------  --------
    Total expenses................................   41,331    32,235    30,094
                                                   --------  --------  --------
  Operating income................................   68,995    51,500    44,499
Other income (expense):
  Interest income from affiliates.................      833       --        --
  Interest income.................................    1,807     1,170       364
  Gain on property condemnation...................      --      1,493       --
  Gain on insurance proceeds......................    2,002       --      2,231
  Other income....................................      267       352       521
  Treasury lock settlement........................   (2,016)      --        --
  Interest expense................................  (34,030)  (20,350)  (19,810)
                                                   --------  --------  --------
Income before taxes and minority interest.........   37,858    34,165    27,805
Benefit (provision) for taxes.....................       19      (231)     (223)
                                                   --------  --------  --------
Income before minority interest...................   37,877    33,934    27,582
Income applicable to minority interest............  (20,617)  (17,292)  (12,003)
                                                   --------  --------  --------
Net income........................................ $ 17,260  $ 16,642  $ 15,579
                                                   ========  ========  ========
Basic earnings per share.......................... $   1.41  $   1.33  $   1.26
Weighted average number of shares.................   12,245    12,497    12,368
Diluted earnings per share........................ $   1.37  $   1.32  $   1.25
Weighted average number of shares.................   12,598    12,599    12,512
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       25
<PAGE>

                         NATIONAL GOLF PROPERTIES, INC.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
               (In thousands, except share and per share amounts)

<TABLE>
<CAPTION>
                                            Additional             Unamortized
                         Number of   Common  Paid in   Accumulated Restricted
                           Shares    Stock   Capital     Deficit      Stock     Total
                         ----------  ------ ---------- ----------- ----------- --------
<S>                      <C>         <C>    <C>        <C>         <C>         <C>
Balance at December 31,
 1996................... 12,303,720   $123   $142,265   $ (1,360)    $(3,358)  $137,670
 Amortization of
  restricted stock......        --     --         --         --        1,532      1,532
 Issuance of restricted
  stock.................     52,000    --       1,840        --       (1,840)       --
 Forfeiture of
  restricted stock......    (20,000)   --        (570)       --          570        --
 Exercise of stock
  options...............     72,475      1      1,438        --          --       1,439
 Distributions paid
  ($1.69 per share).....        --     --      (5,332)   (15,579)        --     (20,911)
 Allocation for minority
  interest in the
  Operating
  Partnership...........        --     --        (419)       --          --        (419)
 Net income.............        --     --         --      15,579         --      15,579
                         ----------   ----   --------   --------     -------   --------
Balance at December 31,
 1997................... 12,408,195    124    139,222     (1,360)     (3,096)   134,890
 Amortization of
  restricted stock......        --     --         --         --        1,560      1,560
 Issuance of restricted
  stock.................     52,000    --       1,570        --       (1,570)       --
 Exercise of stock
  options...............     59,550      1      1,210        --          --       1,211
 Distributions paid
  ($1.73 per share).....        --     --      (6,346)   (15,282)        --     (21,628)
 Allocation for minority
  interest in the
  Operating
  Partnership...........        --     --        (451)       --          --        (451)
 Net income.............        --     --         --      16,642         --      16,642
                         ----------   ----   --------   --------     -------   --------
Balance at December 31,
 1998................... 12,519,745    125    135,205        --       (3,106)   132,224
 Amortization of
  restricted stock......        --     --         --         --        1,533      1,533
 Issuance of restricted
  stock.................     97,000      1      2,645        --       (2,645)         1
 Exercise of stock
  options...............     32,300    --         658        --          --         658
 Repurchase of stock....   (444,800)    (4)    (9,097)       --          --      (9,101)
 Distributions paid
  ($1.77 per share).....        --     --      (5,002)   (17,260)        --     (22,262)
 Deferred compensation
  plan adjustment.......        --     --      (2,974)       --          --      (2,974)
 Allocation for minority
  interest in the
  Operating
  Partnership...........        --     --       4,162        --          --       4,162
 Net income.............        --     --         --      17,260         --      17,260
                         ----------   ----   --------   --------     -------   --------
Balance at December 31,
 1999................... 12,204,245   $122   $125,597   $    --      $(4,218)  $121,501
                         ==========   ====   ========   ========     =======   ========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       26
<PAGE>

                         NATIONAL GOLF PROPERTIES, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                For the year ended December
                                                            31,
                                                ------------------------------
                                                  1999       1998       1997
                                                ---------  ---------  --------
<S>                                             <C>        <C>        <C>
Cash flows from operating activities:
  Net income................................... $  17,260  $  16,642  $ 15,579
  Adjustments to reconcile net income to net
   cash provided by operating activities:
    Depreciation and amortization..............    36,398     27,079    24,758
    Amortization of loan costs.................     1,082        --        --
    Amortization of restricted stock...........     1,533      1,560     1,532
    Minority interest in earnings..............    20,617     17,292    12,003
    Distributions from joint venture, net of
     equity in income..........................       344        393       124
    Gain on insurance proceeds.................    (2,002)       --     (2,231)
    Gain on property condemnation..............       --      (1,493)      --
    Gain on sale of properties.................    (3,216)       --       (158)
    Straight-line rents........................    (3,391)       --        --
    Other adjustments..........................     1,746         11        71
    Changes in assets and liabilities:
      Other assets.............................    (1,684)    (2,331)    1,863
      Accounts payable and other liabilities...       767      2,378     2,480
      Due from/to affiliate....................    (1,226)    (1,198)     (445)
                                                ---------  ---------  --------
        Net cash provided by operating
         activities............................    68,228     60,333    55,576
                                                ---------  ---------  --------
Cash flows from investing activities:
  Purchase of available-for-sale securities....    (1,954)    (5,607)   (7,623)
  Proceeds from sale of available-for-sale
   securities..................................     3,049      5,526     6,694
  Issuance of mortgage note receivable.........   (12,655)   (22,649)      --
  Proceeds from mortgage notes receivable......     9,649        --        732
  Loan costs on mortgage note issued...........       (67)      (147)      --
  Proceeds from short-term investment..........       --         366       --
  Treasury lock settlement.....................    (2,345)        --       --
  Purchase of property and related assets......  (210,461)   (56,733)  (89,487)
  Investment in joint venture..................       --         (19)   (8,128)
  Proceeds from sale of properties and related
   assets......................................    10,441      1,780     3,404
                                                ---------  ---------  --------
        Net cash used by investing activities..  (204,343)   (77,483)  (94,408)
                                                ---------  ---------  --------
Cash flows from financing activities:
  Principal payments on notes payable..........  (428,382)  (114,559)  (83,300)
  Proceeds from notes payable..................   589,350     98,500   147,150
  Purchase of stock under repurchase plan......    (9,101)       --        --
  Loan costs...................................    (4,737)       (15)     (106)
  Proceeds from Preferred Units, net of
   offering expenses...........................    34,067     73,010       --
  Proceeds from stock options exercised........       658      1,212     1,439
  Cash distributions...........................   (22,262)   (21,628)  (20,911)
  Limited partners' cash distributions.........   (22,698)   (19,357)  (14,966)
                                                ---------  ---------  --------
        Net cash provided by financing
         activities............................   136,895     17,163    29,306
                                                ---------  ---------  --------
Net increase (decrease) in cash and cash
 equivalents...................................       780         13    (9,526)
Cash and cash equivalents at beginning of year
 ..............................................     1,711      1,698    11,224
                                                ---------  ---------  --------
Cash and cash equivalents at end of year ...... $   2,491  $   1,711  $  1,698
                                                =========  =========  ========
Supplemental cash flow information:
  Interest paid................................ $  32,007  $  20,232  $ 18,729
  Taxes paid...................................       117         38       261
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       27
<PAGE>

                        NATIONAL GOLF PROPERTIES, INC.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Organization and Summary of Significant Accounting Policies

 a) Organization

  National Golf Properties, Inc. (the "Company") commenced operations
effective with the completion of its initial public stock offering (the
"Offering") of common stock (the "Common Stock"), on August 18, 1993. The
Company owns and acquires golf courses located throughout the United States.
At December 31, 1999, the Company leased all but four of its golf courses to
American Golf Corporation ("AGC") pursuant to long-term triple net leases (the
"Leases"). David G. Price, the Chairman of the Board of Directors of the
Company, owns approximately 2.9% of the Company's outstanding Common Stock and
approximately 16% of National Golf Operating Partnership, L.P. (the "Operating
Partnership") and a controlling interest in AGC. The Company owns
substantially all of the golf courses through its 58.3% general partner
interest in the Operating Partnership. On July 8, 1994, the Operating
Partnership acquired an 89% general partner interest in Royal Golf, L.P. II
("Royal Golf"). Royal Golf owns four golf courses on Hilton Head Island, South
Carolina. Unless the context otherwise requires, all references to the
Company's business and properties include the business and properties of the
Operating Partnership and Royal Golf.

  In conjunction with the formation of the Company and the Operating
Partnership, the partners of the entities transferring their interest in the
initial portfolio of golf courses (the "Initial Golf Courses") to the
Operating Partnership became limited partners in the Operating Partnership and
received units of common limited partnership interest in the Operating
Partnership (the "Common Units"). Their interests in the Initial Golf Courses
were carried over to the Operating Partnership on a historical cost basis
similar to pooling of interest accounting and became part of the beginning
balance of minority interest. Minority interest is primarily adjusted for the
limited partners' proportionate share of net income of the Company and any
additional contributions or distributions to the limited partners.

  A Common Unit and a share of Common Stock of the Company have the same
economic characteristics inasmuch as they effectively share equally in the net
income or loss and any distributions of the Operating Partnership. The limited
partners of the Operating Partnership have the right, in each twelve-month
period ending August 18, to sell up to one-third of their Common Units to the
Company or exchange into shares of Common Stock up to the greater of 75,000
Common Units or one-third of their Common Units.

  In order for the Company to maintain its qualification as a real estate
investment trust ("REIT"), not more than 50% in value of its Common Stock may
be owned, directly or constructively, by five or fewer individuals. For the
purpose of preserving the Company's REIT qualification, the Certificate of
Incorporation prohibits direct or constructive ownership of more than 9.8% of
the Common Stock by any person. Thus, although a Common Unit is convertible
into a share of Common Stock, the conversion of the majority of the Common
Units owned by David G. Price is restricted by the Company and the ownership
limitations in order to preserve its REIT status.

  The consolidated financial statements include the accounts of the Company,
the Operating Partnership and Royal Golf. All significant intercompany
transactions and balances have been eliminated.

 b) Cash Equivalents

  The Company considers all money market funds with an original maturity of
three months or less at the date of purchase to be cash equivalents with cost
approximating market.

 c) Investments

  Debt securities that the Company expects to hold to maturity are classified
as held-to-maturity securities and reported at amortized cost. Debt securities
not classified as either held-to-maturity securities or bought and

                                      28
<PAGE>

                        NATIONAL GOLF PROPERTIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

held principally for the purpose of selling them in the near term are
classified as available-for-sale securities and reported at fair value with
unrealized gains and losses excluded from earnings and reported as a separate
component of stockholders' equity. Cost of investments sold is determined on
the average cost method.

 d) Concentration of Credit Risk

  Concentration of credit risk with respect to the Company's portfolio of 149
golf courses, while the majority of such courses are leased to AGC, is limited
due to the golf courses being geographically diversified and located in 25
states. The distribution of the golf courses reflects the Company's belief
that geographic diversification helps insulate the portfolio from regional
economic and climatic influences. As of December 31, 1999, the Company had no
significant concentration of credit risk.

  The Company has cash in financial institutions which is insured by the
Federal Deposit Insurance Corporation ("FDIC") up to $100,000 per institution.
At December 31, 1999 and 1998, the Company had cash accounts in excess of FDIC
insured limits.

 e) Segment Reporting

  During 1998, the Company adopted SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 established standards
for disclosure about operating segments and related disclosures about products
and services, geographic areas, and major customers. The Company currently
operates in one geographic area, the United States. The rent revenues from one
major lessee, AGC, amounted to approximately 98%, 96% and 96% of total rent
revenues for the years ended December 31, 1999, 1998 and 1997, respectively.

 f) Property

  Property is carried at cost. Depreciation is computed on a straight-line
basis over the estimated useful lives of the assets as follows:

<TABLE>
     <S>                                                           <C>
     Buildings....................................................      30 years
     Ground improvements..........................................      20 years
     Furniture, fixtures & equipment.............................. 3 to 10 years
</TABLE>

  Leasehold rights are carried at cost and amortized on a straight-line basis
over the lease term.

  The Leases presently provide that at the end or termination of the existing
Leases, all improvements and fixtures placed on the rental property become the
property of the Company.

  The Company assesses whether there has been an impairment in the value of
rental property by considering factors such as expected future operating
income, trends and prospects, as well as the effects of demand, competition
and other economic factors. Such factors include a lessee's ability to perform
its duties and pay rent under the terms of the lease. If the property was
leased at a significantly lower rent, the Company may recognize an impairment
loss if the income stream were not sufficient to recover its investment. Such
a loss would be determined as the difference between the carrying value,
including any allocated goodwill, and the fair value of the property, with the
carrying value of the intangible asset reduced first. The Company determines
whether there has been impairment by comparing the expected undiscounted
future cash flows from each golf course with the net carrying value for such
golf course, including any related intangible asset. Management believes no
impairment has occurred in its net property carrying values.

                                      29
<PAGE>

                        NATIONAL GOLF PROPERTIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  When assets are sold or retired, the asset and related depreciation
allowance is eliminated from the records and any gain or loss on disposal is
included in operations.

 g) Income Taxes

  The Company qualifies as a REIT under the Internal Revenue Code of 1986, as
amended (the "Code"). A REIT will generally not be subject to federal income
taxation to the extent that it distributes at least 95% of its taxable income
to its stockholders and complies with other requirements. The Company paid
distributions to stockholders of $1.77 per share in 1999, of which $1.56
represents ordinary income and $0.21 represents return of capital on a tax
basis. On a book basis, calculated using basic earnings per share, $0.36 per
share represents return of capital. In addition, on January 18, 2000, the
Company declared a quarterly distribution for the fourth quarter of 1999 of
$0.45 per share to stockholders of record on January 31, 2000, which was paid
on February 15, 2000. The Company is subject to state income and franchise
taxes in certain states in which it operates. Therefore, a tax provision has
been reflected for these income and franchise taxes.

 h) Revenue Recognition

  The Company recognizes rental revenue on an accrual basis over the terms of
the Leases. In addition, for Leases with fixed increases in rent, the total
rent revenue over the lease period is straight-lined.

 i) Accounting for Contingent Rent

  In May 1998, the Emerging Issues Task Force of the Financial Accounting
Standards Board ("FASB") (the "EITF") issued Issue No. 98-9, "Accounting for
Contingent Rent in Interim Financial Periods." This statement provides that
recognition of contingent rental income should be deferred until specified
targets that trigger the contingent rent are achieved. This statement applies
to all contingent rental income effective with the second quarter of 1998, at
which time the Company adopted the policy. On a quarterly basis, there was a
material impact to the Company's earnings per share, financial condition, and
results of operations. Contingent rent not recorded in the second or third
quarters was recognized in the fourth quarter. Therefore, on an annual basis,
there was no impact to the Company's earnings per share, financial condition,
or results of operations. In November 1998, Issue No. 98-9 was withdrawn by
the EITF. However, the Company continued to account for contingent rent in
accordance with Issue No. 98-9. In December 1999, the Securities and Exchange
Commission (the "SEC") issued Staff Accounting Bulletin Number 101 which
reaffirms Issue No. 98-9.

 j) Intangible Assets

  Included in other assets are intangible assets which consist of covenants
not to compete, goodwill and other intangibles. Intangible assets are carried
at cost less accumulated amortization and are amortized on a straight-line
basis. The covenants are amortized over their contractual lives which range
from three to 30 years. Goodwill, arising from golf course acquisitions, is
amortized over the life of the Leases (15 to 20 years). Other intangibles are
amortized over periods from one to ten years. The Company assesses whether
there has been an impairment in the value of intangible assets by considering
factors such as expected future operating income, trends and prospects, as
well as the effects of demand, competition and other economic factors. Such
factors include a lessee's ability to perform its duties and pay rent under
the terms of the lease. If the property was leased at a significantly lower
rent, the Company may recognize an impairment loss if the income stream is not
sufficient to recover its investment. Such a loss would be determined as the
difference between the carrying value, including any allocated goodwill, and
the fair value of the property, with the carrying value of the intangible
asset reduced first. The Company determines whether there has been impairment
by comparing the expected undiscounted future cash flow from each golf course
with the net carrying value for such golf course, including any related

                                      30
<PAGE>

                        NATIONAL GOLF PROPERTIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

intangible asset. Management believes no impairment in the carrying value of
its intangible assets has occurred. Accumulated amortization at December 31,
1999 and 1998, was approximately $6,689,000 and $5,117,000, respectively.

 k) Use of Estimates

  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

 l) Fair Value of Financial Instruments

  To meet the reporting requirements of Statement of Financial Accounting
Standards ("SFAS") No. 107, "Disclosures about Fair Value of Financial
Instruments," the Company calculates the fair value of financial instruments
and includes this additional information in the notes to the consolidated
financial statements when the fair value is different than the carrying value
of those financial instruments. When the fair value reasonably approximates
the carrying value, no additional disclosure is made. The estimated fair value
amounts have been determined by the Company, using available market
information and appropriate valuation methodologies. However, considerable
judgment is required in interpreting market data to develop the estimates of
fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.

 m) Earnings Per Share

  The Company utilizes SFAS No. 128, "Earnings Per Share." Basic net income
per share is computed based on the weighted average number of outstanding
common shares during the period. The computation of diluted earnings per share
is based on the weighted average number of outstanding common shares during
the period and the incremental shares, using the treasury stock method, from
stock options and unvested restricted stock. The incremental shares for the
years ended December 31, 1999, 1998 and 1997 were 353,244, 101,790 and
143,697, respectively.

 n) Accounting for Stock--Based Compensation

  The Company measures compensation cost for their plans using the accounting
principles prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees." The pro forma disclosures of net
income, basic earnings per share and diluted earnings per share as if the fair
value based method of accounting defined in SFAS No. 123, "Accounting for
Stock-Based Compensation" had been applied, have been disclosed.

 o) Accounting for Derivative Instruments and Hedging Activities

  In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 will require the Company to
recognize all derivatives on the balance sheet at fair value. The accounting
for the changes in the fair values of such derivatives would depend on the use
of the derivative and whether it qualifies for hedge accounting. SFAS No. 133
is effective for the Company's financial statements issued for periods
beginning January 1, 2000. However, SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133," defers the effective date for one year to January 1, 2001.
The Company anticipates that implementing SFAS 133 will not

                                      31
<PAGE>

                        NATIONAL GOLF PROPERTIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

materially impact the Company's financial condition or results of operations.
As of December 31, 1999, the Company is not participating in any such
activities and does not have any such instruments recorded on the balance
sheet.

(2) Property Acquisitions and Sales

  In 1999, the Company purchased five golf courses, excluding the Acquired
Cobblestone Courses, for an aggregate initial investment of approximately
$26.9 million. The acquisitions have been accounted for utilizing the purchase
method of accounting and, accordingly, the acquired assets are included in the
statement of operations from the date of acquisition. The initial investment
amount includes purchase price, closing costs and other direct costs
associated with the purchase. The aforementioned golf courses are leased to
AGC pursuant to long-term triple net leases.

<TABLE>
<CAPTION>
   Acquisition                                                                Initial
      Date                 Course Name                    Location           Investment
   -----------             -----------                    --------           ----------
                                                                           (In thousands)
   <S>           <C>                              <C>                      <C>
     1/6/99      Beaver Brook Country Club        Clinton, New Jersey         $ 8,183
     1/6/99      The Classic Golf Club            Spanaway, Washington          2,475
    9/15/99      Coyote Lakes Golf Club           Surprise, Arizona             3,981
                                                  Mission Viejo,
    10/5/99      Casta del Sol Golf Course        California                    8,154
   11/18/99      Royal American Golf Links        Township of Harlem, Ohio      4,127
                                                                              -------
                 Total Initial Investment................................     $26,920
                                                                              =======
</TABLE>

  On March 31, 1999, the Company purchased fee interests in 15 golf courses,
long-term leasehold interests in two golf courses and leasehold rights in
three golf courses and made a participating mortgage loan collateralized by an
additional golf course (collectively, the "Acquired Cobblestone Courses")
previously owned by subsidiaries of Meditrust Corporation and Meditrust
Operating Company (collectively, "Meditrust") comprising the "Cobblestone Golf
Group" for an aggregate initial investment of approximately $186.5 million,
which investment was financed by approximately $11.8 million of cash from
operations, $169 million of advances under the Company's credit facility, and
approximately $5.7 million of assumed notes. The Company's acquisition of
interests in these golf courses was part of a larger transaction in which a
subsidiary of AGC and a subsidiary of ClubCorp International ("ClubCorp")
formed Golf Acquisitions, L.L.C., a new limited liability company ("Golf
Acquisitions"), to purchase from Meditrust the subsidiaries comprising the
Cobblestone Golf Group. Golf Acquisitions closed this purchase on March 31,
1999, and immediately thereafter sold interests in 23 golf courses to
subsidiaries of ClubCorp, sold interests in the Acquired Cobblestone Courses
to the Company and sold to AGC short-term interests in three golf course
facilities and a portion of the personal property assets related to the
Acquired Cobblestone Courses. Three of the Acquired Cobblestone Courses are
leasehold rights in the golf courses at Carmel Mountain Ranch Country Club and
Sweetwater Country Club, in which the Company already owned the fee interest
and had previously leased such properties to a subsidiary of Meditrust.

  Concurrently with closing its purchase of the Acquired Cobblestone Courses,
the Company entered into agreements to lease or sublease 18 of the Acquired
Cobblestone Courses to AGC and two of the Acquired Cobblestone Courses to Golf
Enterprises, Inc. AGC also entered into a separate agreement to lease the golf
course which collateralizes the Company's participating mortgage loan to a
subsidiary of Golf Acquisitions.

  On November 12, 1999, the Company sold Binks Forest Country Club in
Wellington, Florida for approximately $6 million. The Company recognized a
gain of approximately $2 million. On September 7, 1999, the Company sold
Crescent Oaks Country Club in Clearwater, Florida for approximately $1.5
million. The Company recognized a gain of approximately $583,000. On May 25,
1999, the Company sold Sugar Ridge Golf

                                      32
<PAGE>

                        NATIONAL GOLF PROPERTIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Course in Lawrenceburg, Indiana for approximately $3 million. The Company
recognized a gain of approximately $357,000.

  In 1999, the Company recognized a gain on insurance proceeds of
approximately $2 million due to various claims made at seven of the Golf
Courses. The Company plans on applying the insurance proceeds to repairs and
improvements at such Golf Courses.

  In 1998, the Company recognized a gain on property condemnation of
approximately $1.5 million due to the State of North Carolina condemning four
golf holes at one of the Company's Golf Courses for a state highway project.
The Company purchased land, for approximately $356,000, adjacent to the Golf
Course sufficient to replace the condemned holes and the condemnation proceeds
were used to acquire the land and design and construct the new golf holes.

  In 1997, the Company recognized a gain on insurance proceeds of
approximately $2.2 million due to a fire completely destroying a clubhouse at
one of the Golf Courses. The Company has applied the insurance proceeds to
rebuilding the clubhouse.

(3) Investments

<TABLE>
<CAPTION>
                                                    December 31,
                                              -------------------------
                                                 1999         1998
                                              ----------- -------------
                                              Cost Market  Cost  Market Maturity
                                              ---- ------ ------ ------ --------
                                                   (In thousands)
   <S>                                        <C>  <C>    <C>    <C>    <C>
   Available-for-sale securities:
     Commercial Paper........................ $--   $--   $1,095 $1,095  1/1999
     Corporate Note..........................  --    --      200    200  3/1999
     Corporate Note..........................  200   200     --     --   3/2000
                                              ----  ----  ------ ------
       Total................................. $200  $200  $1,295 $1,295
                                              ====  ====  ====== ======
</TABLE>

  In 1999 and 1998, available-for-sale securities were sold resulting in
proceeds of $3,049,000 and $5,526,000, respectively. There were no realized
gains or losses in 1999 and 1998.

(4) Mortgage Notes Receivable

  On March 31, 1999, as part of the Acquired Cobblestone Courses the Company
made a participating mortgage loan of approximately $12.6 million, which is
collateralized by El Camino Country Club (the "El Camino Mortgage"). Under the
terms of the El Camino Mortgage, the Company will receive minimum annual
interest equal to 8.75% of the principal amount. The minimum annual interest
will increase during each of the first six years of the 15-year term of the
loan. In addition, a participating interest feature will allow the Company to
participate in growth in revenues at the golf course. Interest income from the
El Camino Mortgage for the year ended December 31, 1999 was approximately
$833,000.

  On August 20, 1998, the Company made a participating mortgage loan of
approximately $22.6 million to an unrelated entity that owns Badlands Golf
Course in Las Vegas, Nevada (the "Badlands Mortgage"). The borrower prepaid
approximately $9.6 million of the principal amount on March 11, 1999. As part
of the loan agreement, the Company has agreed to loan an additional $315,000
to the borrower to be used for capital improvements at the golf course. Under
the terms of the Badlands Mortgage, the Company will receive minimum annual
interest equal to 8.75% of the principal amount. The minimum interest will
increase during each of the first five years of the 15-year term of the loan.
In addition, a participating interest feature will allow the Company

                                      33
<PAGE>

                        NATIONAL GOLF PROPERTIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

to participate in growth in revenues at the golf course and a portion of the
appreciation in the fair market value of the golf course. Interest income from
the Badlands Mortgage for the years ended December 31, 1999 and 1998 was
approximately $1,315,000 and $738,000, respectively.

  On March 13, 1995, the Company sold Hidden Hills Country Club in Stone
Mountain, Georgia for approximately $3.2 million. The Company provided seller
financing in the form of a mortgage loan in the amount of $2.2 million at an
initial interest rate of 11% per annum and a maturity date of March 12, 2000
(the "Hidden Hills Mortgage"). In March 1998, the interest rate was increased
to 11.5% per annum, and in March 1999, the interest rate was increased to 12%
per annum. Interest income from the Hidden Hills Mortgage for the years ended
December 31, 1999, 1998 and 1997 was approximately $262,000, $251,000, and
$242,000, respectively.

  The market value of mortgage notes receivable at December 31, 1999 and 1998
is estimated to be approximately $28,322,000 and $24,871,000, respectively,
based on current interest rates for comparable loans.

(5) Investment in Joint Venture

  On September 8, 1997, the Operating Partnership acquired a 50% general
partner interest in Pumpkin Ridge Joint Venture ("Pumpkin Ridge") for
approximately $8.1 million. Pumpkin Ridge owns two golf courses in Cornelius,
Oregon. The Company accounts for its investment in Pumpkin Ridge under the
equity method of accounting. The aforementioned golf courses are leased to AGC
pursuant to a long-term triple net lease.

(6) Treasury Lock Swap Transactions

  On June 15, 1998, in anticipation of the Operating Partnership placing $100
million of fixed-rate, ten-year notes or some similar security, the Operating
Partnership entered into a $100 million treasury lock swap transaction with a
financial institution in order to hedge its exposure to interest rate
fluctuations. Under this agreement, the Operating Partnership pays or receives
an amount equal to the difference between the treasury lock rate and the
market rate on the date of settlement, based on the principal of $100 million.
At April 30, 1999, the Operating Partnership settled its treasury lock swap
transaction, resulting in a loss of approximately $2,345,000. Such loss was
netted with a gain of approximately $329,000 from two other treasury lock swap
transactions, resulting in a net loss of approximately $2,016,000 which was
recorded in the statement of operations.

                                      34
<PAGE>

                        NATIONAL GOLF PROPERTIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


(7) Notes Payable

  Notes payable consist of the following:

<TABLE>
<CAPTION>
                                                      December 31,
                             Interest   Interest    -----------------
     Type of Collateral        Rate      Payment      1999     1998   Maturity
     ------------------      -------- ------------- -------- -------- --------
                                                     (In thousands)
<S>                          <C>      <C>           <C>      <C>      <C>
Collateralized notes........   5.50%    Quarterly        --  $  4,500  2/1999
Collateralized note.........   6.00%     Monthly       1,500    1,500  8/2000
Collateralized note.........   5.50%    Quarterly        292      474  5/2001
Collateralized note.........   6.60%    Quarterly     20,000   20,000  7/2001
Uncollateralized note--
 credit facility............ Various                 149,000   78,000  3/2002
Uncollateralized note--term
 note.......................   9.12%                 100,000      --   3/2004
Collateralized note.........   6.00%    Annually       3,750    3,750 10/2004
Uncollateralized notes......                              67      --  11/2004
Uncollateralized notes......   8.68%  Semi-annually   45,760   47,295 12/2004
Uncollateralized notes......   8.73%  Semi-annually   46,560   48,024  6/2005
Uncollateralized notes......   7.90%  Semi-annually   38,881   40,000  6/2006
Uncollateralized notes......                           2,710    2,994  7/2006
Uncollateralized notes......   8.00%  Semi-annually   34,525   35,000 12/2006
Uncollateralized notes......   8.00%     Monthly         213      --   8/2007
Uncollateralized notes......   8.00%    Quarterly      1,725    1,868  1/2008
Collateralized notes........  10.74%     Monthly       5,348      --   8/2014
                                                    -------- --------
                                                    $450,331 $283,405
                                                    ======== ========
</TABLE>

  The following is a schedule of maturities on notes payable for the next five
years ending December 31 and in total thereafter:

<TABLE>
<CAPTION>
                                                                     Amount
                                                                  -------------
                                                                  (In thousands)
       <S>                                                        <C>
       2000......................................................   $  8,724
       2001......................................................     26,216
       2002......................................................    156,371
       2003......................................................      7,965
       2004......................................................    146,306
       Thereafter................................................    104,749
                                                                    --------
                                                                    $450,331
                                                                    ========
</TABLE>

  The note agreements contain, among other things, covenants restricting the
sale of property and certain financial ratios and reporting requirements.

  On July 30, 1999, the Company amended its $300 million unsecured revolving
credit facility with a group of lenders led by The First National Bank of
Chicago, as Administrative Agent (now known as Bank One). The amended credit
facility splits the $300 million revolving credit facility into (i) a $200
million revolver (the "Revolver") and (ii) a $100 million term note (the "Term
Note") (collectively, the "New Credit Facility"). Advances under the New
Credit Facility bear interest at the Administrative Agent's alternate base
rate plus the then-applicable base rate margin or, at the option of the
Company, LIBOR plus the then-applicable LIBOR rate margin. The Administrative
Agent's alternate base rate for any day means the greater of (i) a rate per
annum equal to the corporate base rate of interest announced by the
Administrative Agent from time to time, and (ii) the

                                      35
<PAGE>

                        NATIONAL GOLF PROPERTIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

federal funds rate as published by the Federal Reserve Bank plus one-half
percent (0.50%) per annum. With respect to advances under the Revolver, the
amount of the base rate margin and LIBOR rate margin vary depending upon the
amount of the Company's outstanding indebtedness compared to its
capitalization. The initial rate of interest for borrowings made under the
Revolver will be equal to LIBOR plus a margin of 2.25% or the alternate base
rate plus 1.00%. The Revolver terminates on March 29, 2002, but may be
extended by the Company for an additional year if approved by a specified
number of the lenders under the New Credit Facility. The rate of interest for
the Term Note will be equal to LIBOR plus a margin of 3.00% or the alternate
base rate plus 1.75%. The Term Note terminates on March 29, 2004. The New
Credit Facility eliminates the requirement under the old facility for the
Company to obtain certain modifications of the covenants applicable to its
$175 million fixed-rate unsecured senior notes. There were outstanding
advances of $249 million under the New Credit Facility as of December 31,
1999. The Company intends to roll over the advances due in 2000 to a future
period.

  In connection with the purchase of Eagle Brook Country Club during 1997, the
Company entered into a three-year collateralized note for $1.5 million with
the seller of the property. During the first year of the note, no interest was
paid or accrued on the outstanding principal balance. Thereafter, interest
accrues on the outstanding principal balance at the rate of 6% per annum. The
interest rate used to discount the note was 6%. The discount was amortized
over the first year of the note using the effective interest method.

  In connection with the purchase of Gettysvue Polo, Golf & Country Club
during 1997, the Company entered into a seven-year, interest bearing,
collateralized note for $3,750,000 with the seller of the property. During the
first year of the note, no interest was paid or accrued on the outstanding
principal balance. For years two through four, the interest rate is 6% per
annum. For years five through seven, the interest rate is 8% per annum. The
interest rate used to discount the note was 6%. The discount was amortized
over the first year of the note using the effective interest method.

  In 1996, the Operating Partnership placed $75 million of fixed-rate,
uncollateralized notes due 2006 with a group of institutional investors. The
notes were issued in two series. The first note series in the amount of
$40 million was issued in July 1996 with a fixed interest rate of 7.9%, and
the second note series in the amount of $35 million was issued in December
1996 with a fixed interest rate of 8%.

  In connection with the combined purchase of Monterey Country Club and Palm
Valley Country Club during 1995, the Company entered into an eleven-year, non-
interest bearing, uncollateralized note for $4,000,000 with the seller of the
properties. The interest rate used to discount the note was 7.75%. The
discount is being amortized over the life of the loan using the effective
interest method. The note requires fixed payments of $500,000 annually
beginning in 1999 and ending in 2006. The discounted note balance at December
31, 1999 was approximately $2,710,000. The unamortized discount balance at
December 31, 1999 was approximately $790,000.

  In 1994, the Operating Partnership placed $100 million of fixed-rate,
uncollateralized notes due 2004 and 2005 with a group of institutional
investors. The notes were issued in two series of $50 million. The first note
series was issued with a fixed interest rate of 8.68%, and the second note
series was issued with a fixed interest rate of 8.73%.

  A limited partner who owns or controls 75,003 Common Units is the holder of
a promissory note for approximately $1.7 million that the Company assumed at
the time of the Offering in connection with the Company's acquisition of four
golf courses from a corporation that previously had been 50% owned by such
limited partner. The interest rate is 8% per annum with a maturity date in
January 2008. The Company made interest payments in 1999 and 1998 of
approximately $145,000 and $156,000, respectively.

                                      36
<PAGE>

                        NATIONAL GOLF PROPERTIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The market value of notes payable at December 31, 1999 and 1998 is estimated
to be approximately $443,425,000 and $292,348,000, respectively, based on
current interest rates for comparable loans. The net book value at December
31, 1999 of the assets collateralizing the notes payable is $52.8 million.

(8) Commitments and Contingencies

  The Company is required under the Leases to pay for various remaining
capital improvements totaling approximately $19.7 million, $19.3 million of
which will be paid during the next two years. Any subsequent capital
improvements to these golf courses are the responsibility of the Lessees.

  In addition, the Company leases the land associated with Bear Creek Golf
World from a local municipality pursuant to a ground lease. At December 31,
1999, there was a net book value of approximately $2,382,000 of improvements
at this property included in buildings, ground improvements and furniture,
fixtures and equipment on the balance sheet. At the termination of the lease
in June 2022, all fixed improvements are surrendered to the local
municipality. Under the terms of the ground lease, the Company remits a
percentage of the green fees and net profits from the sale of food and
beverages to the local municipality. For the years ended December 31, 1999,
1998, and 1997, the ground lease expense was approximately $447,000, $375,000,
and $413,000, respectively.

  Also, the Company leases a portion of land associated with Mesquite Golf &
Country Club from various landowners. The leases for this property expire
between 2041 and 2043. AGC, as the lessee under the Lease, is required to make
all ground lease payments. In addition, the Company leases the land associated
with Ridgeview Ranch Golf Course and The Vineyard at Escondido Golf Club
pursuant to long-term ground leases.

  Owners and operators of golf courses are subject to a variety of legal
proceedings arising in the ordinary course of operating a golf course,
including proceedings relating to personal injury and property damage. Such
proceedings are generally brought against the operator of a golf course, but
may also be brought against the owner. Although neither the Company nor the
predecessor owners of the Golf Courses are currently parties to any legal
proceedings relating to the Golf Courses that would have a material adverse
effect upon the Company's business or financial position, it is possible that
in the future the Company could become a party to such proceedings.

(9) Stock Repurchase Plan

  In September 1999, the Board of Directors authorized, subject to certain
business and market conditions, the purchase of up to $20 million of the
Company's Common Stock. At December 31, 1999, the number of shares purchased
under this authorization was 444,800 for a total cost of approximately $9.1
million. The shares repurchased are considered "authorized but unissued."

(10) Preferred Units

  On July 28, 1999, the Operating Partnership completed the private placement
of 1,400,000 9.3% Series B Cumulative Redeemable Preferred Units ("Series B
Preferred Units"), representing limited partnership interests in the Operating
Partnership, to institutional investors in exchange for a contribution to the
Operating Partnership of $35 million. The Series B Preferred Units, which may
be called by the Operating Partnership at par on or after July 28, 2004, have
no stated maturity or mandatory redemption and pay a cumulative, quarterly
dividend at an annualized rate of 9.3%. The Operating Partnership used the
proceeds from such private placement to reduce outstanding indebtedness under
the Operating Partnership's revolving credit facility.

  On March 4, 1998, the Operating Partnership completed the private placement
of 1,200,000 8% Series A Cumulative Redeemable Preferred Units ("Series A
Preferred Units") (collectively, with Series B Preferred

                                      37
<PAGE>

                        NATIONAL GOLF PROPERTIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Units, "Preferred Units"), representing a limited partnership interest in the
Operating Partnership, to an institutional investor in exchange for a
contribution to the Operating Partnership of $60 million. The Series A
Preferred Units, which may be called by the Operating Partnership at par on or
after March 4, 2003, have no stated maturity or mandatory redemption and pay a
cumulative, quarterly dividend at an annualized rate of 8%. The Operating
Partnership used $58 million of the approximately $58.5 million of net
proceeds from such private placement to reduce outstanding indebtedness under
the Operating Partnership's revolving credit facility.

  Also, on April 20, 1998, the Operating Partnership completed on the same
terms as above the private placement of an additional 300,000 Series A
Preferred Units to the same institutional investor in exchange for a
contribution to the Operating Partnership of $15 million. The Operating
Partnership used $14.5 million of the approximately $14.6 million of net
proceeds from such private placement to reduce outstanding indebtedness under
the Operating Partnership's revolving credit facility.

  The dividends attributable to such Preferred Units have been reported as a
component of minority interest, in the related financial statements. The
Preferred Units are not convertible into Common Stock, but are convertible
into preferred stock of the Company.

(11) Lease Rental Agreements

  Future base rents to be received by the Company under the Leases for the
next five years ending December 31 and in total thereafter are as follows:

<TABLE>
<CAPTION>
                                                                      Amount
                                                                  --------------
                                                                  (In thousands)
       <S>                                                        <C>
       2000......................................................   $  104,066
       2001......................................................      104,769
       2002......................................................      105,664
       2003......................................................      106,560
       2004......................................................      107,456
       Thereafter................................................      807,873
                                                                    ----------
                                                                    $1,336,388
                                                                    ==========
</TABLE>

  The base rent for the first year for each golf course under the Leases is
initially set at a fixed amount. Thereafter, generally with respect to the
Leases for the Initial Golf Courses, minimum rent is increased each year by 4%
or, if lower, 150% of the annual percentage increase in the Consumer Price
Index ("CPI") (the "Base Rent Escalation"). For these Leases, generally
percentage rent is paid to the Company each year in the amount, if any, by
which the sum of 35% of Course Revenue in excess of a baseline amount plus 5%
of Other Revenue in excess of a baseline amount exceeds the cumulative Base
Rent Escalation since the commencement date of such Leases. "Course Revenue"
is generally defined in the Leases to include all revenue received from the
operation of the applicable golf course, including revenues from memberships,
initiation fees, dues, green fees, guest fees, driving range charges and golf
cart rentals, but excluding those revenues described as Other Revenue. "Other
Revenue" is generally defined in the Leases to include all revenue received
from food and beverage and merchandise sales and other revenue not directly
related to golf activities. AGC has options to extend the term of each lease
for one to three five-year terms. Generally, for the Leases entered into
subsequent to the Offering, the rent is based upon the greater of (a) the
minimum base rent or (b) a specified percentage of Course Revenue and Other
Revenue. The minimum base rent under these Leases is increased for specified
years during the Lease term based upon increases in the CPI, provided that
each such annual CPI increase shall not exceed five percent. Percentage rent
income for the years ended December 31, 1999, 1998 and 1997 was approximately
$8,453,000, $6,691,000 and $5,920,000, respectively.

                                      38
<PAGE>

                        NATIONAL GOLF PROPERTIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  For the leases of the Acquired Cobblestone Courses, the base rent generates
an initial return on the Operating Partnership's investment of 8.75% and will
step-up on a sequential basis each year to 9.25%, 9.75%, 10.25%, 10.75%,
11.25%, and finally to 11.75% in 2005. GAAP requires, for leases with fixed
increases in rent, that the total rent revenue over the lease period be
recognized on a straight-line basis. For the year ended December 31, 1999, the
straight-lining of rent resulted in additional rent revenue of approximately
$3,391,000.

(12) Stock Options and Awards

  The Company has established the 1993 Stock Incentive Plan (the "1993 Plan")
and the 1997 Equity Participation Plan (the "1997 Plan"), under which
executive officers and other key employees of the Company and AGC may be
granted stock options or restricted stock. Restricted stock is subject to
restrictions determined by the Company's Compensation Committee. The
Compensation Committee, comprised of Directors who are not officers of the
Company, determines compensation, including awards under the 1993 Plan and
1997 Plan, for the Company's executive officers. The shares of restricted
stock will be sold at a purchase price equal to $.01 and will vest 20% per
year over a five year period. Restricted stock has the same dividend and
voting rights as other common stock and is considered to be currently issued
and outstanding. Compensation expense is determined by reference to the market
value on the date of grant and is being amortized on a straight-line basis
over the five year vesting period. Such expense amounted to approximately
$1,533,000, $1,560,000 and $1,532,000, for the years ended December 31, 1999,
1998 and 1997, respectively.

  Stock options vest at 25% per year over four years and are exercisable at
the market value on the date of grant. The options' maximum term is ten years.
The following table summarizes the restricted stock and stock option
transactions pursuant to the 1993 Plan for the years ended December 31, 1999,
1998 and 1997:

<TABLE>
<CAPTION>
                            Number of Shares-   Number of      Weighted Average
                            Restricted Stock  Shares-Options Option Exercise Price
                            ----------------- -------------- ---------------------
   <S>                      <C>               <C>            <C>
   Outstanding at December
    31, 1996...............      166,500         487,600            $20.68
     Granted...............       50,000             --                --
     Vested................      (56,500)            --                --
     Forfeited.............      (20,000)        (20,000)            25.88
     Exercised.............          --          (72,475)            19.86
                                 -------         -------            ------
   Outstanding at December
    31, 1997...............      140,000         395,125            $20.57
     Vested................      (66,500)            --                --
     Cancelled.............          --           (1,600)            20.38
     Exercised.............          --          (59,550)            20.34
                                 -------         -------            ------
   Outstanding at December
    31, 1998...............       73,500         333,975            $20.61
     Vested................      (23,500)            --                --
     Exercised.............          --          (32,300)            20.38
                                 -------         -------            ------
   Outstanding at December
    31, 1999...............       50,000         301,675            $20.63
                                 =======         =======            ======
</TABLE>

<TABLE>
<CAPTION>
                                                        Number  Weighted Average
                                                          of    Option Exercise
                                                        Shares       Price
                                                        ------- ----------------
   <S>                                                  <C>     <C>
   Options exercisable at:
     December 31, 1999................................. 296,675      $20.11
     December 31, 1998................................. 323,975      $20.45
     December 31, 1997................................. 371,375      $20.44
</TABLE>

                                      39
<PAGE>

                        NATIONAL GOLF PROPERTIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The range of exercise prices for the options outstanding at December 31,
1999 is $18.50 through $25.875 with a weighted average remaining contractual
life of 3.9 years. The range of exercise prices for options exercisable at
December 31, 1999 is $18.50 through $25.875 with a weighted average remaining
contractual life of 3.8 years.

  As of December 31, 1999, a total of 779,575 additional shares remain
unissued under the 1993 Plan. There were 1,600,000 shares originally reserved
for issuance under the 1993 Plan. When the 1997 Plan was established, the 1993
Plan was terminated regarding future grants of restricted stock and stock
options.

  The following table summarizes the restricted stock and stock option
transactions pursuant to the 1997 Plan for the years ended December 31, 1999,
1998 and 1997:

<TABLE>
<CAPTION>
                            Number of Shares-   Number of      Weighted Average
                            Restricted Stock  Shares-Options Option Exercise Price
                            ----------------- -------------- ---------------------
   <S>                      <C>               <C>            <C>
   Granted.................          --           22,500            $30.06
                                 -------         -------            ------
   Outstanding at December
    31, 1997...............          --           22,500            $30.06
   Granted.................       50,000          50,000             30.31
                                 -------         -------            ------
   Outstanding at December
    31, 1998...............       50,000          72,500            $30.23
   Granted.................       95,000          80,000             27.42
   Vested..................      (10,000)            --                --
                                 -------         -------            ------
   Outstanding at December
    31, 1999...............      135,000         152,500            $28.76
                                 =======         =======            ======
</TABLE>

<TABLE>
<CAPTION>
                                                  Number     Weighted Average
                                                 of Shares Option Exercise Price
                                                 --------- ---------------------
   <S>                                           <C>       <C>
   Options exercisable at:
     December 31, 1999..........................  23,750          $30.19
     December 31, 1998..........................   5,625          $30.06
</TABLE>

  The range of exercise prices for the options outstanding at December 31,
1999 is $27.42 through $30.3125 with a weighted average remaining contractual
life of 8.5 years. The range of exercise prices for options exercisable at
December 31, 1999 is $30.06 through $30.31 with a remaining contractual life
of 7.9 years.

  As of December 31, 1999, a total of 502,500 additional shares remain
reserved for issuance under the 1997 Plan. There were 800,000 shares
originally reserved for issuance under the 1997 Plan.

                                      40
<PAGE>

                        NATIONAL GOLF PROPERTIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The Company also has adopted the 1995 Independent Director Equity
Participation Plan, pursuant to which directors of the Company may be granted
stock options and restricted stock. The shares of restricted stock will be
sold at a purchase price equal to $.01 and will vest at the earlier of (i) the
fifth anniversary of the date of grant or (ii) the directors' normal
retirement at or after age 65. Restricted stock has the same dividend and
voting rights as other common stock and is considered to be currently issued
and outstanding. Stock options vest on the first anniversary of the date on
which the option was granted and are exercisable at the market value on the
date of grant. The options' maximum term is ten years. The following table
summarizes the restricted stock and stock option transactions pursuant to the
1995 Independent Director Equity Participation Plan for the years ended
December 31, 1999, 1998 and 1997:

<TABLE>
<CAPTION>
                            Number of Shares-   Number of     Weighted Average
                            Restricted Stock  Share-Options Option Exercise Price
                            ----------------- ------------- ---------------------
   <S>                      <C>               <C>           <C>
   Outstanding at December
    31, 1996...............      12,000          24,000            $23.42
   Granted.................       2,000           8,000             31.50
                                 ------          ------            ------
   Outstanding at December
    31, 1997...............      14,000          32,000            $25.44
   Granted.................       2,000           8,000             27.25
                                 ------          ------            ------
   Outstanding at December
    31, 1998...............      16,000          40,000            $25.80
   Granted.................       2,000           8,000             21.25
                                 ------          ------            ------
   Outstanding at December
    31, 1999...............      18,000          48,000            $25.04
                                 ======          ======            ======
</TABLE>

<TABLE>
<CAPTION>
                                                  Number     Weighted Average
                                                 of Shares Option Exercise Price
                                                 --------- ---------------------
   <S>                                           <C>       <C>
   Options exercisable at:
     December 31, 1999..........................  40,000          $25.80
     December 31, 1998..........................  32,000          $25.44
     December 31, 1997..........................  24,000          $23.42
</TABLE>

  The range of exercise prices for the options outstanding at December 31,
1999 is $19.75 through $31.50 with a weighted average remaining contractual
life of 7.5 years. The range of exercise prices for options exercisable at
December 31, 1999 is $19.75 through $31.50 with a weighted average remaining
contractual life of 7 years.

  As of December 31, 1999, a total of 82,000 shares remain reserved for
issuance under the 1995 Independent Director Equity Participation Plan. There
were 148,000 shares originally reserved for issuance under the 1995
Independent Director Equity Participation Plan.

                                      41
<PAGE>

                        NATIONAL GOLF PROPERTIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation" and will continue to use the
intrinsic value based method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees." Accordingly, no compensation cost
has been recognized for the stock option plans. Had compensation cost for the
Company's stock option plans been determined based on the fair value at the
grant date for awards in 1999 and 1998 consistent with the provisions of SFAS
No. 123, the Company's net income, basic earnings per share and diluted
earnings per share would have been reduced to the pro forma amounts indicated
below:

<TABLE>
<CAPTION>
                                                                 For the year
                                                                ended December
                                                                      31,
                                                                ---------------
                                                                 1999    1998
                                                                ------- -------
                                                                (In thousands,
                                                                  except per
                                                                  share data)
   <S>                                                          <C>     <C>
   Net income, as reported..................................... $17,260 $16,642
   Net income, pro forma....................................... $16,953 $16,479
   Basic earnings per share, as reported....................... $  1.41 $  1.33
   Basic earnings per share, pro forma......................... $  1.38 $  1.32
   Diluted earnings per share, as reported..................... $  1.37 $  1.32
   Diluted earnings per share, pro forma....................... $  1.35 $  1.31
</TABLE>

  The weighted average fair value of options granted during 1999 and 1998 are
$6.17 and $6.55, respectively. The fair value of each option grant issued in
1999 and 1998 is estimated at the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions: (a)
dividend yield of 2.1% in 1999 and 1.5% in 1998, (b) expected volatility of
the Company's stock of 21.2% in 1999 and 20.6% in 1998, (c) a risk free
interest rate based on U.S. Zero Coupon Bonds with time of maturity
approximately equal to the options' expected time to exercise and (d) expected
option lives of four years for options granted in 1999 and 1998.

(13) 401(k) Plan

  The Company established a qualified retirement plan designed to qualify
under Section 401(k) of the Code (the "401(k) Plan"). The 401(k) Plan allows
participants to defer up to 10% of their eligible compensation on a pre-tax
basis subject to certain maximum amounts. Matching contributions may be made
in amounts and at times determined by the Company. The 401(k) Plan provides
for matching contributions by the Company in an amount equal to fifty-cents
for each one dollar of participant contributions up to a maximum of three
percent of the participant's salary per year. Participants received credit for
employment with the predecessors of the Company and affiliates. Amounts
contributed by the Company for a participant will vest over five years.
Employees of the Company will be eligible to participate in the 401(k) Plan if
they meet certain requirements concerning minimum age and period of credited
service.

  For the years ended December 31, 1999, 1998 and 1997 the Company's
contributions to the 401(k) Plan were approximately $20,000, $21,000, and
$21,000, respectively.

(14) Deferred Compensation Plan

  The Company has a deferred compensation arrangement whereby vested
restricted shares of the Company's stock are placed in a "Rabbi Trust." The
executive will not be taxed on the stock until taking possession at the end of
the deferred period. At the end of the deferral period, the deferred
compensation liability will be settled in stock or cash by having the trust
sell the stock in the open market. In accordance with EITF 97-14 "Accounting
for Deferred Compensation Arrangements Where Amounts Earned Are Held in a
Rabbi Trust and

                                      42
<PAGE>

                        NATIONAL GOLF PROPERTIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Invested," the Company has consolidated the net assets of the trust into its
financial statements. In accordance with EITF 97-14, changes in the share
price of the Company's stock falling outside of the transition differential
will be recognized as either an increase or decrease in expense. During 1999,
the Company recognized a decrease in expense of approximately $549,000, before
minority interest adjustment of approximately $242,000, due to a decrease in
the Company's stock price. Additionally, as stated above, the Company has
consolidated the net assets of the trust and accordingly recognized a
reduction in additional paid in capital (similar to treasury stock treatment)
of approximately $3 million before minority interest adjustment of
approximately $1.1 million. In addition, the deferred compensation plan
provides that key executives of the Company may elect to defer receiving up to
100% of their compensation in any one year until a later year.

(15) Related Party Transactions

  The Company has in the past and will continue to identify golf courses it
seeks to acquire and will lease such acquired golf courses to AGC and other
golf course operators. The Company evaluates potential golf course
acquisitions based on a golf course's ability to generate cash flows
sufficient to enable an operator to operate the course profitably and provide
the Company its desired rate of return on its capital investment. Such
evaluation is integral to the Company's determination of the price it is
willing to pay for a particular course. The Company's acquisition of a course
is recorded in the Company's financial statements at cost and the value of
such course then is evaluated periodically to determine its carrying value
based on the cash flow from the lease of such property. Because AGC may be
deemed to be an affiliate of the Company, the Company's leases with AGC may
not reflect arms-length transactions. As a result, there is a risk that the
terms of such leases are not as favorable to the Company as the terms would
have been if the Company leased its golf courses to unaffiliated operators
and, if the Company could have obtained more favorable terms, that the
Company's financial statements understate the returns that the Company could
obtain on leases of such properties. It is management's belief, however, that
the terms and conditions of its leases with AGC are no less favorable to the
Company than the terms and conditions that the Company could obtain if it
leased its golf courses to operators other than AGC.

(16) Statement of Cash Flows--Supplemental Disclosures

  Non-cash transactions for the year ended December 31, 1999 include
approximately $13.3 million in capital improvements accrued but not paid and
approximately $5.7 million of golf course acquisitions which were financed by
notes payable.

  Non-cash transactions for the year ended December 31, 1997 include
approximately $5 million of golf course acquisitions which were financed by
notes payable.

(17) Other Data

  AGC is the lessee of all but four of the golf courses in the Company's
portfolio. AGC is a golf course management company that operates a diverse
portfolio of golf courses for a variety of golf course owners including
municipalities, counties and others. AGC does not own any golf courses, but
rather manages and operates golf courses either as a lessee under leases,
generally triple net, or pursuant to management agreements. AGC derives
revenues from the operation of golf courses principally through receipt of
green fees, membership initiation fees, membership dues, golf cart rentals,
driving range charges and sales of food, beverages and merchandise.

                                      43
<PAGE>

                        NATIONAL GOLF PROPERTIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The following table sets forth certain condensed financial information
concerning AGC:

<TABLE>
<CAPTION>
                                                                December 31,
                                                              -----------------
                                                                1999     1998
                                                              -------- --------
                                                               (In thousands)
   <S>                                                        <C>      <C>
   Current assets............................................ $ 99,292 $ 82,809
   Non-current assets........................................  179,566  163,629
                                                              -------- --------
     Total assets............................................ $278,858 $246,438
                                                              ======== ========
   Total current liabilities................................. $102,701 $ 84,893
   Total long-term liabilities...............................  161,204  147,667
   Minority interest.........................................      760      503
   Total shareholders' equity................................   14,193   13,375
                                                              -------- --------
     Total liabilities and shareholders' equity.............. $278,858 $246,438
                                                              ======== ========
</TABLE>

<TABLE>
<CAPTION>
                                                          For the year ended
                                                             December 31,
                                                      --------------------------
                                                        1999     1998     1997
                                                      -------- -------- --------
                                                            (In thousands)
   <S>                                                <C>      <C>      <C>
   Total revenues.................................... $697,575 $575,853 $517,131
                                                      ======== ======== ========
   Net income........................................ $  8,656 $  4,746 $ 12,323
                                                      ======== ======== ========
</TABLE>

(18) Quarterly Financial Information (Unaudited)

  Summarized quarterly financial data for the years ended December 31, 1999
and 1998 is as follows (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                    Quarter ended
                                      -----------------------------------------
              Fiscal 1999             March 31 June 30 September 30 December 31
              -----------             -------- ------- ------------ -----------
   <S>                                <C>      <C>     <C>          <C>
   Revenues.......................... $20,612  $26,224   $27,701      $35,789
   Operating income.................. $11,883  $15,432   $17,158      $24,522
   Net income........................ $ 2,914  $ 1,541   $ 3,735      $ 9,070
   Basic earnings per share.......... $  0.23  $  0.12   $  0.30      $  0.75
   Diluted earnings per share........ $  0.23  $  0.12   $  0.30      $  0.73
</TABLE>

<TABLE>
<CAPTION>
                                                    Quarter ended
                                      -----------------------------------------
              Fiscal 1998             March 31 June 30 September 30 December 31
              -----------             -------- ------- ------------ -----------
   <S>                                <C>      <C>     <C>          <C>
   Revenues.......................... $19,898  $18,797   $19,671      $25,369
   Operating income.................. $11,926  $11,161   $11,658      $16,755
   Net income........................ $ 3,711  $ 3,504   $ 3,094      $ 6,333
   Basic earnings per share.......... $  0.30  $  0.28   $  0.25      $  0.51
   Diluted earnings per share........ $  0.29  $  0.28   $  0.25      $  0.50
</TABLE>

(19) Pro Forma Financial Information (Unaudited)

  The pro forma financial information set forth below is presented as if the
1999 acquisitions (Note 2) had been consummated as of January 1, 1998.

                                      44
<PAGE>

                        NATIONAL GOLF PROPERTIES, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The pro forma financial information is not necessarily indicative of what
actual results of operations of the Company would have been assuming the
acquisitions had been consummated as of January 1, 1998, nor does it purport
to represent the results of operations for future periods (in thousands,
except per share amounts).

<TABLE>
<CAPTION>
                                                                For the year
                                                               ended December
                                                                     31,
                                                              -----------------
                                                                1999     1998
                                                              -------- --------
   <S>                                                        <C>      <C>
   Revenues from rental property............................. $111,875 $105,132
   Net income................................................ $ 16,945 $ 15,460
   Basic earnings per share.................................. $   1.38 $   1.24
   Diluted earnings per share................................ $   1.35 $   1.23
</TABLE>

  The pro forma financial information includes the following adjustments: (i)
an increase in depreciation and amortization expense; (ii) an increase in
interest expense; and (iii) a decrease in income applicable to minority
interest.

(20) Subsequent Events

  On January 18, 2000, the Company declared a quarterly distribution for the
fourth quarter of 1999 of $0.45 per share to stockholders of record on January
31, 2000, which was paid on February 15, 2000.

  On February 4, 2000, the Company sold Lake Houston Golf Club and Woodlake
Country Club for an aggregate sales price of approximately $3.2 million.

  On February 24, 2000, the Company purchased Canoa Hills Golf Course located
in Green Valley, Arizona for a purchase price of approximately $3.6 million.

  On March 7, 2000, the Company purchased Oyster Reef Golf Club located on
Hilton Head Island, South Carolina for a purchase price of approximately $7.6
million.

  On March 12, 2000, the Hidden Hills Mortgage matured but was not paid. The
borrower is in the process of refinancing the Hidden Hills Mortgage with a
third party lender. The Company has extended the term of the Hidden Hills
Mortgage to June 30, 2000 to facilitate such refinancing. During the period,
the interest rate remains at 12% per annum. In addition, the borrower has
options to extend the term of the Hidden Hills Mortgage for one to three one-
month terms upon the satisfaction of certain conditions. On March 12, 2000 the
unpaid principal and interest balance was approximately $2.5 million.

                                      45
<PAGE>

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

  None.

                                   PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

  Incorporated by reference to the sections entitled (i) "Nominees for
Election as Director;" (ii) "Directors Continuing in Office;" and (iii)
"Executive Officers" contained in the Company's Proxy Statement to be filed
pursuant to Regulation 14A.

Item 11. EXECUTIVE COMPENSATION

  Incorporated by reference to the section entitled "Executive Compensation"
contained in the Company's Proxy Statement to be filed pursuant to Regulation
14A.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

  Incorporated by reference to the section entitled "Security Ownership of
Certain Beneficial Owners and Management" contained in the Company's Proxy
Statement to be filed pursuant to Regulation 14A.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

  Incorporated by reference to the section entitled "Certain Relationships and
Related Transactions" contained in the Company's Proxy Statement to be filed
pursuant to Regulation 14A.

                                      46
<PAGE>

                                    PART IV

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

<TABLE>
<CAPTION>
                                                                        Page No.
                                                                        --------
 <C>    <S>                                                             <C>
 (a) 1. Financial Statements

        Report of Independent Accountants.............................     23

        Consolidated Balance Sheets of National Golf Properties, Inc.
         as of December 31, 1999 and 1998.............................     24

        Consolidated Statements of Operations of National Golf
         Properties, Inc. for the years ended December 31, 1999, 1998
         and 1997.....................................................     25

        Consolidated Statements of Stockholders' Equity of National
         Golf Properties, Inc. for the years ended December 31, 1999,
         1998 and 1997................................................     26

        Consolidated Statements of Cash Flows of National Golf
         Properties, Inc. for the years ended December 31, 1999, 1998
         and 1997.....................................................     27

        Notes to Consolidated Financial Statements....................     28

     2. Financial Statement Schedules

        Schedule III--Real Estate and Accumulated Depreciation........     48
</TABLE>

                                       47
<PAGE>

                                                                    SCHEDULE III

                         NATIONAL GOLF PROPERTIES, INC.

                  REAL ESTATE AND ACCUMULATED DEPRECIATION(1)

                               December 31, 1999
                                 (In thousands)

<TABLE>
<CAPTION>
                                  Initial Cost                       Gross Amount at Which
                                   to Company                     Carried at Close of Period
                               -------------------      Cost      ---------------------------
                                                    Capitalized           Total Cost
                                      Buildings &    Subsequent          Buildings &          Accumulated     Date       Date
  Description     Encumbrances  Land  Improvements To Acquisition  Land  Improvements  Total  Depreciation Constructed Acquired
  -----------     ------------ ------ ------------ -------------- ------ ------------ ------- ------------ ----------- --------
<S>               <C>          <C>    <C>          <C>            <C>    <C>          <C>     <C>          <C>         <C>
DAILY FEE
COURSES:
Continental,
Scottsdale, AZ..     $  --     $   64    $  881        $   12     $   66   $   891    $   957    $  556       1974       1986
Coyote Lakes,
Surprise, AZ....        --        215     3,766           --         215     3,766      3,981        60       1993       1999
Desert Lakes,
Fort Mojave,
AZ..............        --        163     3,102            53        163     3,155      3,318       904       1990       1993
El Caro,
Phoenix, AZ.....        --         61       553            13         63       564        627       563       1975       1983
The Foothills,
Phoenix, AZ(2)..        --                                                                                    1988       1999
Kokopelli,
Gilbert, AZ.....        --      1,177     4,261           170      1,177     4,431      5,608     1,406       1993       1994
The Lakes at
Ahwatukee,
Phoenix, AZ(2)..        --                                                                                    1970's     1999
Legend at
Arrowhead,
Glendale, AZ....        --        502     3,408           479        503     3,886      4,389     1,414       1986       1992
London Bridge,
Lake Havasu
City, AZ........        --        301     1,699            24        305     1,719      2,024       873       1968       1986
Stonecreek,
Phoenix, AZ.....        --      1,197     8,250           500      1,197     8,750      9,947     1,387       1983       1997
Superstition
Springs, Mesa,
AZ..............        --        698     3,771            32        702     3,799      4,501     1,608       1986       1992
Villa De Paz,
Phoenix, AZ.....        --        186       397            18        188       413        601       372       1974       1981
Aptos Seascape,
Aptos, CA.......        --        901     3,491         1,591        904     5,079      5,983     1,279       1926       1986
BlackLake,
Nipomo, CA......        --      1,744     9,299            20      1,747     9,316     11,063     1,573       1965       1996
Camarillo
Springs,
Camarillo, CA...        --        141     2,880           710        143     3,588      3,731     1,980       1972       1984
Carmel Mountain,
San Diego, CA...        --      1,669     5,865           --       1,669     5,865      7,534     1,280       1986       1995
Casta del Sol,
Mission Viejo,
CA..............        --      3,488     4,666           170      3,488     4,836      8,324        51       1972       1999
Lomas Santa Fe
Exec., Solana
Beach, CA.......        --        175       575            20        177       593        770       546       1974       1982
Eagle Crest,
Escondido,
CA(2)...........        --                                                                                    1993       1999
Mesquite, Palm
Springs, CA.....        --      1,057     5,140           225      1,061     5,361      6,422     1,463       1985       1993
Oakhurst,
Clayton, CA.....        --      1,596     8,069         2,114      1,644    10,135     11,779     1,047       1997       1997
Rancho San
Joaquin, Irvine,
CA..............        --        871     8,375         2,412        873    10,785     11,658     3,585       1962       1992
San Geronimo,
San Geronimo,
CA..............        --        846     5,426           259        847     5,684      6,531       897       1964       1996
Summitpointe,
Milpitas, CA....        --      2,315     4,813           448      2,315     5,261      7,576     1,605       1977       1994
Upland Hills,
Upland, CA......        --      1,835     6,312           148      1,836     6,459      8,295     1,451       1982       1995
Vineyard at
Escondido,
Escondido,
CA(2)...........      5,348                                                                                   1993       1999
Vista Valencia,
Valencia, CA....        --        652     5,369           663        657     6,027      6,684     3,217       1963       1987
Arrowhead,
Littleton, CO...        --        302     3,245         1,927        304     5,170      5,474     1,475       1972       1988
Eagle,
Broomfield, CO..        --        400     2,425            28        404     2,449      2,853     1,637       1961       1988
Arrowhead,
Davie, FL.......        --        601     2,190            20        604     2,207      2,811       899       1967       1993
Baymeadows,
Jacksonville,
FL..............        --        226     4,337           349        226     4,686      4,912       673       1968       1997
Sabal Palm,
Tamarac, FL.....        --        441     3,357            20        444     3,374      3,818     1,953       1967       1990
Summerfield
Crossing, Tampa,
FL..............        --        105     2,508           150        105     2,658      2,763       464       1987       1996
Bradshaw Farm,
Woodstock, GA...        --        238     6,365           127        238     6,492      6,730       865       1995       1997
Goshen
Plantation,
Augusta, GA.....        --        195     3,042           256        196     3,297      3,493       841       1971       1994
River's Edge,
Fayetteville,
GA..............        --        250     4,069           154        143     4,330      4,473     1,137       1989       1994
Trophy Club of
Appalachee,
Dacula, GA(2)...        --                                                                                    1994       1999
Trophy Club of
Atlanta,
Alpharetta,
GA(2)...........        --                                                                                    1991       1999
Ruffled
Feathers,
Lemont, IL......        --        293     9,316           (18)       293     9,298      9,591     2,068       1992       1995
Tamarack,
Naperville, IL..        --        326     5,067           197        326     5,264      5,590       842       1989       1997
Deer Creek,
Overland Park,
KS..............        --        695     7,147           471        696     7,617      8,313     1,481       1989       1996
Dub's Dread,
Kansas City,
KS..............        --        135     2,997           355        135     3,352      3,487       962       1963       1994
</TABLE>

                                       48
<PAGE>

                                                                    SCHEDULE III

                         NATIONAL GOLF PROPERTIES, INC.

                  REAL ESTATE AND ACCUMULATED DEPRECIATION(1)

                               December 31, 1999
                                 (In thousands)

<TABLE>
<CAPTION>
                                    Initial Cost                        Gross Amount at Which
                                     to Company                      Carried at Close of Period
                                --------------------      Cost      -----------------------------
                                                      Capitalized            Total Cost
                                         Building &    Subsequent            Building &           Accumulated     Date
Description       Encumbrances   Land   Improvements to Acquisition  Land   Improvements  Total   Depreciation Constructed
-----------       ------------  ------- ------------ -------------- ------- ------------ -------- ------------ -----------
<S>               <C>           <C>     <C>          <C>            <C>     <C>          <C>      <C>          <C>
DAILY FEE
COURSES:
WestWinds, New
Market, MD .....        --          153      3,614          116         153      3,730      3,883       694       1971
Majestic Oaks,
Ham Lake, MN ...        --        1,713     10,194        1,364       1,713     11,558     13,271       929       1972
Links at
Northfork,
Ramsey, MN......        --          280      3,770           75         280      3,845      4,125     1,022       1992
Woodland Creek,
Andover, MN.....        --           86        473           35          87        507        594        39       1989
Royal Meadows,
Kansas City,
MO..............        --          176      1,822           40         181      1,857      2,038     1,236       1933
Las Vegas
National, Las
Vegas, NV.......        --          261      3,727        1,640         263      5,365      5,628     3,546       1961
Painted Desert,
Las Vegas, NV...        --        1,355      4,741          --        1,355      4,741      6,096       806       1987
Wildhorse,
Henderson, NV...        --        4,677      6,557        2,607       4,679      9,162     13,841     2,019       1959
Beaver Brook,
Clinton, NJ.....        --        1,184      6,999          150       1,184      7,149      8,333       359       1964
Brigantine,
Brigantine, NJ..        --          194      1,768        1,299         197      3,064      3,261     1,414       1926
Rancocas,
Willingboro,
NJ..............        --          239      1,816        1,206         241      3,020      3,261     1,298       1963
Paradise Hills,
Albuquerque,
NM .............        --          350      5,181          315         363      5,483      5,846       998       1963
Carolina Shores,
Calabash, NC....        --          588      5,903          184         590      6,085      6,675     3,015       1974
Pawtuckett,
Charlotte, NC ..        --           63      1,563        1,636         405      2,857      3,262       225       1971
Bent Tree,
Columbus, OH ...        --          123      4,207          300         123      4,507      4,630       757       1988
Fowler's Mill,
Chesterland,
OH..............        --          346      1,760        1,380         349      3,137      3,486     1,242       1972
Royal American
Links, Harlem,
OH..............        --          146      3,981          --          146      3,981      4,127        28       1992
Hershey South,
Hershey, PA.....        --          150      1,995          412         150      2,407      2,557       664       1927
Golden Oaks,
Fleetwood, PA...        --          989      4,677          331       1,008      4,989      5,997     1,061       1994
Hickory Heights,
Bridgeville,
PA .............        --           87      2,027        1,018          82      3,050      3,132       655       1990
Colonial
Charters, Longs,
SC .............        --          213      4,579            5         213      4,584      4,797       766       1989
Port Royal,
Hilton Head
Island, SC......     20,000(3)    6,289     15,190        3,970       6,289     19,160     25,449     4,490       1985
Shipyard, Hilton
Head Island,
SC..............        -- (3)    4,773      9,756        2,036       4,773     11,792     16,565     2,843       1969
Stono Ferry,
Charleston, SC..        --           44      1,582           72          44      1,654      1,698       287       1989
Forrest
Crossing,
Nashville, TN...        --          140      2,829          576         140      3,405      3,545       515       1988
Bear Creek,
Houston, TX.....        --          --       6,163          757         --       6,920      6,920     4,541       1966
Blackstone,
Frisco, TX(2)...        --                                                                                     to be built
Lake Houston,
Huffman, TX.....        --          823      1,620           63         829      1,677      2,506     1,070       1975
Longwood,
Houston, TX.....        --        1,558      8,148          568       1,556      8,718     10,274     1,211       1995
Pecan Valley,
San Antonio,
TX .............        --          389      3,989        4,416         391      8,403      8,794     2,155       1962
Ridgeview Ranch,
Plano, TX(2)....        --                                                                                        1996
Riverchase,
Coppell, TX.....        --          250      1,658        1,220         252      2,876      3,128     1,381       1987
Riverside, Grand
Prairie, TX ....        --          574      4,445          105         576      4,548      5,124     1,681       1986
Southwyck,
Pearland, TX....        --          672      3,492          275         673      3,766      4,439     1,119       1988
Woodlake, San
Antonio, TX(2)..        --                                                                                        1972
Chesapeake,
Chesapeake, VA..        --          321      3,490        1,086         321      4,576      4,897       791       1984
Honey Bee,
Virginia Beach,
VA..............        --          556      5,009          --          556      5,009      5,565     1,369       1987
Kiskiack,
Williamsburg,
VA(2)...........        --                                                                                        1997
Reston National,
Reston, VA......        --          996      4,584        1,142         999      5,723      6,722     1,639       1968
Virginia Oaks,
Gainesville,
VA(2)...........        --                                                                                        1994
Capitol City,
Olympia, WA.....        292         437      2,572          163         437      2,735      3,172       748       1961
Classic,
Spanaway, WA....        --          363      2,112          195         363      2,307      2,670       119       1991
Lake Wilderness,
Maple Valley,
WA..............        --          110      1,665          332         110      1,997      2,107       540       1974
                    -------     -------   --------      -------     -------   --------   --------   -------
                    $25,640     $57,729   $316,091      $45,206     $58,125   $360,901   $419,026   $93,686
                    -------     -------   --------      -------     -------   --------   --------   -------
<CAPTION>
                    Date
Description       Acquired
-----------       --------
<S>               <C>
DAILY FEE
COURSES:
WestWinds, New
Market, MD .....    1996
Majestic Oaks,
Ham Lake, MN ...    1998
Links at
Northfork,
Ramsey, MN......    1994
Woodland Creek,
Andover, MN.....    1998
Royal Meadows,
Kansas City,
MO..............    1984
Las Vegas
National, Las
Vegas, NV.......    1982
Painted Desert,
Las Vegas, NV...    1996
Wildhorse,
Henderson, NV...    1994
Beaver Brook,
Clinton, NJ.....    1999
Brigantine,
Brigantine, NJ..    1989
Rancocas,
Willingboro,
NJ..............    1989
Paradise Hills,
Albuquerque,
NM .............    1996
Carolina Shores,
Calabash, NC....    1986
Pawtuckett,
Charlotte, NC ..    1996
Bent Tree,
Columbus, OH ...    1996
Fowler's Mill,
Chesterland,
OH..............    1986
Royal American
Links, Harlem,
OH..............    1999
Hershey South,
Hershey, PA.....    1994
Golden Oaks,
Fleetwood, PA...    1996
Hickory Heights,
Bridgeville,
PA .............    1994
Colonial
Charters, Longs,
SC .............    1996
Port Royal,
Hilton Head
Island, SC......    1994
Shipyard, Hilton
Head Island,
SC..............    1994
Stono Ferry,
Charleston, SC..    1996
Forrest
Crossing,
Nashville, TN...    1996
Bear Creek,
Houston, TX.....    1985
Blackstone,
Frisco, TX(2)...    1999
Lake Houston,
Huffman, TX.....    1985
Longwood,
Houston, TX.....    1997
Pecan Valley,
San Antonio,
TX .............    1990
Ridgeview Ranch,
Plano, TX(2)....    1999
Riverchase,
Coppell, TX.....    1988
Riverside, Grand
Prairie, TX ....    1990
Southwyck,
Pearland, TX....    1993
Woodlake, San
Antonio, TX(2)..    1999
Chesapeake,
Chesapeake, VA..    1996
Honey Bee,
Virginia Beach,
VA..............    1995
Kiskiack,
Williamsburg,
VA(2)...........    1999
Reston National,
Reston, VA......    1993
Virginia Oaks,
Gainesville,
VA(2)...........    1999
Capitol City,
Olympia, WA.....    1994
Classic,
Spanaway, WA....    1999
Lake Wilderness,
Maple Valley,
WA..............    1994
</TABLE>

                                       49
<PAGE>

                                                                    SCHEDULE III
                                                                     (Continued)
                         NATIONAL GOLF PROPERTIES, INC.

                  REAL ESTATE AND ACCUMULATED DEPRECIATION(1)

                               December 31, 1999
                                 (In thousands)

<TABLE>
<CAPTION>
                                   Initial Cost                        Gross Amount at Which
                                    to Company                      Carried at  Close of Period
                               --------------------      Cost      -----------------------------
                                                     Capitalized            Total Cost
                                       Buildings &    Subsequent           Buildings &           Accumulated     Date       Date
  Description     Encumbrances  Land   Improvements To Acquisition  Land   Improvements  Total   Depreciation Constructed Acquired
  -----------     ------------ ------- ------------ -------------- ------- ------------ -------- ------------ ----------- --------
<S>               <C>          <C>     <C>          <C>            <C>     <C>          <C>      <C>          <C>         <C>
PRIVATE COUNTRY
CLUBS:
Ahwatukee,
Phoenix, AZ(2)..     $  --     $16,581   $123,949       $5,988     $16,581   $129,937   $146,518    $5,430       1973       1999
Ancala,
Scottsdale, AZ..        --         207      8,319          --          207      8,319      8,526     1,190       1990       1996
Arrowhead,
Glendale, AZ....        --         185      5,816          714         185      6,530      6,715       862       1986       1996
Red Mountain
Ranch, Mesa,
AZ(2)...........        --                                                                                       1986       1999
Tatum Ranch,
Cave Creek, AZ..        --       1,000      3,972           (5)      1,002      3,965      4,967     1,808       1986       1992
Canyon Oaks,
Chico, CA.......        --         309      2,172        2,350         309      4,522      4,831       861       1987       1994
Escondido,
Escondido, CA...        --         114      2,382          587         116      2,967      3,083     1,640       1962       1983
Monterey, Palm
Desert, CA......        --       1,294      6,584          311       1,294      6,895      8,189     1,731       1978       1995
Palm Valley,
Palm Desert,
CA..............        --       1,750     13,769          447       1,750     14,216     15,966     3,033       1985       1995
SeaCliff,
Huntington
Beach, CA.......        --       2,430      7,602          762       2,451      8,343     10,794     1,262       1975       1996
Spanish Hills,
Camarillo, CA...        --       2,975     14,076          515       3,024     14,542     17,566     1,677       1993       1997
Sunset Hills,
Thousand Oaks,
CA..............        --         302      1,378           18         304      1,394      1,698     1,223       1966       1975
Wood Ranch, Simi
Valley, CA......        --         481      9,111        1,235         481     10,346     10,827     2,315       1984       1995
Heather Ridge,
Aurora, CO......        --         992      1,500          715         995      2,212      3,207     1,223       1970       1990
Pinery, Denver,
CO..............        --         174      5,380          433         174      5,813      5,987     1,019       1972       1996
Brookstone,
Acworth, GA.....        --         557      2,608          410         559      3,016      3,575     1,118       1987       1993
The Plantation,
Boise, ID.......        --          87      2,562          204          87      2,766      2,853       463       1920       1996
Eagle Brook,
Geneva, IL......      1,500        701      9,739          264         701     10,003     10,704     1,299       1992       1997
Mission Hills,
Northbrook, IL..        --         400      3,600          531         402      4,129      4,531     2,464       1980       1988
Highlands Golf,
Hutchinson, KS..        --          40        576          252          40        828        868       135       1972       1996
Tallgrass,
Wichita, KS.....        --          43      2,409          212          43      2,621      2,664       458       1980       1996
Shenandoah,
Baton Rouge,
LA..............        --          38      1,268          262          38      1,530      1,568       317       1972       1996
Hunt Valley,
Phoenix, MD.....        --         515      1,662        1,208         517      2,868      3,385     1,463       1972       1983
Tanoan,
Albuquerque,
NM..............        --          12      3,241           20          14      3,259      3,273     2,659       1978       1982
Brandywine,
Maumee, OH......        --         814      2,861           82         816      2,941      3,757     1,232       1967       1991
Ivy Hills,
Cincinnati, OH..        --          30      1,776          224          30      2,000      2,030       169       1992       1998
Oakhurst, Grove
City, OH........        --         344      1,776        1,156         346      2,930      3,276     1,141       1959       1980
Royal Oak,
Cincinnati, OH..        --         175        822           12         178        831      1,009       548       1963       1985
Meadowbrook,
Tulsa, OK.......        --          89      3,236        1,450          89      4,686      4,775       643    mid 1950's    1996
The Trails,
Norman, OK......        --          42      2,361          246         163      2,486      2,649       494       1982       1996
Creekside,
Salem, OR.......        --         128      3,456        2,507         128      5,963      6,091     1,317       1993       1995
Oregon Golf,
West Linn, OR...        --         433     10,230          534         435     10,762     11,197     2,127       1992       1995
Hershey,
Hershey, PA.....        --       1,624      6,400        1,286       1,624      7,686      9,310     2,233       1915       1994
Gettysvue,
Knoxville, TN...      3,750        753      5,550          618         753      6,168      6,921       638       1995       1997
Berry Creek,
Georgetown, TX..        --         204      4,876          330         204      5,206      5,410     1,021       1986       1995
Diamond Oaks,
Fort Worth, TX..        --         132      3,577        2,203         132      5,780      5,912       720       1959       1996
Eldorado,
McKinney, TX....        --         221      6,247        3,660         221      9,907     10,128       871       1981       1996
Great Southwest,
Grand Prairie,
TX..............        --         442      7,825          609         442      8,434      8,876     1,373       1964       1996
Los Rios, Plano,
TX(2)...........        --                                                                                       1971       1999
Oakridge,
Garland, TX.....        --          87      3,439          901          87      4,340      4,427       646       1982       1996
Pecan Grove
Plantation,
Richmond,
TX(2)...........        --                                                                                       1980       1999
Sweetwater,
Sugarland, TX...        --         207     11,783        1,432         207     13,215     13,422     2,566       1983       1996
</TABLE>

                                       50
<PAGE>

                                                                    SCHEDULE III
                                                                     (Continued)

                         NATIONAL GOLF PROPERTIES, INC.

                  REAL ESTATE AND ACCUMULATED DEPRECIATION(1)

                               December 31, 1999
                                 (In thousands)

<TABLE>
<CAPTION>
                                  Initial Cost                        Gross Amount at Which
                                   to Company                      Carried at Close of Period
                              --------------------      Cost      -----------------------------
                                                    Capitalized            Total Cost
                                      Buildings &    Subsequent           Buildings &           Accumulated     Date       Date
  Description    Encumbrances  Land   Improvements to Acquisition  Land   Improvements  Total   Depreciation Constructed Acquired
  -----------    ------------ ------- ------------ -------------- ------- ------------ -------- ------------ ----------- --------
<S>              <C>          <C>     <C>          <C>            <C>     <C>          <C>      <C>          <C>         <C>
PRIVATE COUNTRY
CLUBS:
Sonterra, San
Antonio, TX.....       --       2,686     25,867          939       2,686     26,806     29,492      1,956      1978       1998
Thorntree,
DeSoto, TX(2)...       --                                                                                       1983       1999
Walden, Humble,
TX..............       --         178      3,425          698         180      4,121      4,301        619      1984       1996
Willow Fork,
Katy, TX........       --          44      2,742          318          44      3,060      3,104        462      1990       1996
Woodhaven, Fort
Worth, TX.......       --          43      2,022          670          43      2,692      2,735        430      1972       1996
Brandermill,
Midlothian,
VA(2)...........       --                                                                                       1978       1999
Bear Creek,
Woodinville,
WA..............       --         705      4,823          310         711      5,127      5,838      2,105      1983       1993
                   -------    -------   --------      -------     -------   --------   --------   --------
                   $ 5,250    $40,568   $348,769      $37,618     $40,793   $386,162   $426,955   $ 58,961
                   -------    -------   --------      -------     -------   --------   --------   --------
Total Courses...   $30,890    $98,297   $664,860      $82,824     $98,918   $747,063   $845,981   $152,647
                   =======    =======   ========      =======     =======   ========   ========   ========
</TABLE>
----
(1) Corporate assets are not included within the amounts.

(2) Acquired Cobblestone Courses. Allocation of purchase price among the
    Acquired Cobblestone Courses has not been finalized. Therefore, Ahwatukee
    (under Private Country Clubs) lists the unallocated purchase price for all
    the courses.

(3) Combined encumbrance for Port Royal and Shipyard golf courses.

                                       51
<PAGE>

                                                                   SCHEDULE III
                                                                    (Continued)

                        NATIONAL GOLF PROPERTIES, INC.

                   REAL ESTATE AND ACCUMULATED DEPRECIATION

                               December 31, 1999
                                (In thousands)

  Depreciation of the Company's investment in Buildings and Improvements
reflected in the statements of operations are calculated over the estimated
useful lives of the assets as follows:

<TABLE>
     <S>                                                           <C>
     Buildings....................................................      30 years
     Ground improvements..........................................      20 years
     Furniture, fixtures and equipment............................ 3 to 10 years
</TABLE>

  The changes in total real estate assets and accumulated depreciation
(excluding corporate assets and related accumulated depreciation) for the
three years ended December 31, 1999, 1998, and 1997 are as follows:

<TABLE>
<CAPTION>
                                                    Total Real Estate Assets
                                                   ----------------------------
                                                     1999      1998      1997
                                                   --------  --------  --------
     <S>                                           <C>       <C>       <C>
     Balance, beginning of year................... $662,387  $601,375  $515,557
     Acquisitions.................................  167,449    43,181    79,171
     Improvements.................................   25,842    18,155    14,307
     Dispositions.................................   (9,697)     (324)   (7,660)
                                                   --------  --------  --------
     Balance, end of year......................... $845,981  $662,387  $601,375
                                                   ========  ========  ========
<CAPTION>
                                                    Accumulated Depreciation
                                                   ----------------------------
                                                     1999      1998      1997
                                                   --------  --------  --------
     <S>                                           <C>       <C>       <C>
     Balance, beginning of year................... $120,841  $ 94,678  $ 72,906
     Depreciation for year........................   34,077    26,193    23,652
     Dispositions.................................   (2,271)      (29)   (1,880)
                                                   --------  --------  --------
     Balance, end of year......................... $152,647  $120,842  $ 94,678
                                                   ========  ========  ========
</TABLE>

3. Exhibits

<TABLE>
   <C> <S>
   3.1 Articles of Incorporation of National Golf Properties, Inc.
        (incorporated by reference to Exhibit 3.1 to the Company's Current
        Report on Form 8-K dated September 26, 1995)

   3.2 By-Laws of National Golf Properties, Inc. (incorporated by reference to
        Exhibit 3.2 to the Company's Current Report on Form 8-K dated September
        26, 1995)

   3.3 Specimen of certificate representing shares of Common Stock
        (incorporated by reference to Exhibit 3.3 to the Company's Report on
        Form 8-B dated December 29, 1995)

   3.4 Articles Supplementary of National Golf Properties, Inc. (incorporated
        by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K
        dated March 4, 1998)

   3.5 Articles Supplementary of National Golf Properties, Inc. (incorporated
        by reference to Exhibit 3.1 to the Company's Quarterly Report on Form
        10-Q for the period ended March 31, 1998)

   3.6 Articles Supplementary of National Golf Properties, Inc. (incorporated
        by reference to Exhibit 3.1 to the Company's Quarterly Report on Form
        10-Q for the period ended June 30, 1999)
</TABLE>

                                      52
<PAGE>

<TABLE>
   <C>    <S>
     4.1  The 1995 Independent Director Equity Participation Plan of National
           Golf Properties, Inc. (incorporated by reference to Exhibit 4.1 to
           the Company's Registration Statement on Form S-8 dated August 15,
           1997)

     4.2  The 1997 Equity Participation Plan of National Golf Properties, Inc.,
           National Golf Operating Partnership, L.P. and American Golf
           Corporation (incorporated by reference to Exhibit 4.2 to the
           Company's Registration Statement on Form S-8 dated August 15, 1997)

    10.1  Third Amended and Restated Agreement of Limited Partnership of
           National Golf Operating Partnership, L.P., dated as of July 28,
           1999, (incorporated by reference to Exhibit 10.1 to the Company's
           Quarterly Report on Form 10-Q for the period ended June 30, 1999)

    10.2  Form of Lease Agreement between the Company and AGC with respect to
           the Initial Golf Courses and the Mesquite and Desert Lakes golf
           courses (incorporated by reference to Exhibit 10.2 to the Company's
           Registration Statement on Form S-11 No. 33-63110)

    10.3  Form of Lease Agreement between the Company and AGC with respect to
           the following golf courses: Southwyck, Dub's Dread, Kokopelli,
           Summitpointe, Lake Wilderness, Links at Northfork, Hershey, Hershey
           South, Canyon Oaks, Capitol City, Port Royal, Shipyard, Wildhorse,
           Goshen Plantation, Hickory Heights, River's Edge, Berry Creek,
           Carmel Mountain, Creekside, Honey Bee, Wood Ranch, Monterey, Palm
           Valley, Ruffled Feathers, Upland Hills, Oregon Golf, Golden Oaks,
           Paradise Hills, Chesapeake, SeaCliff, Ancala, Arrowhead, BlackLake,
           Painted Desert, Pinery, Summerfield Crossing, The Plantation,
           Highlands, Tallgrass, Shenandoah, Pawtuckett, Bent Tree,
           Meadowbrook, The Trails, The Links, Forrest Crossing, Diamond Oaks,
           Eldorado, Great Southwest, Oakridge, Willow Fork, Woodhaven, Walden,
           Deer Creek, WestWinds, Stonecreek, Tamarack, Baymeadows, Bradshaw
           Farm, Longwood, Eagle Brook, Gettysvue; Oakhurst; Ivy Hills;
           Majestic Oaks; Woodland Creek; Sonterra; Beaver Brook; Classic;
           Coyote Lakes; Casta del Sol; and Royal American (incorporated by
           reference to Exhibit 10.3 to the Company's Annual Report on Form 10-
           K dated February 29, 1996)

    10.4  Registration Rights Agreement, made and entered into as of August 18,
           1993, by and among National Golf Properties, Inc. and the persons
           named therein (incorporated by reference to Exhibit 10.4 to the
           Company's Annual Report on Form 10-K dated February 29, 1996)

    10.5  Shelf Registration Rights Agreement, made and entered into as of
           August 18, 1993, by and among National Golf Properties, Inc. and the
           persons named therein (incorporated by reference to Exhibit 10.5 to
           the Company's Annual Report on Form 10-K dated February 29, 1996)

   *10.6  National Golf Properties, Inc. Stock Incentive Plan for Key Employees
           of National Golf Properties, Inc., National Golf Operating
           Partnership, L.P. and American Golf Corporation, effective August
           18, 1993 (incorporated by reference to Exhibit 10.6 to the Company's
           Annual Report on Form 10-K dated February 29, 1996)

   *10.7  Indemnification Agreement, made as of August 18, 1993, by and between
           National Golf Properties, Inc. and its directors and officers
           (incorporated by reference to Exhibit 10.7 to the Company's Annual
           Report on Form 10-K dated February 29, 1996)

    10.8  Director Designation Agreement, dated as of March 29, 1999 by and
           among David G. Price, National Golf Properties, Inc. and National
           Golf Operating Partnership, L.P.

    10.9  Services Agreement, entered into as of August 18, 1993, by and
           between National Golf Properties, Inc. and National Golf Operating
           Partnership, L.P. (incorporated by reference to Exhibit 10.10 to the
           Company's Annual Report on Form 10-K dated February 29, 1996)

    10.10 Partnership Interests Exchange Agreement, dated as of August 18,
           1993, by and among National Golf Operating Partnership, L.P. and
           Partners of Partnerships Controlling 21 Courses (incorporated by
           reference to Exhibit 10.13 to the Company's Annual Report on Form
           10-K dated February 29, 1996)
</TABLE>

                                       53
<PAGE>

<TABLE>
   <C>   <S>
   10.11 Agreement for Transfer of Realty and Assets, dated as of August 18,
          1993, by and among The Price Revocable Trust, Myershan, Inc. and
          National Golf Operating Partnership, L.P. (incorporated by reference
          to Exhibit 10.14 to the Company's Annual Report on Form 10-K dated
          February 29, 1996)

   10.12 Plan and Agreement of Merger, dated as of August 18, 1993, by and
          among Bear Creek Enterprises, Inc., National Golf Properties, Inc.,
          The Price Revocable Trust and David G. Price (incorporated by
          reference to Exhibit 10.15 to the Company's Annual Report on Form 10-
          K dated February 29, 1996)

   10.13 Partnership Interests Acquisition Agreement, dated as of August 18,
          1993, by and among The Price Revocable Trust, American Golf
          Investment, Inc., Supermarine Aviation, Limited, David G. Price and
          National Golf Properties, Inc. (incorporated by reference to Exhibit
          10.16 to the Company's Annual Report on Form 10-K dated February 29,
          1996)

   10.14 Contribution Agreement, dated as of August 18, 1993, by and between
          National Golf Operating Partnership, L.P. and National Golf
          Properties, Inc. (incorporated by reference to Exhibit 10.17 to the
          Company's Annual Report on Form 10-K dated February 29, 1996)

   10.15 Option Courses Agreement, dated as of August 18, 1993, by and among
          David G. Price, The Price Revocable Trust, Black Lake/Penasquitos,
          American Golf Corporation and National Golf Operating Partnership,
          L.P. (incorporated by reference to Exhibit 10.18 to the Company's
          Annual Report on Form 10-K dated February 29, 1996)

   10.16 Agreement relating to prohibition on acquisitions of golf courses by
          David G. Price and his affiliates, made and entered into as of August
          18, 1993, by and among National Golf Properties, Inc., National Golf
          Operating Partnership, L.P., American Golf Corporation, David G.
          Price, Dallas P. Price and The Price Revocable Trust (incorporated by
          reference to Exhibit 10.19 to the Company's Annual Report on Form 10-
          K dated February 29, 1996)

   10.17 Amendment to agreement relating to prohibition on acquisitions of golf
          courses by David G. Price and his affiliates among National Golf
          Properties, Inc., National Golf Operating Partnership, L.P., American
          Golf Corporation, David G. Price, Dallas P. Price and The Price
          Revocable Trust (incorporated by reference to Exhibit 10 to the
          Company's Quarterly Report on Form 10-Q/A for the period ended
          September 30, 1995)

   10.18 Note Purchase Agreement ("Note Purchase Agreement"), dated as of
          December 15, 1994, with respect to National Golf Operating
          Partnership, L.P.'s Series A 8.68% Guarantied Senior Promissory Notes
          due December 15, 2004 and Series B 8.73% Guarantied Senior Promissory
          Notes due June 15, 2005 (incorporated by reference to Exhibit 10.21
          to the Company's Annual Report on Form 10-K dated February 29, 1996)

   10.19 Series A 8.68% Guarantied Senior Promissory Notes and Series B 8.73%
          Guarantied Senior Promissory Notes (incorporated by reference to
          Exhibit 10.22 to the Company's Annual Report on Form 10-K dated
          February 29, 1996)

   10.20 General Continuing Guaranty of National Golf Properties, Inc.
          ("General Continuing Guaranty"), dated as of December 15, 1994, with
          respect to National Golf Operating Partnership, L.P.'s Series A 8.68%
          Guarantied Senior Promissory Notes due December 15, 2004 and Series B
          8.73% Guarantied Senior Promissory Notes due June 15, 2005
          (incorporated by reference to Exhibit 10.15 to the Company's Report
          on Form 8-B dated December 29, 1995)

   10.21 First Amendment to Note Purchase Agreements, dated as of August 31,
          1995 (incorporated by reference to Exhibit 10.17 to the Company's
          Report on Form 8-B dated December 29, 1995)

   10.22 First Amendment to General Continuing Guarantee, dated as of August
          31, 1995 (incorporated by reference to Exhibit 10.18 to the Company's
          Report on Form 8-B dated December 29, 1995)
</TABLE>

                                       54
<PAGE>

<TABLE>
   <C>   <S>
   10.23 Agreement of Limited Partnership of Royal Golf, L.P., II, dated as of
          July 7, 1994 (incorporated by reference to Exhibit 10.19 to the
          Company's Report on Form 8-B dated December 29, 1995)

   10.24 Amended and Restated Loan Agreement, dated as of July 7, 1994, by and
          between Royal Golf, L.P., II and NationsBank of South Carolina, N.A.
          (incorporated by reference to Exhibit 10.19 to the Company's Report
          on Form 8-B dated December 29, 1995)

   10.25 Restated Note Agreement, dated as of July 1, 1996, with respect to
          National Golf Operating Partnership, L.P.'s Series A-1, Series A-2
          and Series A-3 7.9% Guarantied Senior Promissory Notes due June 15,
          2006 and Series B 8% Guarantied Senior Promissory Notes due
          December 12, 2006 (incorporated by reference to Exhibit 10.30 to the
          Company's Annual Report on Form 10-K dated March 14, 1997)

   10.26 Form of Series A 7.9% Guarantied Senior Promissory Notes and Series B
          8% Guarantied Senior Promissory Notes (incorporated by reference to
          Exhibit 10.31 to the Company's Annual Report on Form 10-K dated March
          14, 1997)

   10.27 Amended and Restated General Continuing Guaranty of National Golf
          Properties, Inc., dated as of July 1, 1996, with respect to National
          Golf Operating Partnership, L.P.'s Series A-1, Series A-2 and Series
          A-3 7.9% Guarantied Senior Promissory Notes due June 15, 2006 and
          Series B 8% Guarantied Senior Promissory Notes due December 12, 2006
          (incorporated by reference to Exhibit 10.32 to the Company's Annual
          Report on Form 10-K dated March 14, 1997)

   10.28 Assumption Agreement, dated as of July 1, 1996, by National Golf
          Operating Partnership, L.P. and the Purchasers named therein
          (incorporated by reference to Exhibit 10.33 to the Company's Annual
          Report on Form 10-K dated March 14, 1997)

   10.29 Assumption Agreement, dated as of July 1, 1996, by National Golf
          Operating Partnership, L.P. and the Purchasers named therein
          (incorporated by reference to Exhibit 10.34 to the Company's Annual
          Report on Form 10-K dated March 14, 1997)

   10.30 Lease Agreement, dated as of July 11, 1996, between the Company and
          The Links Group, Inc. with respect to Colonial Charters Golf Course
          (incorporated by reference to Exhibit 10.35 to the Company's Annual
          Report on Form 10-K dated March 14, 1997)

   10.31 Lease Agreement, dated as of December 17, 1996, between the Company
          and Evergreen Alliance Golf Limited with respect to San Geronimo Golf
          Course (incorporated by reference to Exhibit 10.36 to the Company's
          Annual Report on Form 10-K dated March 14, 1997)

   10.32 Lease Agreement, dated as of October 22, 1997, between the Company and
          Camarillo Golf, LLC with respect to Spanish Hills Country Club
          (incorporated by reference to Exhibit 10.33 to the Company's Annual
          Report on Form 10-K dated February 6, 1998)

   10.33 Assignment Agreement, dated as of July 30, 1996, between National Golf
          Properties, Inc. and National Golf Operating Partnership, L.P.
          (incorporated by reference to Exhibit 2.3 to the Company's Current
          Report on Form 8-K dated August 13, 1996)

   10.34 Lease Agreement, dated as of July 30, 1996, between National Golf
          Operating Partnership, L.P. and American Golf Corporation
          (incorporated by reference to Exhibit 2.4 to the Company's Current
          Report on Form 8-K dated August 13, 1996)

   10.35 Amended and Restated Credit Agreement, dated as of July 30, 1999 among
          National Golf Operating Partnership, L.P., National Golf Properties,
          Inc., The First National Bank of Chicago, Merrill Lynch Capital
          Corporation, ING (U.S.) Capital LLC, Union Bank of California, N.A.,
          Banc One Capital Markets, Inc., Merrill Lynch, Pierce, Fenner & Smith
          Incorporated, and the several other lenders from time to time parties
          hereto (incorporated by reference to Exhibit 10.4 to the Company's
          Quarterly Report on Form 10-Q for the period ended June 30, 1999)
</TABLE>

                                       55
<PAGE>

<TABLE>
   <C>    <S>
    10.36 Amended and Restated Guaranty, dated as of July 30, 1999 between
           National Golf Properties, Inc., and The First National Bank of
           Chicago and the lenders under the Amended and Restated Credit
           Agreement (incorporated by reference to Exhibit 10.5 to the
           Company's Quarterly Report on Form 10-Q for the period ended June
           30, 1999)

   *10.37 National Golf Properties, Inc. Deferred Compensation Plan, effective
           June 1, 1997 (incorporated by reference to Exhibit 10.2 to the
           Company's Quarterly Report on Form 10-Q dated July 29, 1997)

   *10.38 National Golf Properties, Inc. Deferred Compensation Plan Trust
           Agreement, dated as of June 1, 1997, by and between National Golf
           Properties, Inc. and Imperial Trust Company (incorporated by
           reference to Exhibit 10.3 to the Company's Quarterly Report on Form
           10-Q dated July 29, 1997)

   *10.39 Consulting Agreement, entered into as of the 30th day of April, 1997,
           between National Golf Properties, Inc. and Edward R. Sause
           (incorporated by reference to Exhibit 10.4 to the Company's
           Quarterly Report on Form 10-Q dated July 29, 1997)

    10.40 Pumpkin Ridge Joint Venture Agreement, dated as of September 8, 1997,
           by and among National Golf Operating Partnership, L.P. and Pumpkin
           Ridge Partners (incorporated by reference to Exhibit 10.2 to the
           Company's Quarterly Report on Form 10-Q dated October 30, 1997)

    10.41 Lease Agreement, dated as of September 8, 1997, between Pumpkin Ridge
           Joint Venture and American Golf Corporation (incorporated by
           reference to Exhibit 10.3 to the Company's Quarterly Report on Form
           10-Q dated October 30, 1997)

    10.42 USGA Agreement, made and entered into as of September 8, 1997, by and
           between Pumpkin Ridge Joint Venture and American Golf Corporation
           (incorporated by reference to Exhibit 10.4 to the Company's
           Quarterly Report on Form 10-Q dated October 30, 1997)

    10.43 Amended and Restated Registration Rights Agreement, dated as of April
           20, 1998, by and among National Golf Properties, Inc., National Golf
           Operating Partnership, L.P. and the unit holders named therein
           (incorporated by reference to Exhibit 10.2 to the Company's
           Quarterly Report on Form 10-Q for the period ended March 31, 1998)

    10.44 Amended and Restated Registration Rights Agreement, dated as of July
           28, 1999, by and among National Golf Properties, Inc., National Golf
           Operating Partnership, L.P. and the unit holders named therein
           (incorporated by reference to Exhibit 10.2 to the Company's
           Quarterly Report on Form 10-Q for the period ended June 30, 1999)

    10.45 Contribution Agreement, dated as of March 4, 1998, between Belair
           Capital Fund LLC, National Golf Operating Partnership, L.P. and
           National Golf Properties, Inc. (incorporated by reference to Exhibit
           10.3 to the Company's Current Report on Form 8-K dated March 4,
           1998)

    10.46 Contribution Agreement, dated as of April 20, 1998, between Belair
           Capital Fund LLC, National Golf Operating Partnership, L.P. and
           National Golf Properties, Inc. (incorporated by reference to Exhibit
           10.3 to the Company's Quarterly Report on Form 10-Q for the period
           ended March 31, 1998)

    10.47 Contribution Agreement, dated as of July 28, 1999, between Belcrest
           Realty Corporation, Belair Real Estate Corporation, National Golf
           Operating Partnership, L.P. and National Golf Properties, Inc.
           (incorporated by reference to Exhibit 10.3 to the Company's
           Quarterly Report on Form 10-Q for the period ended June 30, 1999)

    10.48 Loan Agreement between The Badlands Golf Club, Inc. and National Golf
           Operating Partnership, L.P. dated as of August 18, 1998
           (incorporated by reference to Exhibit 10.45 to the Company's Annual
           Report on Form 10-K dated March 31, 1999)
</TABLE>

                                       56
<PAGE>

<TABLE>
   <C>   <S>
   10.49 Senior Secured Participating Promissory Note made and entered into as
          of August 18, 1998, between National Golf Operating Partnership, L.P.
          and The Badlands Golf Club, Inc. (incorporated by reference to
          Exhibit 10.46 to the Company's Annual Report on Form 10-K dated March
          31, 1999)

   10.50 First Deed of Trust, Assignment of Rents, Security Agreement and
          Fixture Filing relating to the Senior Secured Participating
          Promissory Note made and entered into as of August 18, 1998, by and
          among The Badlands Golf Club, Inc. and National Golf Operating
          Partnership, L.P. (incorporated by reference to Exhibit 10.47 to the
          Company's Annual Report on Form 10-K dated March 31, 1999)

   10.51 Asset Purchase Agreement dated as of March 30, 1999 by and among
          National Golf Properties, Inc., National Golf Operating Partnership,
          L.P., American Golf Corporation and Golf Acquisitions, L.L.C.
          (incorporated by reference to Exhibit 2.1 to the Company's Current
          Report on Form 8-K filed on April 15, 1999)

   21.1  List of Subsidiaries of National Golf Properties, Inc. (incorporated
          by reference to Exhibit 22.1 to the Company's Report on Form 8-B
          dated December 29,1995)

   23.1  Consent of Independent Accountants

   27.1  Financial Data Schedule
</TABLE>
--------
* Management contract or compensatory plan or arrangement.

<TABLE>
<CAPTION>
                                                                        Page No.
                                                                        --------
 <C> <S>                                                                <C>
 (b) Reports on Form 8-K filed during the Last Quarter

     None.

     Additional Information Regarding American Golf Corporation and
     Subsidiaries

     Analysis of American Golf Corporation's Consolidated Financial
 (d)  Information.....................................................     58

     American Golf Corporation's Consolidated Financial Statements

     Report of Independent Accountants................................     61

     Consolidated Balance Sheets as of December 31, 1999 and 1998.....     62

     Consolidated Statements of Operations and Comprehensive Income
      for the years ended December 31, 1999, 1998 and 1997............     63

     Consolidated Statements of Shareholders' Equity for the years
      ended December 31, 1999, 1998 and 1997..........................     64

     Consolidated Statements of Cash Flows for the years ended
      December 31, 1999, 1998 and 1997................................     65

     Notes to Consolidated Financial Statements.......................     66
</TABLE>

                                       57
<PAGE>

         ANALYSIS OF AMERICAN GOLF CORPORATION'S FINANCIAL INFORMATION

Overview

  The following discussion should be read in conjunction with the accompanying
Consolidated Financial Statements and Notes thereto of American Golf
Corporation and Subsidiaries ("AGC" or "the Company"). The forward-looking
statements included in Analysis of American Golf Corporation's Financial
Information relating to certain matters involve risks and uncertainties,
including anticipated financial performance, business prospects, anticipated
capital expenditures and other similar matters, which reflect management's
best judgement based on factors currently known. Actual results and experience
could differ materially from the anticipated results or other expectations
expressed in the Company's forward-looking statements as a result of a number
of factors, including but not limited to those discussed in Analysis of
American Golf Corporation's Financial Information.

  The discussion of the results of operations compares the year ended December
31, 1999 with the year ended December 31, 1998 and the year ended December 31,
1998 with the year ended December 31, 1997.

Results of Operations

 Comparison of the year ended December 31, 1999 to the year ended December 31,
1998.

  Total revenues from golf course operations and management agreements for AGC
increased by $121.7 million, or 21.1%, to $697.6 million for the year ended
December 31, 1999 as compared to $575.9 million for the year ended December
31, 1998. The increase in revenues was primarily attributable to the net
increase of 35 new leased courses and 1 new course under a management
agreement. Green fees for the year ended December 31, 1999, $243.0 million,
increased by $38.8 million, or 19%, as compared to $204.2 million for the year
ended December 31, 1998. Cart rental revenues for the year ended December 31,
1999, $75.7 million, increased by $10.1 million, or 15.4%, from $65.6 million
for the year ended December 31, 1998. Member dues and initiation fees for the
year ended December 31, 1999, $126.3 million, increased by $26.3 million, or
26.3%, from $100.0 million for the year ended December 31, 1998. Food and
beverage revenues for the year ended December 31, 1999, $134.1 million,
increased by $25.4 million, or 23.4%, from $108.7 million for the year ended
December 31, 1998. Merchandise sales were $58.3 million, an increase of $7.5
million, or 14.8%, from $50.8 million for the year ended December 31, 1998.
Other operating revenue, which includes range income, increased by $12.4
million, or 30.9%, to $52.5 million for the year ended December 31, 1999, from
$40.1 million for the year ended December 31, 1998. Management fees revenue of
$7.7 million increased $1.1 million, or 16.7%, for the year ended December 31,
1999, from $6.6 million for the year ended December 31, 1998.

  Total operating expenses increased by $115.0 million, or 20.3%, to $682.7
million for the year ended December 31, 1999 as compared to $567.7 million for
the year ended December 31, 1998. Rent expense increased by $34.6 million, or
27.3%, to $161.4 million for the year ended December 31, 1999, from
$126.8 million for the year ended December 31, 1998. General and
administrative expenses for the year ended December 31, 1999, $52.2 million,
increased by $6.1 million, or 13.2%, from $46.1 million for the year ended
December 31, 1998. These expenses increased primarily due to the addition of
new courses.

  Net income increased by $4.0 million to $8.7 million for the year ended
December 31, 1999, from $4.7 million for the year ended December 31 1998. The
increase in net income is principally attributable to the increase in same
course revenue from the improvement in weather conditions in 1999 compared to
the unfavorable weather brought about by the El Nino phenomenon in 1998.

 Comparison of the year ended December 31, 1998 to the year ended December 31,
1997.

  Total revenues from golf course operations and management agreements for AGC
increased by $58.8 million, or 11.4%, to $575.9 million for the year ended
December 31, 1998 as compared to $517.1 million for the year ended December
31, 1997. The increase in revenues was primarily attributable to the net
increase of 14 new leased courses and 3 new courses under management
agreements. Green fees for the year ended

                                      58
<PAGE>

December 31, 1998, $204.2 million, increased by $15.5 million, or 8.2%, as
compared to $188.7 million for the year ended December 31, 1997. Cart rental
revenues for the year ended December 31, 1998, $65.6 million, increased by
$4.8 million, or 7.9%, from $60.8 million for the year ended December 31,
1997. Member dues and initiation fees for the year ended December 31, 1998,
$100.0 million, increased by $17.0 million, or 20.5%, from $83.0 million for
the year ended December 31, 1997. Food and beverage revenues for the year
ended December 31, 1998, $108.7 million, increased by $19.1 million, or 21.3%,
from $89.6 million for the year ended December 31, 1997. Merchandise sales
were $50.8 million, an increase of $6.1 million, or 13.6%, from $44.7 million
for the year ended December 31, 1997. Other operating revenue, which includes
range income, decreased by $3.1 million, or 7.2%, to $40.1 million for the
year ended December 31, 1998, from $43.2 million for the year ended December
31, 1997. Management fees revenue of $6.6 million decreased $0.5 million, or
7%, for the year ended December 31, 1998, from $7.1 million for the year ended
December 31, 1997.

  Total operating expenses increased by $64.6 million, or 12.8%, to $567.7
million for the year ended December 31, 1998 as compared to $503.1 million for
the year ended December 31, 1997. Rent expense increased by $17.7 million, or
16.2%, to $126.8 million for the year ended December 31, 1998, from
$109.1 million for the year ended December 31, 1997. General and
administrative expenses for the year ended December 31, 1998, $46.1 million,
increased by $3.5 million, or $8.2%, from $42.6 million for the year ended
December 31, 1997. These expenses increased primarily due to the addition of
new courses.

  Net income decreased by $7.6 million to $4.7 million for the year ended
December 31, 1998, from $12.3 million for the year ended December 31, 1997.
The decrease in net income is principally attributable to the reduction in
same course revenue from the harsh weather brought about by the El Nino
phenomenon in the sun belt states, where the Company has more mature
properties with higher operating margins. Additionally, while the new
acquisitions described above contributed favorably to revenue, such properties
historically operate at lower margins in the first year of operation.

Liquidity and Capital Resources

  On December 31, 1997, the Company entered into a $40 million revolving
credit facility and a $13.5 million standby letter of credit facility with a
commercial bank that bears interest at prime or a Libor based rate. Letters of
credit issued under these credit facilities are charged a 1.5% annual letter
of credit fee. On March 10, 2000, the Company entered into a commitment to
amend its revolving credit facility. When executed, the amendment will include
an increase in the amount available under the line of credit to $60 million,
of which $10 million will expire on July 31, 2000 and $50 million will expire
on March 29, 2002. The amendment will also include the Company's guarantee of
approximately $15 million of debt outstanding under a term loan and line of
credit of an affiliate. The revolving credit facility is used to finance
working capital requirements. At December 31, 1999, there was $32.5 million
outstanding and $2.5 million in standby letters of credit outstanding against
the revolving credit facility. The $13.5 million standby letter of credit
facility, which expires on August 17, 2000, supports outstanding letters of
credit issued in favor of NGP, pursuant to the terms of the leases between NGP
and AGC.

  AGC has working capital of approximately $12.4 million as of December 31,
1999, excluding deferred revenue related to initiation fees. AGC believes it
will be able to satisfy its liquidity requirements, including capital
expenditures and rental payments due under its leases, with cash flow
available from operations and borrowings. AGC has capital expenditure
commitments related to acquiring and renewing leases. These commitments are
typically satisfied over several years. The material capital commitments are
clubhouse renovations, building and course improvements and irrigation
systems. At December 31, 1999, AGC's capital expenditure commitment was
approximately $5.5 million. The improvements will be funded from AGC's
operating cash flow and from borrowings under the bank credit facilities.

 Year 2000

  The Year 2000 issue is the result of computer programs being written using
two digits (rather than four) to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000, which could result
in system failures or miscalculations.

                                      59
<PAGE>


  The Company utilizes management information systems and software technology
that may be affected by Year 2000 issues throughout its business. During 1998,
the Company completed its assessment of these systems and developed
implementation plans to bring the non-compliant systems into compliance. This
plan included replacing hardware and upgrading software to Windows 95
compatible versions. The implementation plan for the Company's corporate
office was completed in 1998 and all the golf courses were completed during
1999. The Company also utilizes a Year 2000 compliant HP3000 to run its
financial software. This software was upgraded to a Year 2000 compliant
version in 1999. As of December 31, 1999, the Company spent a total of
approximately $3.6 million in connection with addressing the Year 2000 issue.

  To date the Company has not experienced any significant problems associated
with the Year 2000 issue with either internal operating systems or with its
third party customers and suppliers. In addition, the Company did not
experience any loss in revenues due to the Year 2000 issue.

  Although unlikely given that the Company has not experienced any year 2000
issues to date, there can be no assurance that any future unforeseen Year 2000
issues relating to either non-compliant internal operating systems or with
third party customers and suppliers will not arise.

                                      60
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of
American Golf Corporation and Subsidiaries

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and comprehensive income, shareholders'
equity and cash flows present fairly, in all material respects, the financial
position of American Golf Corporation and Subsidiaries at December 31, 1999
and 1998, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States. 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 of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audits 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.


PricewaterhouseCoopers LLP

Los Angeles, California
March 10, 2000

                                      61
<PAGE>

                   AMERICAN GOLF CORPORATION AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                       (In thousands, except share data)

<TABLE>
<CAPTION>
                                                              December 31,
                                                            ------------------
                                                              1999      1998
                                                            --------  --------
<S>                                                         <C>       <C>
                          ASSETS

Current assets:
  Cash and cash equivalents................................ $  3,536  $  1,453
  Accounts receivable--members (less allowance for doubtful
   accounts of $1,364 and $1,570 at December 31, 1999 and
   1998, respectively).....................................   24,940    22,627
  Other receivables........................................   36,735    26,603
  Receivables from affiliates, net.........................   13,502    11,580
  Inventories..............................................   17,259    14,670
  Prepaid expenses.........................................    3,320     5,876
                                                            --------  --------
      Total current assets.................................   99,292    82,809
Property, equipment and capital leases, net................  118,962   105,934
Leasehold rights...........................................   19,486    18,489
Deposits, licenses and other assets........................   12,579    10,206
Note receivable from shareholders..........................   28,539    29,000
                                                            --------  --------
      Total assets......................................... $278,858  $246,438
                                                            ========  ========

           LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Accounts payable......................................... $ 13,327  $ 10,113
  Notes payable--current portion:
    Shareholders...........................................       36        33
    Capital leases.........................................    2,776     2,446
    Other..................................................    3,322     2,309
  Accrued expenses.........................................   43,610    35,295
  Other liabilities........................................   23,851    21,593
  Deferred revenue.........................................   15,779    13,104
                                                            --------  --------
      Total current liabilities............................  102,701    84,893
  Notes payable--long-term portion:
    Shareholders...........................................      352       389
    Capital leases.........................................    2,860     1,733
    Other..................................................   86,646    79,108
  Accrued expenses.........................................   28,732    29,589
  Deferred revenue.........................................   42,614    36,848
                                                            --------  --------
      Total liabilities....................................  263,905   232,560
                                                            --------  --------
Minority interest..........................................      760       503
                                                            --------  --------
Shareholders' equity:
  Common stock--no par value; 10,000,000 shares authorized;
   6,312,617 and 6,294,918 shares outstanding at December
   31, 1999 and 1998, respectively.........................      390       --
  Retained earnings........................................   19,651    18,995
  Notes receivable from shareholders.......................   (5,576)   (5,576)
  Cumulative foreign currency translation adjustment.......     (272)      (44)
                                                            --------  --------
      Total shareholders' equity...........................   14,193    13,375
                                                            --------  --------
      Total liabilities and shareholders' equity........... $278,858  $246,438
                                                            ========  ========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       62
<PAGE>

                   AMERICAN GOLF CORPORATION AND SUBSIDIARIES

         CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
                                 (In thousands)

<TABLE>
<CAPTION>
                                                     For The Years Ended
                                                         December 31,
                                                  ----------------------------
                                                    1999      1998      1997
                                                  --------  --------  --------
<S>                                               <C>       <C>       <C>
Revenues:
  Green fees..................................... $242,998  $204,189  $188,725
  Cart rentals...................................   75,711    65,594    60,762
  Member dues and initiation fees................  126,312    99,955    82,994
  Food and beverage sales........................  134,092   108,665    89,633
  Merchandise sales..............................   58,281    50,790    44,695
  Other revenue..................................   52,473    40,074    43,203
  Management fees................................    7,708     6,586     7,119
                                                  --------  --------  --------
    Total revenues...............................  697,575   575,853   517,131
                                                  --------  --------  --------
Costs & expenses:
  Payroll and related expenses...................  240,179   203,265   188,808
  Cost of food and beverage sold.................   41,573    34,240    28,190
  Cost of merchandise sold.......................   34,652    31,682    28,598
  General and administrative.....................   52,232    46,121    42,604
  Repairs and maintenance........................   21,888    14,748    11,996
  Other operating expenses.......................  115,843    99,998    84,454
  Rents..........................................  161,436   126,779   109,141
  Depreciation and amortization..................   14,858    10,914     9,275
                                                  --------  --------  --------
    Total costs & expenses.......................  682,661   567,747   503,066
                                                  --------  --------  --------
Operating income.................................   14,914     8,106    14,065
                                                  --------  --------  --------
Other income (expense):
  Interest income................................    4,765     4,506     4,541
  Interest expense...............................   (9,103)   (7,594)   (5,823)
                                                  --------  --------  --------
    Income before provision for state income
     taxes and minority interest.................   10,576     5,018    12,783
Provision for state income taxes.................   (1,245)     (270)     (425)
                                                  --------  --------  --------
    Income before minority interest..............    9,331     4,748    12,358
Minority interest................................     (675)       (2)      (35)
                                                  --------  --------  --------
    Net income...................................    8,656     4,746    12,323
Other comprehensive income, net of tax:
    Foreign currency translation adjustment......     (228)       19       (40)
                                                  --------  --------  --------
    Comprehensive income......................... $  8,428  $  4,765  $ 12,283
                                                  ========  ========  ========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       63
<PAGE>

                   AMERICAN GOLF CORPORATION AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                       Cumulative
                                                                         Foreign
                          Common Stock               Notes Receivable   Currency       Total
                         ---------------  Retained         From        Translation Shareholders'
                         Shares  Amount   Earnings  Officers/Directors Adjustment     Equity
                         ------  -------  --------  ------------------ ----------- -------------
<S>                      <C>     <C>      <C>       <C>                <C>         <C>
Balance, December 31,
 1996................... 6,354   $ 8,080  $ 31,592       $(4,299)         $ (23)     $ 35,350
  Net income............   --        --     12,323           --             --         12,323
  Dividends.............   --        --    (15,849)          --             --        (15,849)
  Issuance of shares for
   notes receivable.....   149     4,235       --         (4,115)           --            120
  Purchase of shares
   from shareholders....   (65)   (5,721)      --          1,823            --         (3,898)
  Foreign currency
   translation
   adjustment...........   --        --        --            --             (40)          (40)
                         -----   -------  --------       -------          -----      --------
Balance, December 31,
 1997................... 6,438     6,594    28,066        (6,591)           (63)       28,006
  Net income............   --        --      4,746           --             --          4,746
  Dividends.............   --        --     (6,314)          --             --         (6,314)
  Issuance of shares for
   notes receivable.....    32     3,012       --         (3,012)           --            --
  Purchase of shares
   from shareholders....  (175)   (9,606)   (7,503)        4,027            --        (13,082)
  Foreign currency
   translation
   adjustment...........   --        --        --            --              19            19
                         -----   -------  --------       -------          -----      --------
Balance, December 31,
 1998................... 6,295       --     18,995        (5,576)           (44)       13,375
  Net income............   --        --      8,656           --             --          8,656
  Dividends.............   --        --     (8,000)          --             --         (8,000)
  Exercise of stock
   options..............    18       390       --            --             --            390
  Foreign currency
   translation
   adjustment...........   --        --        --            --            (228)         (228)
                         -----   -------  --------       -------          -----      --------
Balance, December 31,
 1999................... 6,313   $   390  $ 19,651       $(5,576)         $(272)     $ 14,193
                         =====   =======  ========       =======          =====      ========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       64
<PAGE>

                   AMERICAN GOLF CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                            For The Years Ended December 31,
                                            ----------------------------------
                                               1999        1998        1997
                                            ----------  ----------  ----------
<S>                                         <C>         <C>         <C>
Cash flows from operating activities:
  Net income............................... $    8,656  $    4,746  $   12,323
  Adjustments to reconcile net income to
   net cash provided by operating
   activities:
    Depreciation and amortization..........     14,858      10,914       9,275
    Minority interest .....................        675           2          35
    Increase (decrease) from changes in:
      Accounts receivable--members.........     (2,326)     (3,775)     (1,253)
      Other receivables....................    (10,153)     (8,282)     (4,243)
      Receivables from affiliates, net.....     (1,679)     (1,858)     (1,745)
      Inventories..........................     (2,622)     (2,334)       (875)
      Prepaid expenses.....................      2,523      (2,153)     (1,200)
      Licenses, deposits and other assets..     (2,395)      2,736      (5,160)
      Accounts payable.....................      2,304       5,181      (2,640)
      Accrued expenses.....................      8,210      (4,962)     33,692
      Other liabilities....................      2,373       3,616       6,766
      Deferred revenue.....................      8,442       8,780       6,857
                                            ----------  ----------  ----------
        Net cash provided by operating
         activities........................     28,866      12,611      51,832
                                            ----------  ----------  ----------
Cash flows from investing activities:
  Acquisition of property and equipment....    (24,130)    (26,220)    (13,758)
  Acquisition of leasehold rights..........     (2,764)     (1,759)     (4,730)
  Payment on note receivable from
   shareholders............................        461         --          --
                                            ----------  ----------  ----------
        Net cash used in investing
         activities........................    (26,433)    (27,979)    (18,488)
                                            ----------  ----------  ----------
Cash flows from financing activities:
  Proceeds from notes payable
        Other..............................     78,386      65,500      12,053
        Capital leases.....................      2,213         --          --
  Payments on notes payable
        Shareholders.......................        (34)        (31)        (29)
        Other..............................    (69,287)    (43,910)    (12,018)
        Capital leases.....................     (3,547)     (2,070)     (1,713)
  Purchase of shares from
   officers/directors......................        --      (13,082)     (1,447)
  Proceeds from issuance of common stock to
   shareholders............................        --          --          120
  Exercise of stock options................        390         --          --
  Dividends paid...........................     (8,000)     (6,314)    (15,849)
  Limited partner cash distributions.......       (418)        --          --
                                            ----------  ----------  ----------
        Net cash provided by (used in)
         financing activities..............       (297)         93     (18,883)
        Effect of exchange rate changes on
         cash and cash equivalents.........        (53)        (10)        (14)
        Net increase (decrease) in cash and
         cash equivalents..................      2,083     (15,285)     14,447
                                            ----------  ----------  ----------
Cash and cash equivalents, beginning of
 period....................................      1,453      16,738       2,291
                                            ----------  ----------  ----------
Cash and cash equivalents, end of period... $    3,536  $    1,453  $   16,738
                                            ==========  ==========  ==========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       65
<PAGE>

                  AMERICAN GOLF CORPORATION AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Organization and Summary of Significant Accounting Policies:

 Organization

  The consolidated financial statements include the accounts of American Golf
Corporation ("AGC" or "the Company"), a California subchapter S Corporation,
and its majority-owned subsidiaries, American Golf of Atlanta ("Atlanta"), a
Georgia general partnership, American Golf of Detroit ("Detroit"), a Michigan
general partnership, American Golf (UK) Limited ("AG(UK)"), a United Kingdom
limited liability company, CW Golf Partners ("CWP"), a California limited
partnership, and AGC--Park Hill Joint Venture ("Park Hill"), a Colorado
general partnership (collectively, the "Company"). AGC was formed in 1973 for
the purpose of operating public and private golf and tennis facilities on
leased premises. At both December 31, 1999 and 1998, 71% of the Company was
owned by David G. Price and Dallas P. Price ("The Prices"). The following
table lists AGC's majority-owned subsidiaries and selected information:

<TABLE>
<CAPTION>
                                              AGC
   Entity                   Formation Date Ownership                      Purpose
   ------                   -------------- ---------                      -------
   <S>                      <C>            <C>       <C>
   Atlanta................. June 1986         65%    To operate four courses in Atlanta, Georgia.
   Detroit................. December 1990     80%    To operate four courses in Detroit, Michigan.
   AG(UK).................. August 1993       75%    To operate courses in the United Kingdom.
   AGCWP................... September 1993    75%    To operate one course in Los Angeles, California.
   Park Hill............... December 1998     75%    To operate one course in Denver, Colorado.
</TABLE>

  The remaining 25% interest in AG(UK) is owned by European Golf Corporation,
an affiliate of AGC.

  The term "affiliate", as used in these financial statements, refers to any
entity in which The Prices have a controlling interest.

  At December 31, 1999, the Company leases 145 golf courses from National Golf
Properties, Inc. ("NGP"). David G. Price, Chairman of the Board of Directors
of NGP, and Dallas P. Price each own 2.9% of NGP's outstanding stock and 16%
of the common units of National Golf Operating Partnership, L.P. ("NGOP").

  On March 31, 1999, Golf Acquisitions, LLC ("Golf Acquisitions"), a new
limited liability company formed by a subsidiary of AGC and a subsidiary of
ClubCorp International ("ClubCorp"), purchased the Meditrust Corporation
("Meditrust") subsidiaries comprising the "Cobblestone Golf Group" for
approximately $391.3 million in cash and assumed debt. Upon the closing of the
stock purchase, AGC and ClubCorp divided the Cobblestone portfolio of 48 golf
courses with AGC allocated 24 owned, leased and managed golf courses.
Concurrently with closing its purchase, the Company and Golf Acquisitions sold
to NGP its interest in 20 of the golf courses. The Company entered into
agreements to lease or sublease 18 of the Cobblestone courses from NGP.

  On July 30, 1996, NGP purchased 20 golf courses from Golf Enterprises Inc.
which were then leased to the Company.

  NGP receives minimum annual base rent for these related golf courses equal
to 10% of its investment. The minimum base rent will be adjusted in specific
years based on increases in the CPI. Additionally, a percentage rent feature
allows NGP to participate in any growth in revenues.

 Principles of Consolidation

  All material intercompany transactions and balances have been eliminated in
consolidation.

 Use of Estimates

  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and

                                      66
<PAGE>

                  AMERICAN GOLF CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

 Inventories

  Inventories are stated at the lower of cost (using the first-in, first-out
method) or market. Inventories consist primarily of food, beverage, golf and
tennis equipment, and clothing and accessories.

 Revenue Recognition

  Revenue from green fees, cart rentals, food and beverage sales, merchandise
sales and range income are generally recognized at the time of sale.

  Revenue from membership dues are generally billed monthly and recognized in
the month earned. The monthly dues are structured to cover the club operating
costs and membership services. Initiation fees are generally refundable in 30
years. Accordingly, the difference between the amount of the initiation fees
and the net present value of the future obligation is recognized as revenue on
a straight-line basis over the expected average life of active membership,
unless uncertainty surrounding collectibility exists for initiation fees paid
either on terms or an installment basis. In addition, related incremental
direct costs (primarily commissions and percentage rent) are recorded in the
same manner as the revenues are recognized.

  The initiation fee deposit liability accretes over 30 years using the
interest method. The accretion is recorded to interest expense in the
accompanying consolidated statements of operations and comprehensive income.
At December 31, 1999, there are no initiation fee deposits that are
contractually due and payable during the next five years.

 Property, Equipment, Capital Leases and Leasehold Rights

  Property, equipment and leasehold rights are carried at cost. Property and
equipment under capital leases are stated at the lower of the present value of
the future lease payments at the beginning of the lease term or the fair value
at the inception of the lease.

  Depreciation of property and equipment is computed using the straight-line
method over the lesser of the estimated useful life of the asset (3 to 30
years) or the remaining term of the golf course lease. Property and equipment
held under capital leases and leasehold rights are amortized using the
straight-line method over the lesser of the lease term or the estimated useful
life of the asset.

  When property and equipment are sold or otherwise disposed of, the asset
account and related accumulated depreciation and amortization account are
relieved, and any gain or loss is included in operations. Expenditures for
maintenance and repairs are charged to operations. Significant expenditures
which extend the useful life of existing assets are capitalized.

 Impairment of Long-Lived and Intangible Assets

  The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 requires
that long-lived assets and certain identifiable intangibles to be held and
used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Certain long-lived assets and certain identifiable intangibles to
be disposed of must be reported at the lower of carrying amount or fair value
less costs to sell. The Company periodically assesses whether there has been
an impairment in the value of long-lived assets and certain identifiable
intangibles by considering factors such as expected future operating income,
trends and prospects, as well as the effects of demand, competition and other
economic factors. The Company determines whether there has been

                                      67
<PAGE>

                  AMERICAN GOLF CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

impairment by comparing the expected undiscounted future cash flow from each
golf course with the net carrying value for such golf course, including any
related intangible asset. Management believes no impairment has occurred.

 Stock-Based Employee Compensation Awards

  SFAS No. 123, "Accounting for Stock-Based Compensation" encourages, but does
not require, companies to record compensation cost for stock-based
compensation plans at fair value. The Company has adopted the disclosure
requirements of SFAS No. 123, which involves proforma disclosure of net income
under SFAS No. 123 and detailed descriptions of plan terms and assumptions
used in valuing stock option grants. The Company has chosen to continue to
account for stock-based employee compensation awards in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees."

 Comprehensive Income

  Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income," which establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption had
no impact on the Company's net income or shareholders' equity. Comprehensive
income includes foreign currency translation adjustments, which prior to
adoption were reported separately in shareholders' equity, but under SFAS No.
130 are to be included in other comprehensive income. Prior year financial
statements have been reclassified to conform to the requirements of SFAS No.
130.

 Concentration of Credit Risk

  Financial instruments which potentially subject the Company to concentration
of credit risk consist primarily of cash and cash equivalents and trade
receivables.

  The Company has cash in financial institutions which is insured by the
Federal Deposit Insurance Corporation ("FDIC") up to $100,000 per account. At
various times throughout the year and as of December 31, 1999, the Company had
cash in financial institutions which was in excess of the FDIC insurance
limit.

  Concentration of credit risk with respect to trade receivables, which
consists primarily of membership dues and charges, is limited due to the large
number of club members comprising the Company's customer base, and their
dispersion across many different geographic areas. The trade receivables are
billed and due monthly, and all probable bad debt losses have been
appropriately considered in establishing an allowance for doubtful accounts.
At December 31, 1999, the Company had no significant concentration of credit
risk.

 Fair Value of Financial Instruments

  To meet the reporting requirements of SFAS No. 107, "Disclosures about Fair
Value of Financial Instruments," the Company calculates the fair value of
financial instruments and includes this additional information in the notes to
the consolidated financial statements when the fair value is materially
different than the carrying value of those financial instruments. When the
fair value reasonably approximates the carrying value, no additional
disclosure is made. The Company uses quoted market prices, when available, or
discounted cash flows to calculate these fair values.

 Cash and Cash Equivalents

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

                                      68
<PAGE>

                  AMERICAN GOLF CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 Advertising

  The Company expenses advertising costs as incurred. Advertising costs for
the years ended December 31, 1999, 1998 and 1997 were approximately
$7,667,000, $7,375,000 and $5,627,000, respectively.

 Foreign Currency Translation

  The Company translates foreign currency financial statements by translating
balance sheet accounts at the year-end exchange rate and income statement
accounts at the average exchange rate for the year. Translation gains and
losses are recorded in shareholders' equity, and realized gains and losses are
included in operations. The effect of realized gains and losses is not
material to the consolidated financial statements.

(2) Change in Accounting Policy:

  During 1998, based on a recent Securities and Exchange Commission
pronouncement, the Company changed its accounting policy for member initiation
fees to defer such revenues and recognize them on a straight-line basis over
the expected average life of active membership. The Company previously
recognized as revenue the difference between the amount of the fees and the net
present value of the future obligation at the time of sale, unless for
initiation fees paid either on terms or an installment basis uncertainty
surrounding collectibility existed. In addition to the deferral of member
initiation fees, the Company has deferred the related incremental direct costs
(primarily commissions and percentage rent) and is recording such costs in the
same manner as the revenues are recognized. As noted below, this change in
accounting policy resulted in a reduction to previously reported revenues and
net income. The deferred member initiation fees and related incremental direct
costs will be recognized in future periods over the expected average life of
active membership. Accordingly, the accompanying consolidated financial
statements have been retroactively adjusted to reflect this change for all
periods presented. The impact of the restatement is summarized as follows:

<TABLE>
<CAPTION>
                                                                1998     1997
                                                              --------  -------
                                                               (In thousands)
   <S>                                                        <C>       <C>
   Total revenues............................................ $(10,422) $(8,101)
   Net income................................................   (8,780)  (6,857)
</TABLE>

  In addition, this change resulted in a decrease in retained earnings of
$49,952,000 and $41,172,000 at December 31, 1998 and 1997, respectively.

(3) Receivables from Affiliates, net:

  The receivables from affiliates are uncollateralized and due within one
year.

                                      69
<PAGE>

                  AMERICAN GOLF CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


(4) Property, Equipment and Capital Leases:

  Property, equipment and capital leases consist of the following:

<TABLE>
<CAPTION>
                                                Estimated
                                                 Useful      December 31,
                                                  Lives   -------------------
                                                 (Years)    1999       1998
                                                --------- ---------  --------
                                                            (In thousands)
   <S>                                          <C>       <C>        <C>
   Golf course improvements....................   10-20   $  80,782  $ 71,848
   Buildings...................................   15-30      45,825    43,242
   Furniture, fixtures, machinery and
    equipment..................................    3-7       38,777    31,108
   Equipment under capital leases..............    3-7       12,149     9,299
                                                          ---------  --------
                                                            177,533   155,497
   Less: accumulated depreciation..............             (65,498)  (52,687)
                                                          ---------  --------
                                                            112,035   102,810
   Construction-in-progress....................               6,927     3,124
                                                          ---------  --------
                                                          $ 118,962  $105,934
                                                          =========  ========
</TABLE>

  Equipment under capital leases includes golf carts, turf and maintenance
equipment, computers, and other office equipment.

  No interest was capitalized for the years ended December 31, 1999 and 1998.
Interest capitalized for the year ended December 31, 1997 was approximately
$177,000.

(5) Note Receivable from Shareholders:

  During 1996, the Company loaned $29,000,000 to The Prices. The note is due
in 2004. The note bears interest at 9.35% and is payable semi-annually.

(6) State Income Taxes:

  The Company has elected to be taxed as an S corporation under the Internal
Revenue Code of 1986, as amended. Accordingly, corporate income is taxed
directly to the shareholders for federal income tax reporting purposes. The
Company therefore has no provision in its consolidated financial statements
for federal income taxes. The following is the provision for state franchise
and income taxes for the years ended December 31, 1999, 1998 and 1997:

<TABLE>
<CAPTION>
                                                                 December 31,
                                                               ----------------
                                                                1999  1998 1997
                                                               ------ ---- ----
                                                                (In thousands)
   <S>                                                         <C>    <C>  <C>
   Current.................................................... $  --  $--  $270
   Deferred...................................................  1,245  270  155
                                                               ------ ---- ----
     Total provision for state income taxes................... $1,245 $270 $425
                                                               ====== ==== ====
</TABLE>

                                      70
<PAGE>

                  AMERICAN GOLF CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


(7) Notes Payable--Shareholders:

  The notes are due in 2007 and bear interest at 8%. Interest expense to the
shareholders for the years ended December 31, 1999, 1998 and 1997 was
approximately $33,000, $35,000 and $37,000, respectively.

  The following are annual maturities on notes payable to shareholders:

<TABLE>
<CAPTION>
     Years Ended December 31,                                        Amount
     ------------------------                                     -------------
                                                                  (In thousands)
     <S>                                                          <C>
       2000.....................................................      $ 36
       2001.....................................................        39
       2002.....................................................        42
       2003.....................................................        46
       2004.....................................................        50
       Thereafter...............................................       175
                                                                      ----
                                                                      $388
                                                                      ====
</TABLE>

(8) Notes Payable--Others:

  Notes payable to others consist of the following:

<TABLE>
<CAPTION>
                                                              December 31,
                                                     -------------------------------
                                                          1999            1998
                                                     --------------- ---------------
                                                             (In thousands)
                                                              Long-           Long-
                           Interest      Interest    Current  Term   Current  Term
Type of Collateral           Rate        Payments    Portion Portion Portion Portion Maturity
------------------        -----------  ------------- ------- ------- ------- ------- --------
<S>                       <C>          <C>           <C>     <C>     <C>     <C>     <C>
Collateralized note.....       9%-23%     Monthly    $  --   $   --  $   18  $   --   4/1999
Uncollateralized line of
 credit.................    Reference     Monthly       --    32,490    --    22,000  3/2002
Collateralized note.....      9.5%       Quarterly      111    2,105     80    2,326 12/2001
Uncollateralized note...      6.1%       Annually       817      817    817    1,634  1/2002
Uncollateralized note...      8.3%       Quarterly       50       83     46      133  6/2002
Collateralized note.....      9.4%     Semi-Annually  1,624   37,664    660   40,840  7/2004
Collateralized note.....      8.0%       Quarterly      290    3,670    281    4,115  9/2009
Collateralized note.....      9.5%       Quarterly      277    4,085    262    4,520  1/2010
Collateralized note.....      9.2%       Quarterly      153    3,267    145    3,540 11/2012
Collateralized note.....  Libor + 1.5%   Quarterly      --     2,465    --       --   9/2014
                                                     ------  ------- ------  -------
                                                     $3,322  $86,646 $2,309  $79,108
                                                     ======  ======= ======  =======
</TABLE>

  At December 31, 1999 and 1998, the bank prime and reference rate was 8.50%
and 7.75%, respectively.

  The following are annual maturities on notes payable to others:

<TABLE>
<CAPTION>
     Years Ended December 31,                                         Amount
     ------------------------                                     --------------
                                                                  (In thousands)
     <S>                                                          <C>
       2000.....................................................     $ 3,322
       2001.....................................................       5,361
       2002.....................................................      37,414
       2003.....................................................       5,390
       2004.....................................................       3,554
       Thereafter...............................................      34,927
                                                                     -------
                                                                     $89,968
                                                                     =======
</TABLE>

                                      71
<PAGE>

                  AMERICAN GOLF CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The note agreements and credit facilities contain, among other covenants,
working capital maintenance, fixed charge and debt to net worth ratios,
minimum tangible net worth amounts, and certain restrictions regarding
indebtedness to others.

  On December 31, 1997, the Company entered into a $40 million revolving
credit facility and a $13.5 million standby letter of credit facility with a
commercial bank that bears interest at prime or a Libor based rate. Letters of
credit issued under these credit facilities are charged a 1.5% annual letter
of credit fee. On March 10, 2000, the Company entered into a commitment to
amend its revolving credit facility. When executed, the amendment will include
an increase in the amount available under the line of credit to $60 million,
of which $10 million will expire on July 31, 2000 and $50 million will expire
on March 29, 2002. The amendment will also include the Company's guarantee of
approximately $15 million of debt outstanding under a term loan and line of
credit of an affiliate. The revolving credit facility is used to finance
working capital requirements. At December 31, 1999, there was $32.5 million
outstanding and $2.5 million in standby letters of credit outstanding against
the revolving credit facility. The $13.5 million standby letter of credit
facility, which expires on August 17, 2000, supports outstanding letters of
credit issued in favor of NGP, pursuant to the terms of the leases between NGP
and AGC.

  In December 1996, the Company placed $41.5 million of fixed rate senior
collateralized notes due 2004 with a group of institutional investors. The net
proceeds from the private placement were used to repay bank debt and provide a
$29 million loan to The Prices.

  The credit facilities and the private placement loan are collateralized by
the issued and outstanding stock of an affiliate.

(9) Notes Payable--Capital Leases:

  Future minimum payments, by year and in the aggregate, under capital leases
with initial remaining terms of one year or more consist of the following at
December 31, 1999:

<TABLE>
<CAPTION>
     Years Ended December 31,                                         Amount
     ------------------------                                     --------------
                                                                  (In thousands)
     <S>                                                          <C>
        2000.....................................................     $3,229
        2001.....................................................      1,881
        2002.....................................................        987
        2003.....................................................        277
        2004.....................................................          7
        Thereafter...............................................          4
                                                                      ------
      Total minimum lease payments...............................      6,385
      Amount representing interest...............................        749
                                                                      ------
      Present value of net minimum lease payments................      5,636
      Current portion............................................      2,776
                                                                      ------
      Long-term portion..........................................     $2,860
                                                                      ======
</TABLE>

(10) Employee Benefit Plans:

 1994 Equity Participation Plan

  In 1994, the Company established the 1994 Equity Participation Plan, as
amended (the "1994 Plan"). Under the 1994 Plan, 1,200,000 shares may be
awarded to key employees as either nonqualified stock options, performance
awards, or the right to purchase common stock. There were 133,506 and 200,968
shares available under the 1994 Plan as of December 31, 1999 and 1998,
respectively. In 1998, the Company issued 31,700 shares

                                      72
<PAGE>

                  AMERICAN GOLF CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

of common stock at $95.00 per share and received a note receivable totaling
$3,012,000. The Company also repurchased 175,307 shares of common stock issued
under the 1994 Plan at prices ranging from $80.55 to $95.00 per share. As part
of the repurchase, notes receivable totaling $4,026,000 were paid off. In
1997, the Company issued 149,264 shares of common stock at prices ranging from
$22.05 to $43.12 per share and received notes receivable totaling $4,115,000.
The Company also repurchased 65,236 shares of common stock issued under the
1994 Plan at prices ranging from $87.05 to $88.06 per share. As part of the
repurchase, notes receivable totaling $1,823,000 were paid off.

  Stock options granted vest over a three to five year period and are subject
to continued employment and the Company achieving certain financial
performance targets. The fair value of stock options granted is estimated
using the minimum value pricing method with the following assumptions: (i)
risk-free interest rate of 7.0%, (ii) expected option life of seven years,
(iii) forfeiture rate of zero, (iv) no expected volatility and (v) a dividend
yield of 5%.

  The summary of the status of the Company's stock options as of December 31,
1999, 1998 and 1997, and the activity with executives, key employees and
members of the AGC Board of Directors during the years then ended is presented
below:

<TABLE>
<CAPTION>
                                1999              1998              1997
                          ----------------- ----------------- -----------------
                                   Weighted          Weighted          Weighted
                                   Average           Average           Average
                          Number    Option  Number    Option  Number    Option
                            of     Exercise   of     Exercise   of     Exercise
                          Shares    Price   Shares    Price   Shares    Price
                          -------  -------- -------  -------- -------  --------
<S>                       <C>      <C>      <C>      <C>      <C>      <C>
Outstanding at beginning
 of year................  642,835   $50.56  440,424   $26.60  350,595   $22.05
Granted--price equals
 fair value.............   76,080    75.68  259,071    86.28   15,821    22.05
Granted--price greater
 than fair value........      --       --       --       --    95,127    43.12
Exercised...............  (17,699)   22.05   (9,395)   22.05      --       --
Canceled................  (75,114)   57.30  (47,265)   28.77  (21,119)   22.05
                          -------   ------  -------   ------  -------   ------
Options outstanding at
 year end...............  626,102   $53.61  642,835   $50.56  440,424   $26.60
                          =======   ======  =======   ======  =======   ======
Options exercisable at
 year end...............  366,206           347,516           290,314
                          =======           =======           =======
</TABLE>

  The following table summarizes information about stock options outstanding
at December 31, 1999:

<TABLE>
<CAPTION>
                           Options Outstanding         Options Exercisable
                    --------------------------------- ---------------------
                       Number     Weighted               Number
                    Outstanding    Average   Weighted Outstanding  Weighted
                         at       Remaining  Average       at      Average
                    December 31, Contractual Exercise December 31, Exercise
   Exercise price       1999        Life      Price       1999      Price
   --------------   ------------ ----------- -------- ------------ --------
   <S>              <C>          <C>         <C>      <C>          <C>
       22.05          258,503        2.0      22.05     258,503     22.05
       43.12          107,703        3.2      43.12     107,703     43.12
       95.00          183,816        5.0      95.00         --        --
       75.68           76,080        4.0      75.68         --        --
                      -------                           -------
                      626,102                           366,206
                      =======                           =======
</TABLE>

                                      73
<PAGE>

                  AMERICAN GOLF CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


(10) Employee Benefit Plans (Continued):

  The Company adopted the disclosure only provision of SFAS No. 123 and
accordingly, no compensation expense has been recognized for stock option
grants to executives, key employees and members of the AGC Board of Directors.
Had compensation expense for such grants been determined based on the fair
value of the award, at the grant date, consistent with the provisions of SFAS
No. 123, the Company's net income would have been reduced to the proforma
amounts indicated below:

<TABLE>
<CAPTION>
                                                           For the year ended
                                                              December 31,
                                                          ---------------------
                                                           1999   1998   1997
                                                          ------ ------ -------
                                                             (In thousands)
   <S>                                                    <C>    <C>    <C>
   Net income--as reported............................... $8,656 $4,746 $12,323
                                                          ====== ====== =======
   Net income--pro-forma................................. $8,656 $4,746 $12,301
                                                          ====== ====== =======
</TABLE>

  In 1995, performance awards were granted to key members of management who
were not awarded the right to purchase common stock or nonqualified stock
options. The 1994 Plan provides that holders of performance awards have the
right to receive an amount equal to the appreciation in share value (as
measured by a predetermined formula based on the Company's earnings).
Performance awards issued in 1995 were scheduled to mature on December 31,
1998. In 1998, the Company granted these holders of performance awards the
right to receive, as a prepayment, a portion of their appreciation in share
value based on the 1997 share price, payable in 1999, and extend the maturity
date of the performance shares to December 31, 1999. The appreciation in share
value, less the prepayment, is payable in three equal annual installments,
beginning in early 2000. In 1999, the Company issued 66,496 performance awards
with a maturity date of December 31, 2001 payable in three annual installments
beginning in early 2002. Performance awards vest based on the Company
achieving certain earnings targets and are subject to continued employment.
Performance awards outstanding totaled 246,742 and 191,884 as of December 31,
1999 and 1998, respectively. For the years ended December 31, 1999 and 1997
compensation expense recorded was $4,429,000 and $17,500,000, respectively.
For the year ended December 31, 1998, no compensation expense was recorded
with respect to the performance awards as management determined that the
accrual recorded in 1997 was adequate based on earnings estimates of the
Company for the year ended December 31, 1998.

 401(k) Employee Savings Plan

  The Company has a 401(k) Employee Savings Plan available to all employees
who have earned one year of vesting service and are at least 21 years of age.
Participants may contribute from 1% to 10% of their gross pay, in whole
percentages, on a before-tax basis. The Company contributes to participants'
accounts based on the amount the participant elects to defer and a matching
contribution equal to $0.50 on each dollar contributed by a participant up to
3% of the participant's gross pay. The Company's expense for the plan for the
years ended December 31, 1999, 1998 and 1997 was approximately $1,046,000,
$947,000 and $796,000, respectively.

                                      74
<PAGE>

                  AMERICAN GOLF CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


(11) Commitments and Contingencies:

  The Company is the lessee under long-term operating leases for golf courses
and equipment. At December 31, 1999, future minimum rental payments required
pursuant to the terms of all lease obligations are as follows:

<TABLE>
<CAPTION>
   Years Ended December 31,         Related Parties Unrelated Parties   Total
   ------------------------         --------------- ----------------- ----------
                                                   (In thousands)
   <S>                              <C>             <C>               <C>
     2000.........................    $  102,036        $ 46,847      $  148,883
     2001.........................       102,802          42,111         144,913
     2002.........................       103,761          37,275         141,036
     2003.........................       104,719          32,779         137,498
     2004.........................       105,678          28,574         134,252
     Thereafter...................       787,757         339,814       1,127,571
                                      ----------        --------      ----------
                                      $1,306,753        $527,400      $1,834,153
                                      ==========        ========      ==========
</TABLE>

  In addition to minimum rental payments, certain leases require payment of
the excess of various percentages of gross revenue over the minimum rental
payments. During the years ended December 31, 1999, 1998 and 1997, percentage
rentals paid to unrelated parties were approximately $11,963,000, $9,572,000
and $10,179,000, respectively.

  Under the terms of certain leases, the Company is committed to make
improvements at golf courses. At December 31, 1999, approximately $5,538,000
of such improvements remain to be made.

  At December 31, 1999, the Company was contingently liable for outstanding
letters of credit in the amount of approximately $16,060,000.

  The Company has continuing litigation matters and other contingencies
incurred in the ordinary course of business and has recorded allowances for
the payment of these contingencies when such amounts can be estimated and are
considered material to the results of operations. Where no allowance has been
recorded, the Company does not consider the contingencies material to its
consolidated financial position, results of operations or cash flows.

(12) Related Party Transactions:

  The Company rents golf and tennis facilities from NGP and related entities
in which The Prices have a controlling interest. Rent expense paid to NGP was
approximately $98,705,000, $80,027,000 and $71,434,000 for the years ended
December 31, 1999, 1998 and 1997, respectively. Rent expense paid to related
entities in which The Prices have a controlling interest was approximately
$3,612,000, $3,439,000 and $3,485,000 for the years ended December 31, 1999,
1998 and 1997 respectively.

  The Company recorded net management fees from related entities in the amount
of approximately $2,128,000, $1,504,000 and $2,610,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.

  The Company has accumulated costs in Other Receivables relating to
construction in progress at certain golf and tennis facilities owned by NGP.
Periodically, substantially all of these costs are reimbursed by NGP and
related entities. At December 31, 1999 and 1998, these accumulated costs
amounted to approximately $17,535,000 and $8,855,000, respectively.

                                      75
<PAGE>

                  AMERICAN GOLF CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The Company earns interest on receivables from affiliates at a prime based
rate. Interest income from affiliates was approximately $222,000, $247,000 and
$587,000 for the years ended December 31, 1999, 1998, and 1997, respectively.

  Included in Other Receivables are receivables from employees at December 31,
1999 and 1998 of approximately $426,000 and $341,000, respectively.

(13) Statement of Cash Flows--Supplemental Disclosures:

  Interest paid for the years ended December 31, 1999, 1998 and 1997 was
approximately $7,524,000, $6,815,000 and $5,192,000, respectively.

  State income taxes paid for the years ended December 31, 1999, 1998 and 1997
were approximately $50,000, $259,000 and $38,000, respectively.

  During 1999 the Company assumed capital leases for equipment of $2,850,000

(14) Shareholders' Equity:

  As discussed in Note 10 to the consolidated financial statements, the
Company has issued 298,525 shares of common stock to key employees for notes
receivable with a balance at December 31, 1999, 1998, and 1997 of $5,576,000,
$5,576,000, and $6,591,000, respectively. The notes receivable bear interest
ranging from six to seven percent and the principal is due in 2004. The notes
are collateralized by the common stock issued and are shown on the
consolidated balance sheets as a reduction in shareholders' equity. Interest
income accrued on the notes receivable was approximately $425,000, $425,000
and $491,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.

  Interest is paid with proceeds from shareholder distributions and, if
necessary, a portion of their annual bonus. To the extent these amounts are
insufficient to cover the current year interest, the unpaid interest may be
added to the principal of the note. No amounts were added to principal for the
years ended December 31, 1999, 1998 and 1997.

(15) Subsequent Event:

  On February 14, 2000, the Company entered into a letter of intent with
Book4golf.com Corporation ("Book4golf") to become the Company's exclusive
internet tee-time provider. The letter of intent provides for the immediate
payment of $400,000 and delivery of 150,000 common shares of Book4golf to the
Company. A further payment of $3,600,000 and the delivery of an additional
5.85 million common shares of Book4golf will be made to the Company upon
execution of a definitive agreement. In addition, the Company will be provided
with the opportunity of earning an additional one million common shares of
Book4golf pursuant to certain performance-based criteria. Completion of the
transaction is subject to a number of conditions, including the execution of
definitive agreements, satisfactory due diligence and receipt of all requisite
regulatory approvals.

                                      76
<PAGE>

                                  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.

                                          NATIONAL GOLF PROPERTIES, INC.

                                                  /s/ James M. Stanich
                                          By: _________________________________
                                                      James M. Stanich
                                                         President

  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 and on the dates indicated.

<TABLE>
<CAPTION>
              Signatures                          Title                  Date
              ----------                          -----                  ----

 <C>                                  <S>                           <C>
        /s/ David G. Price            Chairman of the Board         March 27, 2000
 ____________________________________
            David G. Price

       /s/ James M. Stanich           President and Director        March 27, 2000
 ____________________________________  (Principal Executive
           James M. Stanich            Officer)

        /s/ Neil M. Miller            Vice President--Finance       March 27, 2000
 ____________________________________
            Neil M. Miller

       /s/ William C. Regan           Vice President--Controller    March 27, 2000
 ____________________________________  and Treasurer
           William C. Regan

      /s/ Richard A. Archer           Director                      March 27, 2000
 ____________________________________
          Richard A. Archer

     /s/ John C. Cushman, III         Director                      March 27, 2000
 ____________________________________
         John C. Cushman, III

         /s/ Bruce Karatz             Director                      March 27, 2000
 ____________________________________
             Bruce Karatz

       /s/ Charles S. Paul            Director                      March 27, 2000
 ____________________________________
           Charles S. Paul

       /s/ Edward R. Sause            Director                      March 27, 2000
 ____________________________________
           Edward R. Sause
</TABLE>

                                      77