<PAGE>
                                       
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K

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

                   For the fiscal year ended December 31, 1998
                                       OR

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

                        For the transition period from to

                          Commission File Number 1-7585

                      THE NEWHALL LAND AND FARMING COMPANY
                      ( A CALIFORNIA LIMITED PARTNERSHIP )
             (Exact name of Registrant as specified in its charter)

                        CALIFORNIA                      95-3931727
              (State or other jurisdiction of        (I.R.S. Employer
               incorporation or organization)       Identification No.)

              23823 VALENCIA BOULEVARD, VALENCIA, CALIFORNIA 91355 
              (Address of principal executive offices) (Zip Code)

        Registrant's telephone number, including area code (661) 255-4000

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

                                               Name of each exchange
              Title of each class               on which registered
              -------------------              -----------------------
              Depositary Receipts              New York Stock Exchange
                                               Pacific Stock Exchange

        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. __

         The aggregate market value of depositary receipts held by 
non-affiliates based upon the closing price of such depositary receipts on 
the New York Stock Exchange on February 26, 1999 was $754,925,074.

<PAGE>
                                       
                      THE NEWHALL LAND AND FARMING COMPANY

                                      1998
                                    FORM 10-K

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                                Page
                                                                                                               Number
                                                                                                               ------
<S>                                                                                                            <C>
PART I

Item 1.        Business                                                                                            1

Item 2.        Properties                                                                                          5

Item 3.        Legal Proceedings                                                                                   7

Item 4.        Submission of Matters to a Vote of Security Holders                                                 7


PART II

Item 5.        Market for the Registrant's Depositary Units and Related Security Holder Matters                    7

Item 6.        Selected Financial Data                                                                             8

Item 7.        Management's Discussion and Analysis of Financial Condition and Results of Operations              10

Item 8.        Financial Statements and Supplementary Data                                                        20

Item 9.        Changes In and Disagreements with Accountants on Accounting and Financial Disclosure               38


PART III

Item 10.       Directors and Executive Officers of the Registrant                                                 39

Item 11.       Executive Compensation                                                                             45

Item 12.       Security Ownership of Certain Beneficial Owners and Management                                     55

Item 13.       Certain Relationships and Related Transactions                                                     56


Part IV

Item 14.       Exhibits, Financial Statement Schedules, and Reports on Form 8-K                                   57

SIGNATURES                                                                                                        60

SCHEDULE III   Real Estate and Accumulated Depreciation                                                           62

INDEX TO EXHIBITS                                                                                                 65

</TABLE>


<PAGE>
                                       
                                    PART I

ITEM  1.  BUSINESS

INTRODUCTION

The Newhall Land and Farming Company (a California Limited Partnership) ("the 
Company" or "the Partnership") is engaged in the development of residential, 
industrial and commercial real estate and in agriculture, on its 
approximately 90,000 acres in California. The interests in the Company (other 
than those held by the general partners) are represented by transferable 
Depositary Units listed on the New York and Pacific Stock Exchanges under the 
ticker symbol NHL. The Company was reorganized from a corporation to a 
limited partnership on January 8, 1985. The predecessor corporation was 
established in 1883 by the family of Henry Mayo Newhall; the shares of the 
corporation were listed on the New York Stock Exchange in 1970.

The Company's primary business is developing master-planned communities. 
Since 1965, the Company has been developing the town of Valencia on a portion 
of the Company's landholdings in Los Angeles County which now is home to 
approximately 37,000 residents and 1,200 companies that provide 35,000 jobs. 
With approximately 7,200 acres remaining to be developed, and buildout 
expected by 2005, Valencia is the regional center for north Los Angeles 
County and the northern gateway to the entire Los Angeles metropolitan area. 
In 1994, the Company started the entitlement process on Newhall Ranch, a new 
master-planned community located on 12,000 acres adjacent to Valencia and 
west of Interstate 5. In November, 1998, the Los Angeles County Board of 
Supervisors gave preliminary approval for the project. The Newhall Ranch 
Specific Plan permits 21,600 homes in five villages and 1,000 acres of 
commercial, business park and mixed-use development. Approximately 6,200 
acres of mountain, river and other environmentally significant land will be 
dedicated as open space. The Board of Supervisors directed its staff to 
prepare the needed documents for final approval, which is expected to occur 
in the first quarter of 1999. Development is planned to begin in 2002.

Valencia and Newhall Ranch together form one of the nation's most valuable 
landholdings. They are located on the Company's prime landholding 
approximately 30 miles north of downtown Los Angeles and just north of the 
San Fernando Valley, which has a population of over 1.3 million people. The 
property is bisected by Interstate 5, California's principal north-south 
freeway, and four major freeways intersect Interstate 5 within ten minutes of 
Valencia. This provides businesses and residents easy access to the Los 
Angeles metropolitan area, major airports and the ports of Los Angeles and 
Long Beach.

In the late 1980s, the Company adopted the strategy of selling farm 
properties with little or no potential for development and re-deploying the 
proceeds into real estate operations. As of December 31, 1998, more than 
31,000 acres of non-strategic farmland have been sold, including a 970-acre 
parcel at the Merced Ranch sold in 1998.

Financial information concerning the Company's business segments appears in 
Note 10 of the Notes to Consolidated Financial Statements in this Annual 
Report. Information regarding competition and compliance with governmental 
and environmental regulations appears in the Inflation, Risks and Related 
Factors section of the Management's Discussion and Analysis of Financial 
Condition and Results of Operations in this Annual Report. At December 31, 
1998, the Company employed 222 persons, including 14 classified as 
seasonal/temporary.

COMPETITION

The sale and leasing of residential, industrial and commercial real estate is 
highly competitive, with competition coming from numerous and varied sources. 
The degree of competition is affected by such factors as the supply of real 
estate available which is comparable to that sold and leased by the Company 
and the level of demand for such real estate. While the Company recently has 
continued to increase its market share at both the local and the county 
level, new competition is expected to deliver competing projects in the 
future that could reverse this trend.

APPRAISAL OF REAL PROPERTY ASSETS

The December 31, 1998 appraisal represents the last year the Company will be 
reporting the value of its assets. While valuation of income properties is 
relatively straightforward (generally capitalizing expected rental streams), 
appraising large, undeveloped land parcels like the Company owns is 
subjective and dependent upon several variables, including the timing of 
development, absorption rates, changes in sales prices and discount rates. 
Disclosure has been expanded regarding the performance, by segment, of the 
commercial portfolio. Information on landholdings, including entitled and 
unentitled lots, also has been expanded which will improve the Company's 
investors' ability to reach their own conclusions about value.

                                       1

<PAGE>

ITEM 1. BUSINESS (continued)

The independent firm of Buss-Shelger Associates, MAI real estate appraisers, 
appraised the market value of the Company's real property assets to be $1.1 
billion at December 31, 1998. The appraised properties did not include oil 
and gas assets, water supply systems, cash and cash equivalents and certain 
other assets. The net appraised value of the Company's total assets, 
including assets not independently appraised, was $971 million, after 
reducing for debt and certain other liabilities as shown in the table on page 
2.

For the purpose of the appraisals, market value was defined as the most 
probable price in terms of money which a property should bring in a 
competitive and open market under all conditions requisite to a fair sale, 
the buyer and seller each acting prudently, knowledgeably and assuming the 
price is not affected by undue stimulus. A significant portion of the 
appraised real property assets is located on the Company's 36,000 acres, 30 
miles north of downtown Los Angeles and currently is undeveloped.

Entitlements and the continuing development of Valencia enhance the appraised 
value of the Company's land assets. Although raw land increases in value as 
development opportunities arise, the most significant increase occurs when 
necessary land use entitlements, including zoning and mapping approvals, are 
obtained from city and county governments. The appraised value of the 
Company's land and income-producing properties in the Valencia master-planned 
community has increased from $222 million in 1984, the first year independent 
property appraisals were obtained, to $889 million in 1998. The Company's net 
appraised value has increased from $11.74 to $29.72 on a per unit basis over 
the same 15-year period.

A summary of appraised values of properties owned for each of the last five 
years as of December 31 follows (the appraisals were performed by independent 
appraisers except as noted):
                                       
                               APPRAISED VALUES

<TABLE>
<CAPTION>
                                                        1998                  1997                1996      
                                              ------------------------  -----------------   -----------------
                                                               Percent           Percent             Percent
$ IN MILLIONS, EXCEPT PER UNIT                  Acres   Amount  Change  Amount    Change    Amount    Change 
-------------------------------------------------------------------------------------------------------------
<S>                                           <C>       <C>    <C>      <C>      <C>        <C>        <C>
Valencia and nearby properties                  7,225    $454      8%     $420      - %       $420       (7)%
Income-producing real estate                      810     435      2       425     14          372       16  
                                              ---------------------------------------------------------------
                                                                                                             
Total Valencia area properties                  8,035     889      5       845      7          792        3  

Other community development properties:                                                                      
                                                                                                             
Newhall Ranch, McDowell Mountain, (1)                                                                        
 Cowell and Suey                               48,660     133     58        84     20           70      (29)
                                                                                                             
Agricultural properties                        33,080      66      3        64      3           62        3  
                                                                                                             
Mortgage and other debt at                                                                                   
 book carrying value                                     (158)     1      (157)    (4)        (163)       7)

All other, net, not independently appraised                41     14        36    (27)          49      (20) 
                                              ---------------------------------------------------------------
Net appraised value                            89,775    $971     11%     $872      8%        $810       (3)% 
                                              ---------------------------------------------------------------
                                              ---------------------------------------------------------------
Number of partnership units
 outstanding ( 000's )                                 32,676     (5)%  34,527      -       34,701       (3)% 
                                                       ------------------------------------------------------
                                                       ------------------------------------------------------
Net appraised value
 per partnership unit                                  $29.72     18 %  $25.25      8%      $23.35        -% 
                                                       ------------------------------------------------------
                                                       ------------------------------------------------------

<CAPTION>

                                                      1995                      1994
                                              ----------------------     --------------------
                                                            Percent                 Percent
$ IN MILLIONS, EXCEPT PER UNIT                 Amount        Change      Amount      Change
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
<S>                                           <C>           <C>          <C>        <C>

Valencia and nearby properties                   $450        (7)%          $486           3%
Income-producing real estate                      321        15             280           3
                                              -----------------------------------------------
Total Valencia area properties                    771         1             766           3

Other community development properties:                                                          
                                                                                                 
Newhall Ranch, McDowell Mountain, (1)                                                            
 Cowell and Suey                                   98        14              86          30         
                                                                                                 
Agricultural properties                            60       (10)             67         (16)        
                                                                                                  
Mortgage and other debt at                                                                       
 book carrying value                             (152)        4            (146)        (16)        

All other, net, not independently appraised        61        97              31         (45)                  
                                               ----------------------------------------------
Net appraised value                              $838         4%           $804           4%
                                               ----------------------------------------------
                                               ----------------------------------------------
Number of partnership units
 outstanding ( 000's )                         35,910        (2)%        36,761           --
                                               ----------------------------------------------
                                               ----------------------------------------------
Net appraised value
 per partnership unit                          $23.32         7 %        $21.86           4%
                                               ----------------------------------------------
                                               ----------------------------------------------

</TABLE>

Appraised values are judgments. Land and property appraisals are an estimated 
value based on the sale of comparably located and zoned real estate or on the 
present value of income anticipated from commercial properties. There is no 
assurance that the appraised value of property would be received if any of 
the assets were sold. No assumptions have been made with respect to the bulk 
sale of the Company's total real estate assets. Certain reclassifications 
within categories have been made to conform to the current year presentation; 
however, prior period amounts have not been restated to reflect land sale 
activity, unit repurchases or distributions to unitholders. For the five-year 
period ended 1998, the Company has invested $88 million in unit repurchases 
and paid out $78 million in distributions.

(1) McDowell Mountain Ranch in Scottsdale, Arizona was sold in 1996.

                                       2

<PAGE>

ITEM 1.  BUSINESS (continued)

REAL ESTATE

The Company is developing the communities of Valencia and Newhall Ranch on 
its remaining over 19,000 contiguous acres of prime property in Los Angeles 
County, California. Plans for these communities include over 30,000 new homes 
and 1,700 acres of commercial, industrial, business and mixed-use development.

Valencia's development is focused around a town center and is based on a 
master plan with residential and industrial developments forming the basic 
community structure. Valencia is supported by shopping centers, schools, 
colleges, hospital and medical facilities, golf courses, professional offices 
and a range of recreational amenities. A system of landscaped and lighted 
pedestrian walkways, known as paseos, provide most residents with access to 
schools, retail, parks and recreation centers avoiding automobile traffic. 
Approximately 7,200 acres including over 8,000 homes remain to be developed 
in Valencia. The Company's goal is to complete the buildout of Valencia by 
2005.

Newhall Ranch, a new community on the Company's 12,000 acres adjacent to 
Valencia, is based on a master plan that incorporates the natural beauty of 
the Santa Clara River and preserves over 6,000 acres of open space. In 1998, 
the Company received tentative approval from the Los Angeles County Board of 
Supervisors for this well balanced, new community planned for 21,600 homes. 
Final zoning approval is expected in early 1999.

The Company also develops and operates a growing portfolio of commercial 
properties, and provides building-ready sites for sale to industrial and 
commercial developers and users. For additional information regarding the 
Company's business refer to Item 7 - Management's Discussion and Analysis of 
Financial Condition and Results of Operations in this Annual Report.

RESIDENTIAL DEVELOPMENT AND LAND SALES

VALENCIA

During 1998, new and resale home sales continued to increase in Los Angeles 
Country with median sales prices up more than 7% over the prior year and even 
higher in the move-up housing market. For the year, new home sales by 
merchant builders and the Company's joint ventures totaled 620. This is below 
the 657 homes sold in 1997 due to temporary supply constraints in Valencia's 
new-home inventory, as five residential housing projects sold out during 1998.

Strong demand for homes in the Company's master-planned community of Valencia 
continued in 1998. Sales of 1,108 residential lots and 124 joint-venture 
homes were recorded by the Company in Valencia in 1998, a 39% increase over 
1997. The 1,108 residential lots sold represent an all time record. Also 
included in the lot sales were 458 unimproved lots in Valencia to Shea Homes, 
the second largest residential transaction in Valencia's history. All lot 
sales in 1998 were significantly above 1997 year-end appraised values.

The Company's growth goal is to complete the sale of Valencia's remaining 
residential land by 2005 by increasing annual average absorption to 1,500 
homes per year, including apartments, a level more than twice Valencia's 
historical average. Plans to accelerate absorption and maximize earnings and 
cash flow include marketing for sale selected larger entitled, unimproved 
land parcels, such as the 458-home sale to Shea Homes in 1998, placing a 
greater emphasis on market niches at both ends of the housing spectrum to 
increase the variety of new homes available for sale and implementing a new 
and expanded marketing program to present a unified image of Valencia for all 
real estate segments.

INDUSTRIAL/COMMERCIAL DEVELOPMENT AND LAND SALES

The Company develops the infrastructure and provides sites for sale to 
industrial/commercial users. Select sites are sold complete with plans and 
permits, saving developers up to a year in completing a new building which 
gives the Company a competitive advantage over alternative sites. The Company 
also has active build-to-suit and speculative building programs. Valencia's 
location just 30 miles from downtown Los Angeles on Interstate 5, 
California's major north-south freeway, provides an attractive environment 
for industrial, commercial, service, distribution and entertainment 
businesses.

The Company is marketing industrial and commercial land as Valencia Gateway, 
Los Angeles County's largest master-planned center for business, technology 
and industry encompassing 4,500 acres, with over 1,200 acres remaining for 
future development. Valencia Commerce Center and Valencia Industrial Center, 
part of Valencia Gateway, are home to over 750 companies which employ more 
than 21,000 people. Businesses choosing Valencia are attracted to Valencia's 
ample supply of competitively-priced land, located in or adjacent to the 
nation's fourth safest city. A highly-skilled workforce and five major 
universities within 40 miles provide employers 

                                       3

<PAGE>

Item 1. BUSINESS (continued)

with an attractive labor pool. The Company's goal is to sell an average of 70 
to 80 acres of industrial land and bring, on average, 1,500 new jobs to 
Valencia each year.

In 1998, a record 111 industrial acres were sold in Valencia, including four 
buildings constructed as part of the build-to-suit/lease program. In June 
1998, the Company sold Valencia Marketplace, a 705,000-square-foot 
high-volume retail center. This transaction, along with the sale of Valley 
Business Center, a 56,800-square-foot mixed use development, are part of the 
Company's strategy of selling selective properties to take advantage of 
market conditions and re-investing the proceeds in new projects to maximize 
returns to unitholders. Other commercial escrow closings in 1998 included a 
12.6-acre restricted-use site for a senior apartment complex, two small 
commercial parcels totaling 2.0 acres and the remaining building owned by 
the Company in Valencia Industrial Center.

COMMUNITY DEVELOPMENT

The Company's community development activities are focused on securing the 
necessary governmental land use approvals as well as an intensified strategic 
marketing program to support the buildout of Valencia by 2005 and begin 
development of Newhall Ranch, a new master-planned community located on the 
Company's 12,000 acres west of Valencia.

In 1998, the Company received tentative approval from Los Angeles County 
Board of Supervisors for Newhall Ranch consisting of 21,600 homes and 1,000 
acres of commercial, business park and mixed use development. The Board of 
Supervisors directed its staff to prepare the needed documents for final 
approval, which is expected to occur in the first quarter of 1999. 
Entitlements for Westridge, a 1,711-home golf course community were approved 
by the Los Angeles County Regional Planning Commission in December, 1998 and 
are expected to be heard by the Board of Supervisors early in 1999.

Additional entitlements expected in 1999 include the 2,545-home Westcreek 
community in Valencia consisting of two primary villages that will contain 
product ranging from apartments and cluster homes to estate lots. The Company 
is working with the City of Santa Clarita on annexation of 1,900 homes in the 
Decoro South, Creekside and Eastcreek neighborhoods. The annexation is 
expected to be completed by the fall of 1999.

COMMERCIAL REAL ESTATE DEVELOPMENT

The Company continues its aggressive commercial portfolio expansion program 
and, in 1998, a record $102 million was invested in income property 
development. An additional $125 million is expected to be invested in new 
properties over the next two years. The income portfolio is a relatively 
stable source of earnings, providing working capital for continuing 
operations and additional debt capacity to finance Company growth.

Valencia has emerged as the magnet for new commercial development in north 
Los Angeles County, attracting new businesses plus an expanding base of 
national and regional tenants. This is expected to lead to opportunities to 
bring new upscale shopping and dining to Valencia. Plans for the Valencia 
Town Center shopping center include up to three additional department stores 
complemented by numerous other commercial projects.

The majority of current income property development activity is focused in 
Valencia Town Center along pedestrian-oriented Town Center Drive, a one-half 
mile, mixed-use "main street" extending west from the Company's regional 
shopping mall. Projects completed in 1998 include the 244-room Hyatt Valencia 
Hotel and Santa Clarita Conference Center; a six-story, 127,300-square-foot 
building for Princess Cruises; and 54,000 square feet of retail space on Town 
Center Drive. Projects under construction in Valencia Town Center include 
Montecito, a 210-unit apartment complex; a 130,000-square-foot entertainment 
complex with a 3-D IMAX theatre, 11 additional movie screens, a Borders 
bookstore plus several restaurants and retail space; and a 26,000-square foot 
office/retail building next to the Hyatt Valencia Hotel.

For additional information about the Company's commercial properties at 
December 31, 1998, see Item 2--Properties.

VALENCIA WATER COMPANY

Valencia Water Company, a wholly-owned subsidiary that supplies water to 
Valencia and other adjacent developments, is a regulated public utility 
serving over 19,000 metered customers. The water supply for the service area 
is obtained from wells owned by Valencia Water Company and by purchases from 
the California State Water Project. In 1998, 56% of Valencia Water Company's 
water was supplied through ground sources.

                                       4

<PAGE>

Item 1. BUSINESS (continued)

AGRICULTURE

The Company's agricultural division consists of farming and energy 
operations. Approximately 55,000 acres of ranch land at the Suey and Newhall 
Ranches not suitable for cultivation are leased out for cattle grazing. In 
line with the Company's strategy of selling farm properties with little or no 
potential for development, 970 acres at the Merced Ranch were sold in 1998. 
The remaining 2,970 acres at the Merced Ranch are expected to close escrow in 
the first half of 1999. Agricultural operations will continue to provide 
returns from Newhall Orchard in Ventura County and Suey Ranch where all or 
some portions, unsuited for development, may be sold in the future. The 
14,000-acre New Columbia Ranch provides returns primarily from leasing land 
to tenants.

Energy operations consist of royalty interests in oil and gas assets on the 
Newhall Ranch and Meridian Ranch, which was sold in 1994, where the Company 
retains a 50% royalty interest until June 30, 2000. In total, the Company has 
royalty interests in 160 oil wells and 16 gas wells. Energy operations do not 
represent a material source of revenues and income for the Company.

FARMING

Large scale, highly mechanized farming operations are conducted on three of 
the Company's ranches. Labor intensive crops are generally grown by tenants 
to whom land is leased on both cash and percentage-of-crop terms. Of the 
Company's land devoted to farming, over 70% was leased to others in 1998. 
Approximately two-thirds of the Company's farm crop is marketed through 
agricultural cooperatives. The remainder, such as tomatoes, grapes, alfalfa 
and wheat, is marketed directly by the Company.

The Company's ranches supply most of their water through underground sources 
and are not dependent on state or federal water projects. The Company 
continues to improve conservation practices to minimize the cost of 
irrigation and the amount of water used.

The principal agricultural properties include the Merced and New Columbia 
Ranches in the San Joaquin Valley, the Newhall Orchard in Ventura County and 
the Suey Ranch in Santa Barbara and San Luis Obispo Counties. During the 
calendar year 1998, the Company and its tenants raised over 20 different 
crops.

The following table shows the approximate planted acreage of significant 
crops during 1998:

<TABLE>
<CAPTION>

Crop                         Acreage       Crop                      Acreage       Crop                         Acreage
----                         -------       ----                      -------       ----                         -------
<S>                          <C>           <C>                       <C>           <C>                          <C>
Alfalfa                       2,905        Cotton                     6,697        Oranges                         787
Almonds                         145        Forage                     1,210        Safflower                        73
Avocado                         107        Grapefruit                    28        Sudan Grass                     100
Barley                          500        Grapes                       288        Sugarbeets                       60
Beans                           476        Lemons                       481        Tomatoes                      1,192
Christmas Trees                  12        Melons                       254        Vegetables                    1,547
Corn                            769        Oats                         169        Wheat                         1,964

</TABLE>

ITEM 2.  PROPERTIES (continued)

LAND

Listed below is the location and acreage of properties owned by the Company 
at December 31, 1998:

<TABLE>
<CAPTION>

        Ranch                       State                County                           Acreage
     ------------               --------------       --------------                       -------
     <S>                        <C>                  <C>                                  <C>
     Cowell                     California           Contra Costa                             110
     Merced                     California           Merced                                 2,970
     New Columbia               California           Madera                                14,000
     Suey                       California           Santa Barbara/San Luis Obispo         36,590
     Newhall                    California           Los Angeles/Ventura                   36,105
                                                                                           ------
                                                                                           89,775
                                                                                           ------
                                                                                           ------
</TABLE>

PLANTS AND BUILDINGS

Agriculture - Various buildings located at three farming operations in
              California.

Commercial Real Estate - Listed below are square footage, occupancy, net 
operating income by group and anchor tenants of major commercial properties 
owned by the Company at December 31, 1998. The Company also has 

                                       5

<PAGE>

ITEM 2.  PROPERTIES (continued)

numerous land leases including 541 acres for a landfill. The commercial 
properties are leased to 260 tenants, not including apartment complexes.

<TABLE>
<CAPTION>
                                                                  
                                              Approximate         1998 Net
                                  Year         GLA (1) in         Operating      12/31/98
                                 Opened       Square Feet          Income        Occupancy       Major Tenants
                                --------     ------------         ---------      ---------       -------------
DOLLARS IN THOUSANDS 
<S>                             <C>          <C>                  <C>            <C>             <C>

SHOPPING CENTERS
----------------
Valencia Town Center               1992           675,000                              99%       Robinsons-May, JC Penney, Sears
Valencia Town Center Drive         1998            54,000                              56%       Ann Taylor, Nine West, Zany
                                                                                                  Brainy
Entertainment Center (2)              -           130,000                                        IMAX / Edwards Theaters
River Oaks                         1987           272,000                              99%       Mervyn's, Target
NorthPark Village Square(2)        1996            81,800                             100%       Ralphs Supermarket, Rite Aid
Castaic Village                    1992            91,800                             100%       Ralphs Supermarket, PayLess
                                                                                                  Drugstores

Other                           various            37,600
                                              -----------         ---------
                                                1,342,200          $11,287
                                              -----------         ---------
OFFICE
------
City Center                        1991            44,800                             100%       Bank of America
Town Center - 3 Story              1996            53,700                              80%       Morgan Stanley Dean Witter,
                                                                                                  Valencia Bank & Trust
Town Center - 6 Story              1998           127,300                              85%       Princess Cruises
                                              -----------         ----------
                                                  255,800            1,302
                                              -----------         ----------

LAND LEASES/MIXED USE/OTHER
---------------------------
Plaza del Rancho                   1997            47,200                              93%       Carl's Jr. Restaurant
Spectrum Health Club               1997            53,500                             100%
Office/Retail West of Hyatt(2)        -            26,000
Other Income Properties         various            95,600
                                              -----------         ----------
                                                  222,300            5,494
                                              -----------         ----------

APARTMENTS                                    Units
----------                                    -----
Northglen                          1988               234                              97%
Portofino                          1989               216                              93%
SkyCrest                           1996               264                              89%
Montecito(2)                          -               210
                                              -----------         ----------
                                                      924             5,135
                                              -----------         ----------
HOTELS                                        Rooms
------                                        -----
Valencia Hilton Garden Inn
(75% joint venture interest)       1991               152
Hyatt Valencia Hotel and Santa
Clarita Conference Center (3)      1998               244
                                              -----------         ----------
                                                      396               838
                                                                  ----------
Properties Sold During 1998                                           2,444
                                                                  ----------
  TOTAL                                                            $ 26,500
                                                                  ----------
                                                                  ----------
</TABLE>

(1) Gross Leasable Area
(2) Under development or expansion at December 31, 1998 
(3) Santa Clarita Conference Center totals 26,000 square feet

Valencia Water Company - 17 distribution reservoirs, 17 booster pumping 
stations, 18 wells, approximately 235 miles of pipeline and other utility 
facilities and an 18,000-square-foot office/warehouse building on 2.5 acres 
of land.

All of the commercial real estate properties and the properties of Valencia 
Water Company are located in and around Valencia, California and are owned by 
the Company. A $44.7 million mortgage which matured on March 1, 1999 was 
secured by the Portofino, Northglen and SkyCrest apartment complexes, River 
Oaks shopping center, and the

                                       6

<PAGE>

ITEM 2. PROPERTIES (continued)

Company's headquarters building. The Company replaced this financing upon 
maturity in March, 1999 with a $50 million financing secured by three 
apartment complexes. At December 31, 1998, borrowings totaling $40 million 
were outstanding against a $40 million revolving mortgage facility secured by 
Valencia Town Center. An $11 million financing is secured by the water 
utility plant of Valencia Water Company. For additional information 
concerning encumbrances against Company properties, refer to Note 7 of the 
Notes to Consolidated Financial Statements in this Annual Report.

For additional information on the Company's properties, refer to the summary 
of appraised values on page 2 and SCHEDULE III - REAL ESTATE AND ACCUMULATED 
DEPRECIATION on pages 62 and 63.

ITEM 3.  LEGAL PROCEEDINGS

The Company is involved in various claims and litigation, including those 
arising from its ordinary conduct of business. Management is of the opinion 
that the ultimate liability from these claims and litigation will not 
materially affect the Company's consolidated financial condition.

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

None.

                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S DEPOSITARY UNITS AND RELATED SECURITY HOLDER
        MATTERS

Market Price and Distribution Data
YEARS ENDED DECEMBER 31

<TABLE>
<CAPTION>
                                                  Market Price
----------------------------------------------------------------------------------------------------------------------------
                                           1998                 1997                                         Distributions
----------------------------------------------------------------------------------------------------------------------------
Per unit                               High       Low        High       Low                               1998         1997
----------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>        <C>         <C>       <C>         <C>                    <C>          <C>
First quarter                        $34 3/4    $27 3/4     $18 1/8   $16 1/2     First quarter          $ .22        $ .18
Second quarter                        31 15/16   26 7/8      22 1/4    17 1/4     Second quarter           .10          .10
Third quarter                         31 15/16   21 13/16    24 7/8    21 1/2     Third quarter            .10          .10
Fourth quarter                        29 1/8     20 1/4      32        22 7/8     Fourth quarter           .10          .10
----------------------------------------------------------------------------------------------------------------------------
Year's high and low                  $34 3/4    $20 1/4     $32       $16 1/2     Total distributions    $ .52        $ .48
----------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------

</TABLE>

<TABLE>
<CAPTION>
                                           1998                 1997  
----------------------------------------------------------------------
<S>                                        <C>                  <C>
December 31, closing price                  $26                  $30
----------------------------------------------------------------------
----------------------------------------------------------------------
</TABLE>

The Company's partnership units are traded on the New York and Pacific Stock 
Exchanges under the ticker symbol NHL and, at December 31, 1998, the Company 
had 1,318 unitholders of record. The Company has paid uninterrupted quarterly 
cash distributions since 1936. The declaration of any distribution and the 
amount declared, is determined by the Board of Directors taking into account 
the Company's earnings, cash requirements, financial condition and prospects.

                                     7


<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>

                                                           1998             1997            1996            1995
----------------------------------------------------------------------------------------------------------------------
IN THOUSANDS, EXCEPT PER UNIT, PERCENTAGES AND SALES INFORMATION

OPERATING RESULTS
<S>                                                       <C>             <C>              <C>
  Revenues                                                $304,678        $207,701         $220,186       $ 175,597
  Operating income                                          83,894          63,898           60,584          46,482
  General and administrative expense (1)                   (12,634)        (10,268)          (9,133)         (8,547)
  Interest and other, net                                   (7,180)         (9,137)          (9,562)        (10,618)
  Net income                                                64,080          44,493           41,889          27,317
  Depreciation and amortization (included in net income)   (10,101)        (10,148)          (8,857)         (7,698)
----------------------------------------------------------------------------------------------------------------------

PER UNIT INFORMATION

  Net income                                              $   1.89         $  1.29          $  1.19          $  .75
  Net income - assuming dilution                              1.86            1.28             1.18             .75
  Distributions (including special)                            .52             .48              .40             .40
  Partners' capital                                           4.40            4.21             3.48            3.14
  Appraised value                                            29.72           25.25            23.35           23.32
  Market price - high                                       34 3/4              32            18 3/4          17
                 low                                        20 1/4           16 1/2           15              12 1/8
                 year-end closing                           26               30               16 7/8          17
----------------------------------------------------------------------------------------------------------------------

FINANCIAL POSITION

  Land under development                                  $ 47,667      $   53,875         $ 63,266        $  88,457
  Income-producing properties, net                         248,712         227,203          182,641          134,504
  Total assets                                             432,207         403,932          373,488          349,753

  Mortgage and other debt (total debt)                     157,609         156,946          163,256          152,302
  Other long-term obligations                               48,832          40,393           37,544           36,270
  Total liabilities                                        288,394         258,655          252,835          236,897

  Partners' capital (capital)                              143,813         145,277          120,653          112,856
  Market capitalization at year end                        849,576       1,035,810          585,575          610,470
----------------------------------------------------------------------------------------------------------------------

STATISTICS

  Return on total debt and capital                              21%             15%              15%              10%
  Total debt as a percent of total debt and capital             52%             52%              58%              57%
  Total debt as a percent of total market capitalization        16%             13%              22%              20%
  Units outstanding - weighted average                      33,986          34,520           35,292           36,241
                    - weighted average - diluted            34,376          34,750           35,411           36,272
                    -  year end                             32,676          34,527           34,701           35,910
----------------------------------------------------------------------------------------------------------------------

SALES INFORMATION

  Residential lots and homes sold                            1,232             888            1,284 (2)        1,233(2)
  Industrial and commercial acres sold                       125.0            81.0             36.9             38.5
  Farm acres sold                                              970           1,673              544            5,501
----------------------------------------------------------------------------------------------------------------------

</TABLE>

(1)  INCLUDES EXPENSE FROM UNIT OWNERSHIP PLANS.

(2)  INCLUDES LOTS SOLD AT MCDOWELL MOUNTAIN RANCH IN ARIZONA PRIOR TO THE SALE
     OF THE PROJECT IN 1996.

                                       8

<PAGE>

<TABLE>
<CAPTION>

       1994            1993            1992           1991            1990            1989            1988
------------------------------------------------------------------------------------------------------------
<S>                 <C>             <C>            <C>             <C>             <C>             <C>      
    $ 134,268       $ 105,452       $128,182       $150,762        $192,886        $234,450        $203,607
       34,607          28,538         31,636         43,232          48,487          81,468          68,177
       (8,578)         (7,710)        (6,806)        (8,749)         (5,381)        (10,880)        (16,281)
      (10,455)         (8,031)        (7,619)        (4,398)         (4,728)         (1,865)          1,722
       15,574          12,797         17,211         30,085          38,378          68,723          53,618

       (7,690)         (7,329)        (6,471)        (7,701)         (8,441)         (6,725)         (5,149)
---------------------------------------------------------------------------------------------------------------

    $     .42       $     .35       $    .47       $    .82        $   1.03      $     1.75        $   1.36
          .42             .35            .47            .82            1.02            1.74            1.35
          .40             .40            .60            .80             .80             .85             .53
         3.06            3.03           3.08           3.20            3.18            4.12            4.05
        21.86           21.04          22.01          23.70           25.33           28.52           24.24
       17 1/4          17 1/2         20 3/8         22 1/2          32 1/2          35 3/4          28 3/8
       12              13 1/2         12             13 1/2          14 7/8          25 1/8          15
       12 1/8          16             14 1/4         19 1/4          16              30 1/8          28 5/16
---------------------------------------------------------------------------------------------------------------

    $  87,423        $ 73,078       $ 50,127       $ 67,769        $ 73,527        $ 94,510        $ 86,010
      135,858         134,384        161,615        116,875          91,783          92,365          71,205
      343,792         359,898        323,082        280,575         265,406         279,645         299,229

      145,991         174,157        131,849         78,556          60,302          30,676          59,717
       30,922          33,414         28,609         27,762          25,920          16,867          15,277
      231,435         248,619        210,033        162,790         148,459         120,203         139,172

      112,357         111,279        113,049        117,785         116,947         159,442         160,057
      445,727         588,112        523,830        707,534         588,080       1,166,048       1,119,476
---------------------------------------------------------------------------------------------------------------

            6%              4%             7%            15%             22%             36%             24%
 
           57%             61%            54%            40%             34%             16%             27%

           25%             23%            20%            10%              9%              3%              5%
       36,757          36,757         36,759         36,755          37,393          39,286          39,561
       36,789          36,790         36,796         36,831          37,543          39,488          39,666
       36,761          36,757         36,760         36,755          36,755          38,707          39,540
---------------------------------------------------------------------------------------------------------------

        1,026 (2)         113            487            233             540             812             733
         12.0            28.9            4.5           73.5            24.3            23.8           104.2
        5,370           3,900          6,750          2,989           3,950               -               -

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

</TABLE>

                                       9


<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

RESULTS OF OPERATIONS

Net income increased in 1998 for the fifth consecutive year, with revenues 
and net income per unit reaching historical highs. Net income increased to 
$64.1 million, on revenues of $304.7 million. This continued improvement was 
due in part to the further upswing in California's diversified economy and 
low interest rates which resulted in increased market demand and improvements 
in all three segments of the Company's real estate operations in Valencia - 
residential, commercial and industrial. Residential lot and joint-venture 
home sales in the Valencia area totaled 1,232 and represent the most closings 
by the Company in a single year in the community's history. Industrial land 
sales totaled an unprecedented 111 acres with some parcels at the highest 
price per square foot ever obtained, generating record revenues and income 
from the industrial division. The strategic sale of Valencia Marketplace, a 
high-volume retail center, for $111 million in the second quarter of 1998, 
was the largest contributor to the year's revenues and income.

The major contributors to 1997 earnings were two strategic sales, a 208-unit 
apartment complex and portions of the Suey Ranch not suited for development, 
along with the sale of 366 entitled, unimproved residential lots. The primary 
contributor to 1996 results was the sale of the McDowell Mountain Ranch 
project for $43.6 million, adding $24.4 million to operating income.

The Company's goal is to continue earnings growth in core land sale 
activities in 1999. Approximately 1,400 residential lots will be marketed in 
1999 to enable the Company to reach its goal of an annual absorption rate in 
Valencia of 1,500 homes and apartments by the end of the year.

A five year summary of revenues and operating income for each of the 
Company's business segments is listed below:
<TABLE>
<CAPTION>

                                                                                 YEARS ENDED DECEMBER 31,
                                                           --------------------------------------------------------------------
FIVE YEAR SUMMARY                                                                
IN THOUSANDS                                                  1998           1997           1996          1995           1994
                                                           ---------       --------       ---------     ---------     ---------
<S>                                                        <C>             <C>            <C>           <C>           <C>
Revenues           Real estate
                     Residential home and land sales
                        Valencia                           $  70,867       $ 67,682       $  79,533     $  58,160     $  36,022
                        McDowell Mountain Ranch                  -              -            49,101        16,602        21,984
                     Industrial and commercial sales         172,320         61,996          29,844        41,396        11,667
                     Commercial operations
                        Income-producing properties           38,622         33,404          28,742        28,704        28,835
                        Valencia Water Company                10,209         11,170           9,762         8,631         6,479
                   Agriculture
                      Operations                              11,270         15,487          16,459        14,676        17,481
                      Ranch sales                              1,390         17,962           6,745         7,428        11,800
                                                             -------       --------        --------      --------      --------
Total Revenues                                              $304,678       $207,701        $220,186      $175,597      $134,268
                                                           ---------       --------       ---------     ---------     ---------
                                                           ---------       --------       ---------     ---------     ---------
Operating Income
                   Real estate
                     Residential home and land sales
                         Valencia                          $  23,609       $ 15,495       $  14,116     $   7,102     $  4,487
                         McDowell Mountain Ranch                 -              -            26,267         2,741        6,719
                     Industrial and commercial sales          48,663         19,216           3,775        17,702        5,048
                     Community development                   (10,710)       (11,034)        (11,670)       (6,766)      (6,679)
                     Commercial operations
                         Income-producing properties          17,637         15,580          14,080        15,158       13,785
                         Valencia Water Company                2,694          3,268           3,212         2,387        1,370
                   Agriculture
                     Operations                                  903          4,378           4,798         3,529        4,350
                     Ranch sales                               1,098         16,995           6,006         4,629        9,227
                   Earthquake damage                             -              -              -             -          (3,700)
                                                           ---------       --------       ---------     ---------     ---------
Total Operating Income                                     $  83,894       $ 63,898       $  60,584     $ 46,482      $ 34,607
                                                           ---------       --------       ---------     ---------     ---------
                                                           ---------       --------       ---------     ---------     ---------
</TABLE>

                                       10

<PAGE>

RESIDENTIAL HOME AND LAND SALES

VALENCIA

Revenues and income are recorded by the Company on residential lot sales when 
title is transferred to the merchant builder who, in turn, builds homes for 
sale. The Company also participates, on a limited basis, in home construction 
on lots it owns by establishing joint ventures with builders who have created 
innovative home designs, targeting niche markets not met by merchant 
builders. Through the joint-venture program, Newhall Land recognizes its 
portion of revenues and income upon close of escrow to the homebuyer. The 
Company's participation in joint ventures enables it to generate increased 
income as it receives a portion of the homebuilding profits in return for 
sharing in the risk of homebuilding and financing the construction costs.

For 1998, new home sales by all sellers in Valencia totaled 620. This is below
the 657 homes sold in 1997 due to temporary supply constraints in Valencia's
new-home inventory. At December 31, 1998, 211 homes were in escrow by all
builders, compared with 171 homes at the end of the previous year.

In 1998, a total of 1,232 home and lot sale closings were recorded by the
Company in the Valencia area, a 39% increase over 1997 and 15% higher than 1996.
The Company's strategy in the current expanding real estate market is to
accelerate the pace of development in Valencia through an expanded merchant
builder program to capture demand. As a result, joint ventures are declining and
accounted for only 10% of the Company's Valencia area home and lot closings in
1998 compared with 15% in 1997 and 24% in 1996. Continued improvement in lot and
home sales is dependent on economic conditions and, over the longer term, on the
Company's ability to secure the necessary entitlements that will allow it to
offer products meeting the needs of prospective homebuyers.

MERCHANT BUILDER PROGRAM

The Company sold a total of 1,108 residential lots to merchant builders in 1998,
47% more than in 1997 and 37% ahead of 1996. Sales in 1998 added $40.8 million
to revenues and $24.2 million to income. Gross profit margins from these 1998
lot sales averaged 58% and profit per net acre averaged $220,000. Because of
high levels of unimproved residential lot sales, overall profit margins have
been increasing dramatically and are less indicative of financial performance.
Therefore, emphasis now and in the future will be on profit per acre.

In 1997, 754 lots in Valencia were sold by the Company to merchant builders,
adding $38.1 million to revenues and $16.6 million to income. Gross profit
margins from these lot sales averaged 31% and the profit per net acre averaged
$131,000, excluding the high margin sale of 366 entitled, unimproved lots. In
1996, 809 lots in the Valencia area were sold to merchant builders. This
included 318 lots in Valencia, adding $21.9 million to revenues and $6.4 million
to income. Gross profit margins from these lot sales averaged just over 29% and
profit per net acre averaged $123,000, an amount increased by the sale of 80
lots for a higher-density, single-family project. In addition, the sale of 491
entitled, unimproved residential lots on Company-owned land in Castaic, a
community just north of Valencia, for $4.5 million, added $4.3 million to
operating income in 1996.

Deferred revenues of $2.3 million and income of $766,000 were recognized in 1998
from prior residential lot sales under percentage of completion accounting. In
1997 and 1996, deferred revenues of $1.4 million and $1.9 million and income of
$422,000 and $983,000 were recognized, respectively.

Merchant builders in Valencia closed escrow on 450 homes in 1998, 404 homes in
1997 and 302 homes in 1996. While the Company does not participate directly in
profits generated from escrow closings by merchant builders, the absorption of
these previously sold lots is key to the Company's future success in selling
additional lots.

The Company continues to attract merchant builders to Valencia. While six
builders were active in 11 projects at the end of 1998, the Company expects 17
merchant builders involved in over 20 projects by the end of 1999. At December
31, 1998, there were 188 lots in escrow to a merchant builder, which are the
first lots to be sold in the new Bridgeport lake community. There were 37
residential lots in escrow at the end of 1997, and 123 lots in escrow at the end
of 1996.

A primary focus for 1999 is Bridgeport (formerly referred to as Lago de
Valencia), a "lifestyle village" of 700 homes surrounding a lake. Grading of the
14-acre lake has started, with lot sales expected to begin in the second quarter
of 1999. Merchant builder interest in Bridgeport is substantial and the Company
expects to generate record high land prices per acre for a portion of the
project. Other fully entitled projects include 800 multi-family lots in South
River and 290 remaining residential lots in Hasley Hills, just north of
Valencia. Over 6,000 additional lots are in various stages of the governmental
approval process, including 1,900 lots expected to be entitled in 1999 through
annexation to the City of Santa Clarita.

                                       11

<PAGE>

JOINT-VENTURE PROGRAM

Escrow closings from the Company's joint ventures totaled 124 homes in three
projects in 1998, contributing $27.7 million to revenues and $2.9 million to
income with an average gross profit margin of 10.5%. A joint venture with
Warmington Homes sold out during 1998 and the remaining two projects with EPAC
Communities are expected to sell out in late 1999 or early 2000. Included in the
1998 closings were 28 homes in the upscale Avignon townhome project adjacent to
Valencia Country Club. At December 31, 1998, 50 joint-venture homes were in
escrow. All escrow closings are subject to market and other conditions. At
December 31, 1997, 23 joint-venture homes were in escrow and 10 homes at the end
of 1996.

In 1997, escrow closings from six joint-venture projects totaled 134 homes,
contributing $28.2 million to revenues and $2.9 million to income. Three
joint-venture projects were sold out during 1997. Average gross profit margins
were 10% in 1997, with 40% of the closings being townhomes and condominiums or
higher- density, single-family homes. The joint-venture program closed 256 homes
in 1996, adding $51.2 million to revenues and $5.4 million to income. Average
gross profit margins were 10%, with almost 60% of the closings from townhomes
and higher-density single-family homes.

The decline in joint-venture escrow closings during the past two years is part
of the Company's strategy to concentrate on residential lot sales to merchant
builders in strong real estate markets. Accordingly, no new homebuilding joint
ventures are planned for 1999. At December 31, 1998, 119 joint-venture homes
remained to be sold, 22 at Avignon and 97 condominiums at Cheyenne.

MCDOWELL MOUNTAIN RANCH

In April, 1996, the Company completed the sale of the McDowell Mountain Ranch
project in Scottsdale, Arizona. The sale contributed $43.6 million to revenues
and $24.7 million to income. Results for 1996 also included 219 lots sold prior
to sale of the planned community. Sale of these lots added $5.5 million to
revenues and $2.2 million to income in 1996.

INDUSTRIAL AND COMMERCIAL SALES

Revenues and income from industrial and commercial land sales established new
highs in 1998, increasing for the third consecutive year following several slow
years during a weak Southern California industrial and office market. In 1998,
the Company closed escrow on 111 acres of industrial land, including four
buildings constructed as part of its build-to-suit/lease program. These escrow
closings contributed $62.6 million to revenues and $16.1 million to income. More
than 1.5 million square feet of space was absorbed in Valencia's two business
parks in 1998, exceeding the 1997 total.

Included in the 1998 industrial escrow closings is a 36.5-acre parcel for $20.4
million. A 700,000-square-foot office complex is under development on this
parcel at the intersection of Interstate 5 and Highway 126. It is the largest of
several parcels being sold for office development and is significant because
these types of projects support higher land prices and bring more employment on
a per-acre basis.

In June, 1998, the Company sold Valencia Marketplace, a 705,000-square-foot
high-volume retail center for $111 million cash, the largest transaction in the
Company's history. Through December 31, 1998, the Company recognized $98 million
in revenues and $35 million in income under percentage of completion accounting.
The sale is expected to generate additional revenues of approximately $8 million
and income of approximately $1 million in 1999 as construction and lease-up of
the center are completed.

Also, in 1998, the Company completed the sale of Valley Business Center, a
56,800-square-foot mixed-use center on approximately 15 acres, for $7.3 million
adding $1.5 million to income. Other commercial escrow closings in 1998 included
a 12.6-acre, restricted-use site for a senior apartment project, two small
commercial parcels totaling 2.0 acres and the remaining building owned by the
Company in Valencia Industrial Center. These sales combined contributed $4.0
million to revenues and $1.5 million to income.

In 1997, the strategic sale of the Company's 208-unit StoneCreek apartment
complex was the largest contributor to industrial and commercial sales. This
sale, along with the Orchard Plaza Office building, added $20.5 million to
revenues and $13.5 million to income. In addition, sales of nine industrial
parcels totaling 62.0 acres and three industrial buildings on 10.2 acres closed
escrow, adding $38.1 million to revenues and $7.8 million to income in 1997.
Results for 1997 also included the sale of three commercial parcels totaling 8.9
acres and contributing $3.2 million to revenues and $2.1 million to income.

In 1996, industrial and commercial sales included 13 parcels totaling 36.9
acres, contributing $29.2 million to revenues and $7.7 million to operating
income. These sales included three industrial parcels and two industrial
buildings totaling 22.4 acres, which sold for $18.9 million, adding $2.5 million
to income. The sale of eight

                                       12

<PAGE>

commercial parcels totaling 14.5 acres for $10.3 million added $5.2 million 
to net income in 1996, including Valencia Autoplex, an automotive service 
center which opened in early 1996. Results for 1996 also included revenues of 
$600,000 and income of $275,000, recognized from prior commercial land sales.

Industrial land sales in 1999 are expected to decline as the record level of
land sold in 1998 is developed and leased. With more than 500 acres available in
Valencia's two business parks, adequate inventory should be available to meet
future demand. Final plans for a portion of this land are subject to review by
government agencies before development can proceed. Industrial acreage is also
planned for the Newhall Ranch planned community adjacent to Valencia.

At December 31, 1998, three industrial parcels totaling 10.6 acres and a
build-to-suit on 5.2 acres were in escrow for $15.8 million, with closings
scheduled for 1999. Commercial acres in escrow with closings expected in the
first half of 1999 include three parcels totaling 7.5 acres for $6.2 million.
Also in escrow are the Company's remaining 110 acres at the Cowell Ranch in
northern California for $10.5 million with escrow expected to close in the first
half of 1999. Subsequent to year-end, escrow opened on a 32.85-acre apartment
site in South River adjacent to Valencia Town Center for $31.8 million with
closing expected in the second quarter of 1999. The Company's ability to
complete sales in escrow and generate future land sales is subject to market and
other conditions beyond the control of the Company.

At December 31, 1997, six parcels totaling 25.4 industrial acres, 16.8
commercial acres and one build-to-suit project in Valencia Commerce Center were
in escrow, and at December 31, 1996, 2.1 commercial acres were in escrow.

COMMUNITY DEVELOPMENT

Newhall Land's community development activities are focused on securing the
necessary entitlements as well as an intensified strategic marketing program to
support the buildout of Valencia by 2005 and begin the development of Newhall
Ranch, the next new town to be developed on the Company's 12,000 acres west of
Valencia. The Company's ability to achieve its goals and increase the pace of
development is contingent upon obtaining the necessary entitlements from the
County of Los Angeles and the City of Santa Clarita.

In November, 1998, the Los Angeles County Board of Supervisors gave preliminary
approval to the Company's Newhall Ranch project. Newhall Ranch is located on
12,000 acres of Company property west of Interstate 5, between Valencia and the
Los Angeles/Ventura County boundary, along the State Route-126 corridor. The
Newhall Ranch Specific Plan permits 21,600 homes arranged in five villages, and
1,000 acres of commercial, business park, and mixed-use development, which will
provide over 19,000 jobs. The mixed-use designation permits the design of
innovative combinations of commercial, residential, recreation and institutional
uses. Approximately 6,200 acres of mountain, river and other environmentally
significant lands such as oak woodlands will be dedicated as open space,
creating visual amenities and a strong environmental focus for the community.
The approval of Newhall Ranch followed certain agreements entered into by the
Company, including executed agreements with the four school districts that will
provide educational facilities for Newhall Ranch and Valencia.

The Board of Supervisors directed its staff to prepare the needed documents for
final approval of Newhall Ranch, which is expected to occur in the first quarter
of 1999. Market research has commenced on the first phase of the project, and,
following final approval, the Company will begin processing subdivision maps.
Also in process are plans for formation of a new sanitation district for the
community and applications for required environmental permits. Development is
expected to start in 2002.

The Company entered into an agreement in 1996 with PGA Tour Golf Course
Properties to develop a Tournament Players Club (TPC) championship course in the
proposed Westridge Golf Course Community, west of Interstate 5 in Valencia. The
daily-fee course and clubhouse will be designed, constructed and managed by PGA
Tour Golf Course Properties, with PGA star Mark O'Meara as the design
player-consultant. A not yet identified PGA-sanctioned tour event will be hosted
each year at the TPC at Valencia course, bringing economic benefits and national
recognition to Valencia and the Santa Clarita Valley. Westridge will contain
1,711 homes of widely varied types and prices, including executive and custom
homes, along with an elementary school site and adjoining 9-acre park, paseos
and nature trails, a recreation center, and a small commercial site. Over 150
acres of the site within a county significant ecological area will be dedicated
as an oak tree habitat for public recreation and education uses. The Company
will provide an endowment for the permanent management of the habitat. The
Westridge entitlements were approved by the County Regional Planning Commission
in December, 1998 and are expected to be heard by the Board of Supervisors early
in 1999.

                                       13

<PAGE>

In 1998, final permits were received from the California Department of Fish and
Game and the Army Corps of Engineers for construction of bridges and work
involving the Santa Clara River. These signed environmental permits, one state
and the other federal, allow the Company to complete the roads and
infrastructure for the buildout of Valencia. Work has started for similar
permits in connection with the development of Newhall Ranch.

In addition to final approvals for commercial and industrial space and 2,458 new
homes in Valencia received in 1997, additional entitlements are in the pipeline
with final approvals expected starting in 1999. These include 2,545 homes in the
Westcreek community in Valencia consisting of two primary villages that will
contain product ranging from apartments and cluster homes to estate lots. The
Company is working with the City of Santa Clarita on annexation of 1,900 homes
which consist of the Decoro South, Creekside and Eastcreek neighborhoods. The
annexation is expected to be completed by the fall of 1999.

Community development expenses have been maintained at approximately the same
levels in 1998, 1997 and 1996. The Company will continue to focus on the
entitlement process for Newhall Ranch and on obtaining additional governmental
approvals in Valencia to support the accelerated pace of development to meet
forecasted demand. As a result, with the Company's increasing efforts on
obtaining additional entitlements, community development expenses in 1999 are
expected to increase over 1998.

INCOME PRODUCING PROPERTIES

The Company's portfolio of income-producing properties is a relatively stable
source of earnings, providing working capital for continuing operations and
additional debt capacity to finance Company growth. For 1998, revenues and
income from the commercial portfolio increased 16% and 13%, respectively, over
1997.

Contributing to the 1998 increases were the continued expansion of the
commercial portfolio, excellent retail and apartment occupancies and favorable
rents throughout the portfolio. This increased performance for 1998 more than
offset sales of properties during the year.

Along Town Center Drive, the Company's 244-room Hyatt Valencia Hotel and Santa
Clarita Conference Center opened in August. The six-story, 127,300-square-foot
building for Princess Cruises was occupied in December, 1998 with 700 employees,
and 54,000 square feet of retail space on Town Center Drive was completed.

At December 31, 1998, occupancy at Valencia Town Center shopping mall was 99%
including short-term tenants. River Oaks and Castaic Village neighborhood
shopping centers are 99 and 100% leased, respectively. At River Oaks, Mimi's
Cafe opened on a building lease and the shopping center's remodel was completed
prior to the holiday selling season. NorthPark Village Square, the Company's
newest neighborhood shopping center, was fully leased and undergoing further
expansion to accommodate Rite-Aid, the nation's largest drug store chain, which
is scheduled to open a 16,700 square foot store in 1999. An additional 5,600
square feet of space is being added to NorthPark Village Square for other
retailers. Plaza del Rancho, a 47,200-square-foot, mixed-use project in Valencia
Industrial Center is 93% leased. The office buildings in the Company's portfolio
also are averaging high occupancy rates of nearly 90%.

The Company's three apartment complexes averaged 95% occupancy at the end of
1998, with rental increases for new tenants during the year averaging 15%. The
temporary drop in apartment occupancy rates at the end of 1998 is a result of
many renters buying homes in Valencia. To meet growing demand, additional
apartment complexes are planned during the buildout of Valencia. Currently,
Montecito, a 210-unit apartment complex in Valencia Town Center, is under
construction adjacent to Valencia Country Club, with units expected to be
available in spring, 1999. In addition, construction is expected to begin in
1999 on a 320-unit apartment complex in Valencia NorthPark. To capitalize on
historically high land values, the Company may sell land for some or all of the
800 apartment units planned in South River to other developers.

Development activity will continue to focus in Valencia Town Center and along
Town Center Drive, a mixed-use "Main Street" extending from the Company's
regional shopping mall west past the Hyatt Valencia Hotel. A 130,000-square-foot
entertainment complex that will include an IMAX 3-D Theatre, 11 additional movie
screens and a Borders bookstore, is under construction and is scheduled to be
completed in mid-1999. The complex also will include several restaurants and
retail space. Plans for Valencia Town Center mall provide for up to three more
department stores plus additional retail.

In 1999, net operating income from the portfolio is expected to be flat, and
with the sale of Valencia Marketplace in June, 1998, and increased depreciation
associated with new properties, net income is expected to be down approximately
15% compared to 1998. Projects started or completed during 1998 and 1999 in
Valencia Town Center are expected to generate $13 to $14 million in incremental
net operating income by 2000, more than offsetting the loss of income from
strategic asset sales such as Valencia Marketplace. The Company's investment

                                       14

<PAGE>

in the continued expansion of the portfolio was $102 million in 1998 and is 
expected to be approximately $70 million in 1999.

In 1997, revenues and income from the Company's commercial operations increased
16% and 11%, respectively, over 1996. Revenues and income in 1996 declined
slightly due to the sale of Bouquet Shopping Center in 1995 and reduced
occupancy at Valencia Town Center in 1996.

As the number of commercial income properties built each year increases, sales
of mature income properties may be made on a selective basis, allowing the
Company to benefit from strong capitalization rates and to maximize the return
on its investment.

VALENCIA WATER COMPANY

Valencia Water Company is a regulated public water utility and a wholly-owned
subsidiary of the Company, serving more than 19,000 metered customers in the
Valencia area. While the customer base is growing, reduced demand from heavy
rainfall during the winter and spring resulted in 1998 revenues decreasing by 9%
and income by 18%. In 1997, revenues increased 14% while income increased only
2% due to higher operating expenses. In 1996, revenues and income increased 13%
and 35%, respectively, due to a broader customer base and a 4% rate increase
effective January 1, 1996.

AGRICULTURE OPERATIONS

Agriculture revenues and income, including the Company's energy operations,
declined 27% and 37%, respectively, before a $1.9 million, non-cash, write-off
of mineral rights associated with previously sold ranch land based on an
independent valuation completed in 1998. The 1998 decline was primarily the
result of the sale of farmland and that the Company's three ranches had record
earnings in 1997. Additionally, in 1998, oil and gas prices were substantially
lower. In 1997, revenues and income declined 6% and 9%, respectively, primarily
due to the sale of vineyards at the Suey Ranch. The declines in 1997 were
partially offset by high prices and yields from citrus crops. In 1996, revenues
and income increased 12% and 36% respectively from the prior year, primarily due
to excellent prices and yields on avocados.

RANCH SALES

In 1998, a 970-acre parcel of the Merced Ranch closed escrow for $1.1 million,
contributing $775,000 to income. The sale is part of the Company's strategy of
selling farmland not suitable for development. Also included in 1998 results is
$323,000 recognized from the 1996 sale of 539 acres of crop land at the Suey
Ranch.

The sale of 1,674 acres of vineyards and undeveloped land at the Suey Ranch in
1997 for $17.9 million, added $17 million to income. Sale of a small remaining
parcel in northern California for $62,000 contributed another $45,000 to income.
In 1996, sale of 539 acres of crop land at the Suey Ranch for $6.5 million added
$5.9 million to income and a 4.5-acre parcel in northern California closed
escrow for $600,000, contributing $472,000 to income.

The Company's three remaining parcels totaling 2,970 acres at the Merced Ranch
are expected to close escrow in the first half of 1999. The acreage is being
leased while awaiting sale. The Company plans to market the remaining 36,000
acres at the Suey Ranch beginning in 1999.

GENERAL AND ADMINISTRATIVE EXPENSES

A 39% increase in general and administrative expenses in 1998 was primarily due
to consulting fees related to expanded marketing programs and improved business
conditions and, to a lesser degree, to non-capitalized expenses in connection
with upgrading of the computerized accounting system and Year 2000 repairs.
General and administrative expenses are expected to be slightly lower in 1999
compared to 1998.

Excluding a prior year non-cash charge for curtailment of a retirement plan for
directors, general and administrative expenses increased 5% in 1997, primarily
due to expenses related to the Company's efforts to secure additional large
landholdings for development. The $453,000 curtailment charge in 1996 was the
major contributor to a 7% increase in general and administrative expense.

UNIT OWNERSHIP PLANS

No expense was recorded in 1998 and expense of $1.2 million was recorded in 1997
for increases in the market price of partnership units in connection with
appreciation rights on outstanding non-qualified options granted prior to 1992.
In 1996, expense of $12,000 was recorded for amortization of return rights on
restricted units.

INTEREST AND OTHER

In 1998, reduction of debt due to receipt of $111 million cash upon the sale of
Valencia Marketplace in June, 1998 and an increase in interest capitalized to
portfolio projects contributed to a decrease of 39% in net interest

                                       15

<PAGE>

expense. Interest income from increased cash available for investment was 
offset by a reduction in interest income due to collection of notes from 
prior land sales.

The major contributor to a 4% decrease in net interest expense in 1997 was the
sale of the McDowell Mountain Ranch in April, 1996 when outstanding project and
bond debt was assumed by the buyer. The Company expects interest expense to
increase in 1999 due to the accelerated pace of development and the continued
expansion of the Company's income portfolio.

FINANCIAL CONDITION

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1998, the Company had cash and cash equivalents of $2.2 million
and $138.8 million in available lines of credit to fund development activities.
Letters of credit against lines of credit totaled $26.8 million at the end of
1998. The Company believes it has adequate sources of cash from operations and
debt capacity, including lines of credit, to finance future operations plus take
advantage of new development opportunities. At December 31, 1998, there was no
debt against raw land or land under development inventories.

There are no material commitments for capital expenditures other than the
Company's plans in the ordinary course of business to develop its portfolio of
income-producing properties. In 1998, a total of $101.8 million was invested in
portfolio development and the Company expects to invest approximately $70
million in 1999. In addition, the Company expects to invest approximately $30
million into major roads and freeway improvements in 1999 to enable the Company
to close additional land sales.

In August, 1998, the Board of Directors authorized the repurchase of one million
units and, in September, 1998, the Board of Directors authorized an additional
one million units for repurchase. In addition, the Company had 181,385 units
authorized for repurchase from a prior repurchase program. A total of 1,909,613
units, or 5.5% of the December 31, 1997 outstanding units, were repurchased in
1998. The unit repurchases are being made because the Board of Directors believe
the units are underpriced and do not reflect the Company's current performance
and especially its prospects. The Company intends to continue buying units in
1999. On January 20, 1999, the Board of Directors authorized an additional one
million units for repurchase. The repurchases will be funded from cash flow
generated from operations.

THE FOLLOWING DISCUSSION RELATES TO PRINCIPAL ITEMS IN THE CONSOLIDATED
STATEMENTS OF CASH FLOW.

OPERATING ACTIVITIES

Net cash provided by operating activities in 1998 totaled $167.6 million and
included sales of 1,232 residential lots and homes in the Valencia area plus
125.0 acres of industrial and commercial land including four build-to-suit/lease
buildings; sale of Valencia Marketplace, a high-volume retail center; and 970
acres of farmland. These sales combined provided $227.5 million in cash and
$15.3 million in notes. In addition, $4.0 million was collected on notes from
land sales in prior years.

Expenditures for land under development inventories and home construction
totaled $79.7 million in 1998 and were more than offset by $85.9 million in cost
of sales relief. Expenditures in Valencia were related to land preparation and
infrastructure to ready land for development or sale and home construction
advances for the Company's homebuilding partnerships. The Company net investment
in homebuilding partnerships totaled $13.5 million at the end of 1998.

In 1997, net cash provided by operating activities totaled $100.3 million and
included sales of 888 residential lots and homes plus 81.0 acres of industrial
and commercial land including three build-to-suit/lease buildings; sale of a
208-unit apartment complex; and sale of 1,673 acres of land at the Suey Ranch.
Combined, these sales provided $146.7 million in cash and $1.2 million in notes.
Notes totaling $10.2 million were collected in 1997 from land sales in prior
years. Expenditures in 1997 for land under development inventories and home
construction totaled $66.8 million and was offset by $76.1 million in cost of
sales relief. The Company's net homebuilding investment totaled $11.8 million at
the end of 1997.

In 1996, net cash provided by operating activities totaled $99.3 million and
included sales of 1,284 residential lots and homes in Valencia and McDowell
Mountain Ranch, plus 36.9 acres of industrial and commercial property including
two build-to-suit/lease properties; sale of the entire McDowell Mountain Ranch
planned community in Scottsdale, Arizona; and sale of 539 acres of row crop land
at the Suey Ranch. Combined these sales provided $133.8 million in cash and
$12.8 million in notes. In addition, notes totaling $7.2 million from land sales
in prior years were collected in 1996. Expenditures in 1996 for land under
development inventories totaled $75.4 million

                                       16

<PAGE>

and were offset by $100.6 million cost of sales relief including the sale of 
the McDowell Mountain Ranch project. Net investment in homebuilding 
partnership decreased 51% in 1996 to $12.4 million.

INVESTING ACTIVITIES

Expenditures for development of income-producing properties in Valencia in 1998
totaled $101.8 million. Major expenditures include $27.5 million for the Hyatt
Valencia Hotel and Santa Clarita Conference Center; $32.8 million for various
retail/office/entertainment projects in Valencia Town Center including parking
structures; $11.6 million for a six-story office building occupied by Princess
Cruises; and $6.6 million for a 210-unit apartment complex under construction in
Valencia Town Center. Also included is $14.1 million for Valencia Marketplace
which was sold in June, 1998. The Company is obligated to complete the
construction and leasing of the center and the sale is being recognized under
percentage of completion accounting.

The Company expects to invest approximately $70 million in income-producing
projects in 1999 including completion of approximately 150,000 square feet of
retail/office space under construction in Valencia Town Center. In addition to
completing the 210-unit apartment complex adjacent to Valencia Country Club,
construction is expected to begin in 1999 on a 320-unit apartment project
located in Valencia NorthPark.

In 1997, expenditures for income-producing properties under development totaled
$69.4 million. Major expenditures included $22.8 million for Valencia
Marketplace; $12.5 million for the Hyatt Valencia Hotel; $13.1 million for
industrial buildings under the build-to-suit/lease program; $6.3 million for a
264-unit apartment complex; and $4.1 million for Plaza del Rancho, a mixed-use
project in Valencia Industrial Center.

In 1996, expenditures for income-producing properties totaled $70.5 million.
Major expenditures included $25.0 million for Valencia Marketplace; $14.4
million for three industrial buildings; $12.1 million for a 264-unit apartment
complex; $4.6 million for a neighborhood shopping center; $5.3 million for a
53,700-square-foot office building; and $2.9 million for a 53,500-square-foot
Spectrum Club sports and fitness center.

Purchase of property and equipment in 1998, 1997 and 1996 were primarily for
water utility construction.

FINANCING ACTIVITIES

Distributions totaling $17.8 million were paid in 1998 consisting of four 
quarterly distributions of $.10 per unit and a special distribution of $.12 
per unit. In 1997, quarterly distributions totaling $16.6 million, or $.48 
per unit, were paid which included a special distribution of $.08 per unit. 
In 1996, quarterly distributions of $.40 per unit totaled $14.1 million. The 
declaration of distributions, and the amount declared, are determined by the 
Board of Directors on quarterly basis taking into account the Company's 
earnings, financial condition and prospects. The Company has repurchased its 
partnership unit over the three-year period as follows: 1998 -- 1,909,613 for 
$49.0 million; 1997 -- 328,637 units for $5.7 million; 1996 -- 1,228,078 
units for $20.3 million.

Upon sale of Valencia Marketplace in June, 1998, for $111 million cash, the
Company paid off all outstanding debt against lines of credit and a revolving
mortgage facility. At December 31, 1998, $23.2 million was outstanding against
lines of credit and $40 million against the revolving mortgage facility. In
1998, a $6 million scheduled principal payment was paid on an unsecured
financing with Metropolitan and a $3.3 million commercial mortgage was paid in
full. Also, a construction financing for a homebuilding joint venture was paid
upon completion of the project in 1998.

The Company expects to complete a $50 million financing secured by three
apartment complexes with a 10-year term at an average interest rate of 6.51% on
March 1, 1999. This financing will replace a portfolio mortgage secured by five
of the Company's commercial properties with a principal balance of $44.7 million
which matures on March 1, 1999.

In 1997, a $6 million scheduled principal payment was paid on a financing with
Metropolitan and borrowings against unsecured lines of credit decreased by $1.4
million from the prior year. A $2.4 million increase in debt was related to
draws against a construction loan for a homebuilding partnership.

In conjunction with the sale of McDowell Mountain Ranch in April, 1996, project
and bond debt totaling $16.3 million were assumed by the buyer. At December 31,
1996, borrowings outstanding against a revolving mortgage facility and lines of
credit totaled $49.5 million. The increase in borrowings was primarily for costs
associated with the Company's income-producing projects under development.

YEAR 2000 ISSUE

The Year 2000 issue concerns the possibility that computer programs with
date-sensitive software may recognize a date using "00" as the year 1900, rather
than as the year 2000, because the programs were written using two digits rather
than four to define the applicable year. This could result in a system failure
or miscalculations causing

                                       17

<PAGE>

disruptions of operations such as, among others, a temporary inability to 
process transactions or engage in normal business activities.

READINESS: The Company's Year 2000 remediation efforts are progressing
appropriately. At the end of 1997, a Year 2000 Task Force was formed to
coordinate Company-wide efforts to be Year 2000 compliant. To date, the Company
has inventoried its internal systems as well as identified systems and
applications outside of the Company that may include imbedded computer
technology that could be impacted by the Year 2000 Issue.

As a result of the Company's comprehensive review of its internal systems in
1997, and for other strategic reasons, the Company is replacing its computerized
accounting system. The Company successfully converted to the new accounting
system on January 1, 1999, except for the payroll and human resources subsystem
which the Company projects will be completed by April, 1999. The Company has
made significant progress in modifying existing software to be retained to be
Year 2000 compliant. Completion of these system changes is planned for the first
half of 1999, which will allow adequate time for testing.

Significant vendors, consultants, suppliers and governmental agencies
(collectively, "business partners") were sent a questionnaire on their Year 2000
compliance efforts. Nearly all have responded to this request. The Company made
selected site visits before the end of 1998 to assess the Year 2000 compliance
efforts of these business partners.

COSTS: The Company estimates the total cost of its compliance efforts in
connection with the Year 2000 Issue will be approximately $400,000 and will be
expensed as incurred. As of December 31, 1998, $114,000 had been expensed for
this project. The majority of the expenditures in the future is expected to be
for third party computer analysts to complete the modification and testing of
existing software for Year 2000 compliance. In addition, the cost of the new
accounting system is approximately $1 million and is being capitalized and
amortized over its useful life.

The cost of the Year 2000 Issue and the estimated completion dates are based on
management's best estimates, which were derived utilizing assumptions of future
events, including the continued availability of certain resources, third-party
modification plans and other factors. There can be no guarantee that these
estimates will prove accurate and actual results could differ from those
estimated.

RISKS: The Company believes the worst-case scenario for the Year 2000 Issue
would be for the Company or a significant number of its business partners to
fail to successfully complete their respective Year 2000 remediation efforts by
December 31, 1999. Under this scenario, the Company's operations would most
likely be disrupted which would result in a material adverse effect on its
business, operating results and financial condition.

CONTINGENCY PLANS: The Company expects to develop by June 1999 contingency plans
for business partners that do not indicate Year 2000 compliance. There can be no
assurance that any contingency plans developed by the Company will prevent any
service interruption on the part of one or more of the Company's business
partners or that such service interruption would not have a material adverse
effect upon the Company's business, operating results or financial condition. A
failure of the accounting systems of a significant number of the Company's
customers or business partners, or any of their financial institutions or
lenders, would likely have a material adverse effect on the Company's business,
operating results and financial condition.

INFLATION, RISKS AND RELATED FACTORS AFFECTING FORWARD-LOOKING INFORMATION

This report and other published reports by the Company contain forward-looking
statements regarding the status of proposed or pending sales and rental
activity, future planned development, plus the long-term growth goals of the
Company. The forward-looking statements made in this report are based, in part,
on present trends the Company is experiencing in residential, industrial and
commercial markets. Also, the Company's success in obtaining entitlements,
governmental and environmental regulations, timing of escrow closings, expansion
of its income portfolio and marketplace acceptance of its business strategies
are among the factors that could affect results. The following risks and related
factors, among others, should be taken into consideration in evaluating the
future prospects for the Company. Actual results may materially differ from
those predicted.

SALES OF REAL ESTATE: The majority of the Company's revenues are generated by
its real estate operations. The ability of the Company to consummate sales of
real estate is dependent on various factors including, but not limited to,
availability of financing to the buyer, regulatory and legal issues and
successful completion of the buyer's due diligence. The fact that a real estate
transaction has entered escrow does not necessarily mean that the transaction
will ultimately close. Therefore, the timing of sales may differ from that
anticipated by the Company. The inability to close sales as anticipated could
adversely impact the recognition of revenue in any specific period.

ECONOMIC CONDITIONS: Real estate development is significantly impacted by
general and local economic conditions which are beyond the control of the
Company. The Company's real estate operations are concentrated in

                                       18

<PAGE>

Southern California. The regional economy is profoundly affected by the 
entertainment, technology, defense and certain other segments, which have 
been known to affect the region's demographics. Consequently, all sectors of 
real estate development for the Company tend to be cyclical. While the 
economy of Southern California has shown improvements recently, there can be 
no assurances that present trends will continue.

INTEREST RATES AND FINANCING: Fluctuations in interest rates and the
availability of financing have an important impact on the Company's performance.
Sales of the Company's projects could be adversely impacted by the inability of
buyers to obtain adequate financing. Further, the Company's real estate
development activities are dependent on the availability of adequate sources of
capital. Certain of the Company's credit facilities bear interest at variable
rates and would be negatively impacted by increasing interest rates.

COMPETITION: The sale and leasing of residential, industrial and commercial real
estate is highly competitive, with competition coming from numerous and varied
sources. The degree of competition is affected by such factors as the supply of
real estate available which is comparable to that sold and leased by the Company
and the level of demand for such real estate. While the Company recently has
continued to increase its market share at both the local and the county level,
new competition is expected to deliver competing projects in the future that
could reverse this trend.

GEOGRAPHIC CONCENTRATION: The Company's real estate development activities are
focused on its 19,000 acres in Los Angeles County, 30 miles north of Los
Angeles. The Company's entire commercial income portfolio is located in the
Valencia area. Therefore, any factors affecting that concentrated area, such as
changes in the housing market, economic changes and environmental factors,
including seismic activity, which cannot be predicted with certainty, could
affect future results.

GOVERNMENT REGULATION AND ENTITLEMENT RISKS: In developing its projects, the
Company must obtain the approval of numerous governmental authorities regulating
such matters as permitted land uses, density and traffic, and the providing of
utility services such as electricity, water and waste disposal. In addition, the
Company is subject to a variety of federal, state and local laws and regulations
concerning protection of health and the environment. This government regulation
affects the types of projects which can be pursued by the Company and increases
the cost of development and ownership. The Company devotes substantial financial
and managerial resources to comply with these requirements. To varying degrees,
certain permits and approvals will be required to complete the developments
currently being undertaken, or planned by the Company. Furthermore, the timing,
cost and scope of planned projects may be subject to legal challenges,
particularly large projects with regional impacts. In addition, the continued
effectiveness of permits already granted is subject to factors such as changes
in policies, rules and regulations and their interpretation and application. The
ability to obtain necessary approvals and permits for its projects can be beyond
the Company's control and could restrict or prevent development of otherwise
desirable new properties. The Company's results of operations in any period will
be affected by the amount of entitled properties the Company has in inventory.

INFLATION: The Company believes it is well positioned against the effects of
inflation. Historically, during periods of inflation, the Company has been able
to increase selling prices of properties to offset rising costs of land
development and construction. Recently, land values have been increasing at a
faster rate than costs. However, there are no assurances that this trend will
continue. A portion of the commercial income portfolio is protected from
inflation since percentage rent clauses and Consumer Price Index increases in
the Company's leases tend to adjust rental receipts for inflation, while the
underlying value of commercial properties has tended to rise over the long term.

                                       19

<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                          INDEX TO FINANCIAL STATEMENTS INCLUDED IN ITEM 8:

                          Report of Independent Auditors

                          Consolidated Statements of Income for the years ended
                             December 31, 1998, 1997 and 1996

                          Consolidated Balance Sheets at
                             December 31, 1998 and 1997

                          Consolidated Statements of Cash Flows for the years
                             ended December 31, 1998, 1997 and 1996

                          Consolidated Statements of Changes in Partners'
                             Capital for the years ended December 31, 1998,
                             1997 and 1996

                          Notes to Consolidated Financial Statements

                                       20

<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors of Newhall Management Corporation and Partners of The
Newhall Land and Farming Company:

We have audited the accompanying consolidated balance sheets of The Newhall Land
and Farming Company and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, changes in partners' capital, and
cash flows for each of the years in the three-year period ended December 31,
1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Newhall Land and
Farming Company and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.



Los Angeles, California                                   /S/ KPMG LLP
January 20, 1999

                                       21

<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

<TABLE>
<CAPTION>

Consolidated Statements of Income
                                                                                            YEARS ENDED DECEMBER 31,
                                                                                  -----------------------------------------
IN THOUSANDS, EXCEPT PER UNIT                                                        1998             1997           1996
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>             <C>             <C>
Revenues
     Real estate
         Residential home and land sales
              Valencia                                                           $  70,867       $   67,682      $  79,533
              McDowell Mountain Ranch                                                    -                -         49,101
         Industrial and commercial sales                                           172,320           61,996         29,844
         Commercial operations
              Income-producing properties                                           38,622           33,404         28,742
              Valencia Water Company                                                10,209           11,170          9,762
     Agriculture
         Operations                                                                 11,270           15,487         16,459
         Ranch sales                                                                 1,390           17,962          6,745
--------------------------------------------------------------------------------------------------------------------------
Total Revenues                                                                     304,678          207,701        220,186
--------------------------------------------------------------------------------------------------------------------------
Operating Expenses
     Real estate
         Residential home and land sales
              Valencia                                                              47,258           52,187         65,417
              McDowell Mountain Ranch                                                    -                -         22,834
         Industrial and commercial sales                                           123,657           42,780         26,069
         Community development                                                      10,710           11,034         11,670
         Commercial operations
              Income-producing properties                                           20,985           17,824         14,662
              Valencia Water Company                                                 7,515            7,902          6,550
     Agriculture
         Operations                                                                 10,367           11,109         11,661
         Ranch sales                                                                   292              967            739
--------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses                                                           220,784          143,803        159,602
--------------------------------------------------------------------------------------------------------------------------
Operating Income                                                                    83,894           63,898         60,584
         General and administrative expense                                        (12,634)          (9,068)        (9,121)
         Expense from unit ownership plans                                               -           (1,200)           (12)
         Interest and other, net                                                    (7,180)          (9,137)        (9,562)
---------------------------------------------------------------------------------------------------------------------------
Net Income                                                                       $  64,080       $   44,493      $  41,889
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
Net Income Per Unit                                                              $    1.89       $     1.29      $    1.19
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
Net Income Per Unit - Assuming Dilution                                          $    1.86       $     1.28      $    1.18
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------

</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                       22

<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

<TABLE>
<CAPTION>

Consolidated Balance Sheets

                                                                                                     DECEMBER 31,
                                                                                         ---------------------------------
IN THOUSANDS                                                                                   1998                  1997
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>                  <C>
Assets
              Cash and cash equivalents                                                  $     2,188          $      2,770
              Accounts and notes receivable                                                   30,255                19,027
              Land under development                                                          47,667                53,875
              Land held for future development                                                30,553                32,551
              Income-producing properties, net                                               248,712               227,203
              Property and equipment, net                                                     58,836                54,876
              Other assets and deferred charges                                               13,996                13,630
--------------------------------------------------------------------------------------------------------------------------
                                                                                         $   432,207          $    403,932
--------------------------------------------------------------------------------------------------------------------------
Liabilities and Partners' Capital
              Accounts payable                                                           $    28,716          $     18,529
              Accrued expenses                                                                43,196                39,635
              Deferred revenues                                                               10,041                 3,152
              Mortgage and other debt                                                        157,609               156,946
              Advances and contributions from developers for utility construction             26,466                18,845
              Other liabilities                                                               22,366                21,548
--------------------------------------------------------------------------------------------------------------------------
                    Total liabilities                                                        288,394               258,655
              Commitments and contingencies (Note 9)

              Partners' capital

               32,676 units outstanding, excluding 4,096 units in treasury
                   (cost - $83,530), at December 31, 1998 and 34,527 units
                   outstanding, excluding 2,245 units in treasury
                   (cost - $35,769), at December 31, 1997                                    143,813               145,277
--------------------------------------------------------------------------------------------------------------------------
                                                                                         $   432,207          $    403,932
--------------------------------------------------------------------------------------------------------------------------

</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                       23

<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

<TABLE>
<CAPTION>

Consolidated Statements of Cash Flows
                                                                                        YEARS ENDED DECEMBER 31,
                                                                            ---------------------------------------------
IN THOUSANDS                                                                     1998              1997             1996
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>               <C>               <C>
Cash Flows from Operating Activities:
     Net income                                                              $  64,080         $  44,493         $ 41,889
     Adjustments to reconcile net income to net cash provided by operating
        activities:
           Depreciation and amortization                                        10,101            10,148            8,857
           Decrease in land under development                                    6,208             9,391           25,191
           (Increase) decrease in accounts and notes receivable                (11,228)            6,530             (401)
           Increase in accounts payable,
               accrued expenses and deferred revenues                           20,637             9,281            3,710
           Cost of property sold                                                77,564            18,334           17,521
           Other adjustments, net                                                  216             2,134            2,561
--------------------------------------------------------------------------------------------------------------------------
     Net cash provided by operating activities                                 167,578           100,311           99,328
--------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
     Development of income-producing properties                               (101,789)          (69,403)         (70,471)
     Purchase of property and equipment                                         (9,133)           (4,853)          (8,813)
     Distribution from (investment in) joint venture                                22                 8              (43)
--------------------------------------------------------------------------------------------------------------------------
     Net cash used in investing activities                                    (110,900)          (74,248)         (79,327)
--------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
     Distributions paid                                                        (17,784)          (16,588)         (14,122)
     Borrowings on mortgage and other debt                                      15,100             2,389           34,871
     Repayment of mortgage and other debt                                      (14,437)           (8,699)         (23,917)
     Increase in advances and contributions from
        developers for utility construction                                      7,621               474            2,193
     Purchase of partnership units                                             (49,043)           (5,746)         (20,277)
     Other, net                                                                  1,283             2,465             (622)
--------------------------------------------------------------------------------------------------------------------------
     Net cash used in financing activities                                     (57,260)          (25,705)         (21,874)
--------------------------------------------------------------------------------------------------------------------------
Net (Decrease) Increase in Cash and Cash Equivalents                              (582)              358           (1,873)
Cash and Cash Equivalents, Beginning of Year                                     2,770             2,412            4,285
--------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year                                       $   2,188         $   2,770         $  2,412
--------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information:
     Interest paid (net of amount capitalized)                               $   7,562         $  10,273         $ 10,938
--------------------------------------------------------------------------------------------------------------------------

</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                       24

<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

<TABLE>
<CAPTION>

Consolidated Statements of Changes in Partners' Capital
                                                                                            Number              Partners'
IN THOUSANDS                                                                               of Units              Capital
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>                <C>
Balance at December 31, 1995                                                                35,910             $ 112,856
     Net income                                                                                  -                41,889
     Distributions                                                                               -               (14,122)
     Purchase of partnership units                                                          (1,228)              (20,277)
     Other activity, net                                                                        19                   307
-------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996                                                                34,701               120,653
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
     Net income                                                                                  -                44,493
     Distributions                                                                               -               (16,588)
     Purchase of partnership units                                                            (329)               (5,746)
     Other activity, net                                                                       155                 2,465
-------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997                                                                34,527             $ 145,277
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
     Net income                                                                                  -                64,080
     Distributions                                                                               -               (17,784)
     Purchase of partnership units                                                          (1,910)              (49,043)
     Other activity, net                                                                        59                 1,283
-------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998                                                                32,676             $ 143,813
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------

</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                       25
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATE (continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998

NOTE 1. ORGANIZATION

The Newhall Land and Farming Company, a California Limited Partnership ("the 
Company" or "the Partnership"), is organized as a publicly traded master 
limited partnership. The general partners of the Company are Newhall 
Management Limited Partnership, the Managing General Partner, and Newhall 
General Partnership. Two executive officers and the Managing General Partner 
are the general partners of Newhall General Partnership.

NOTE 2. INDUSTRY SEGMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Business Segments: The Company operates in two lines 
of business: real estate and agriculture. The business segments of the 
Company's real estate operations consist of residential land sales and 
homebuilding; industrial and commercial land sales; development and operation 
of income-producing properties; Valencia Water Company, a public water 
utility; and community development. Agriculture consists primarily of farming 
operations and sales of non-strategic farmland. Central Administration 
includes the Company's corporate general and administrative support services 
such as information systems, financial services, human resources and internal 
audit.

Information as to identifiable assets, capital expenditures and depreciation 
for these segments is summarized in Note 10. Significant accounting policies 
related to the Company's segments are:

Residential Home Sales: The Company's income from residential home sales 
comes from sales of completed single- and multi-family homes to homebuyers 
through joint ventures and limited partnerships. The Company increases its 
inventories of homes completed or under construction with venture partners as 
it funds the venture obligation and records revenues and income as the 
venture closes escrow on sales to homebuyers.

Land Sales: Sales are recorded at the time escrow is closed provided that: 
(1) there has been a minimum down payment, ranging from 20% to 25% depending 
upon the type of property sold, (2) the buyer has met adequate continuing 
investment criteria, and (3) the Company, as the seller, has no material 
continuing involvement in the property. Where the Company has an obligation 
to complete certain future development, revenue is deferred in the ratio of 
the cost of development to be completed to the total cost of the property 
being sold under percentage of completion accounting. Land under development 
includes land, direct and allocated construction costs for land and 
infrastructure development plus project amenities. As land is sold, estimated 
total costs at completion for the specific project are charged ratably to 
cost of sales.

Income-Producing Properties: The Company owns and leases apartments, 
commercial and industrial buildings, shopping centers and land to tenants. 
Except for apartments, rents are typically based on the greater of a 
percentage of the lessee's gross revenues or a minimum rent. Most lease 
agreements require that the lessee pay all taxes, maintenance, insurance and 
certain other operating expenses applicable to leased properties. Apartments 
are rented on six-month leases and continue on a month-to-month basis 
thereafter.

Valencia Water Company: Valencia Water Company (a California corporation), a 
wholly-owned subsidiary, is a public water utility subject to regulation by 
the California Public Utilities Commission. Water utility revenues include 
amounts billed monthly to customers and an estimated amount of unbilled 
revenues. Income taxes are included in operating expenses. Deferred income 
taxes are reflected in the consolidated financial statements.

Community Development: Preliminary planning and entitlement costs are charged 
to expense when incurred. After tentative map approval, expenditures for map 
recordation are capitalized to the identified project.

Agriculture Operations: Revenue is recognized as crops are delivered to farm 
cooperatives and other purchasers. Crops delivered to farm cooperatives are 
marketed throughout the year after harvest. At the time of delivery, the 
Company estimates the proceeds to be received from the cooperatives and 
records these amounts as unbilled receivables. During the year following 
harvest, the Company records any adjustments of such estimated amounts 
arising from changing market conditions. Net income for the years ended 
December 31, 1998, 1997, and 1996

                                       26

<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATE (continued)

increased approximately $500,000, $288,000, and $336,000, respectively, as a 
result of such adjustments. Costs incurred during the development stage of 
orchard and vineyard crops (ranging from 3 to 10 years) are capitalized and 
amortized over the productive life of the trees or vines. Farming costs which 
cannot be readily identified with a specific harvested crop or other 
revenue-producing activity are expensed as incurred.

Farming inventories include crops in process and harvested crops and are 
valued at the lower of cost or market, determined on the first-in, first-out 
method.

OTHER GENERAL ACCOUNTING POLICIES ARE:

Basis of Consolidation: The consolidated financial statements include the 
accounts of the Company, its wholly-owned subsidiaries and homebuilding joint 
ventures. All significant intercompany balances and transactions are 
eliminated. Certain reclassifications have been made to prior years' amounts 
to conform to the current year presentation.

Joint Venture: The equity method is used to account for an investment in a 
joint venture with Hilton Inns, Inc. which is not controlled by the Company.

Cash and Cash Equivalents: The Company considers all highly liquid 
investments with original maturity dates of 90 days or less to be cash 
equivalents.

Income-Producing Properties; Property and Equipment: Property is stated at 
cost, less proceeds from sales of easements and rights of way. Depreciation 
is provided on the straight-line basis over the estimated useful lives of the 
various assets without regard to salvage value. Lives used for calculating 
depreciation are as follows: buildings - 25 to 40 years; equipment - 3 to 10 
years; water supply systems, orchards and other - 5 to 75 years.

Impairment of Assets: The Company adopted the provisions of SFAS No. 
121--ACCOUNTING FOR THE IMPAIRMENT Of LONG-LIVED ASSETS AND FOR LONG-LIVED 
ASSETS TO BE DISPOSED OF, on January 1, 1996. Long-lived assets are reviewed 
for impairment whenever events or changes in circumstances indicate that an 
impairment may have occurred. Also, under the provisions of this accounting 
pronouncement, the Company ceases to depreciate assets while they are held 
for sale.

Environmental Matters: Environmental clean-up costs are charged to expense or 
established reserves and are not capitalized. Generally, reserves are 
recorded for environmental clean-up costs when remediation efforts are 
probable and can be reasonably estimated. To date, environmental clean-up 
costs have not been material.

Management's Estimates: The preparation of financial statements in conformity 
with generally accepted accounting principles requires management to make 
certain estimates and assumptions. These affect the reported amounts of 
assets and liabilities, the disclosure of any contingent assets or 
liabilities and the reported amounts of revenues and expenses during the 
reporting periods. Actual results could differ from the estimates made.

Income Taxes: The partnership is not a taxable entity; accordingly, no 
provision for income taxes has been made in the consolidated financial 
statements. Partners are taxed on their allocable share of the Company's 
earnings. Partners' distributive share of the income, gain, loss, deduction 
and credit of the Company is reportable on their income tax returns.

The Revenue Act of 1987 contained provisions which, in some cases, taxes 
publicly traded partnerships as corporations. Since the Company was in 
existence on December 17, 1987, it will continue to be treated as a 
partnership for the 1987 through 1997 taxable years. Beginning in 1998, 90% 
of the partnership's gross income must be derived from rent, sales of real 
estate, interest, and income from other "natural resources" as provided in 
Internal Revenue Section 7704. The partnership's 1998 gross income currently 
qualifies under this provision and the Company expects to continue to be 
taxed as a partnership for the foreseeable future.

                                       27

<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATE (continued)

Amounts per Partnership Unit: The following is a reconciliation of the 
numerators and denominators of the basic and diluted income per unit 
computations:

<TABLE>
<CAPTION>

                                                                               Income             Units         Per Unit
(IN 000'S EXCEPT PER UNIT)                                                   (NUMERATOR)      (DENOMINATOR)
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                    <C>         <C>
FOR THE YEAR ENDED DECEMBER 31, 1998
Net income per unit
     Net income available to unitholders                                   $    64,080            33,986      $    1.89
Effect of dilutive securities
     Unit options                                                                    -               390           (.03)
-------------------------------------------------------------------------------------------------------------------------
Net income per unit - diluted                                              $    64,080            34,376      $    1.86
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1997
Net income per unit
     Net income available to unitholders                                   $    44,493            34,520      $    1.29
Effect of dilutive securities
     Unit options                                                                    -               230           (.01)
-------------------------------------------------------------------------------------------------------------------------
Net income per unit - diluted                                              $    44,493            34,750      $    1.28
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1996
Net income per unit
     Net income available to unitholders                                   $    41,889            35,292      $    1.19
Effect of dilutive securities
     Unit options                                                                    -               119           (.01)
-------------------------------------------------------------------------------------------------------------------------
Net income per unit - diluted                                              $    41,889            35,411      $    1.18
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
Net income per unit for prior years has been restated to conform with the requirements of SFAS No. 128 - 
EARNINGS PER SHARE.

</TABLE>

NOTE 3. FEDERAL INCOME TAX RESULTS OF THE PARTNERSHIP

The Partnership has elected under Section 754 of the Internal Revenue Code to 
adjust the basis of property upon the purchase of units by investors. For 
investors who purchase units, this election provides for the reflection of 
the investor's price of the units in the tax basis of the Partnership's 
properties. The excess of the purchase price over the monetary assets and 
liabilities is allocated to real estate assets and results in a new basis 
which is used to calculate operating expenses for tax purposes.

At December 31, 1998, the net tax basis of the Company's assets and 
liabilities exceeded the Company's financial statement basis of its assets 
and liabilities by $195,188,000. This excess amount does not reflect the 
step-up in asset basis allocated to individual partners upon purchase of 
units subsequent to the formation of the Partnership.

The Partnership's tax returns for the past four years are subject to 
examination by federal and state taxing authorities. Because many types of 
transactions are susceptible to varying interpretations under federal and 
state income tax laws and regulations, the tax basis amounts may be subject 
to change at a later date upon final determination by the taxing authorities.

                                       28

<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATE (continued)
---------------------------------------------------------------
NOTE 4. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair values of the Company's financial instruments are as follows:

<TABLE>
<CAPTION>

                                                                                DECEMBER 31, 
                                                      -------------------------------------------------------------------
                                                                   1998                                    1997
-------------------------------------------------------------------------------------------------------------------------
                                                        Carrying          Fair                  Carrying           Fair
IN THOUSANDS                                             Amount           Value                  Amount            Value
-------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>              <C>                     <C>
Notes receivable from land sales                      $   21,744       $   21,744              $   10,339      $   10,339
Mortgage and other debt                                  157,609          157,609                 156,946         156,946
Advances from developers for utility construction         11,355            2,891                  11,730           2,895
                                                      -------------------------------------------------------------------
                                                      -------------------------------------------------------------------
</TABLE>

The following methods and assumptions were used to estimate the fair value of 
each class of financial instruments for which it is practicable to estimate 
that value:

Cash and Cash Equivalents; Accounts Receivable and Payable: The carrying 
amounts approximate the fair values of these instruments due to their 
short-term nature.

Notes Receivable from Land Sales: The carrying amounts of notes receivable 
approximate fair value. Generally, these notes are interest-bearing with 
maturities of less than one year from close of escrow. If applicable, the 
carrying amount reflects imputed interest to reduce the note receivable to 
its fair value.

Mortgage and Other Debt: The carrying amount of the Company's debt reflects 
its fair value based on current interest rates available to the Company for 
comparable debt. See Note 7 for interest rates on outstanding debt.

Advances from Developers for Utility Construction: Generally, advances are 
refundable to the developer without interest at the rate of 2.5% per year 
over 40 years. The fair value is estimated as the discounted value (12%) of 
the future cash flows to be paid on the advances.

NOTE 5. COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
-----------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                             DECEMBER 31,
                                                                                ---------------------------------------
IN THOUSANDS                                                                          1998                         1997
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                          <C>
Accounts and notes receivable
   Trade receivables, less allowance for doubtful
     accounts of $1,188 and $654, respectively                                   $     1,623                  $     1,513
   Notes receivable from land sales                                                   21,744                       10,339
   Unbilled accounts receivable
     Agricultural products                                                             2,281                        2,945
     Other                                                                               544                          565
   Other                                                                               4,063                        3,665
-------------------------------------------------------------------------------------------------------------------------
                                                                                 $    30,255                  $    19,027
                                                                                 ----------------------------------------
                                                                                 ----------------------------------------
Land under development
   Valencia

     Residential land development                                                $     1,166                  $     3,700
     Homes completed or under construction
       with venture partners                                                          13,525                       11,799
     Industrial and commercial land development                                       32,686                       38,190
   Agriculture                                                                           290                          186
-------------------------------------------------------------------------------------------------------------------------
                                                                                 $    47,667                  $    53,875
                                                                                 ----------------------------------------
                                                                                 ----------------------------------------

</TABLE>

NOTE 5 CONTINUED ON NEXT PAGE

                                       29

<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATE (continued)

NOTE 5 (CONTINUED)

<TABLE>
<CAPTION>

                                                                                               DECEMBER 31,  
                                                                                 ----------------------------------------
IN THOUSANDS                                                                          1998                         1997
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>                          <C>
Income-producing properties
   Land                                                                          $    48,319                   $   45,873
   Buildings                                                                         119,453                      106,552
   Other                                                                              14,611                       14,063
-------------------------------------------------------------------------------------------------------------------------
                                                                                     182,383                      166,488
   Accumulated depreciation                                                          (39,443)                     (35,431)
-------------------------------------------------------------------------------------------------------------------------
                                                                                     142,940                      131,057
   Properties under development                                                      105,772                       96,146
-------------------------------------------------------------------------------------------------------------------------
                                                                                 $   248,712                   $  227,203
                                                                                 ----------------------------------------
                                                                                 ----------------------------------------
Property and equipment
   Land                                                                          $     4,819                   $    5,004
   Buildings                                                                           5,600                        5,600
   Equipment                                                                           8,993                        9,232
   Water supply systems, orchards and other                                           68,688                       66,857
   Construction in progress                                                            7,172                        2,595
-------------------------------------------------------------------------------------------------------------------------
                                                                                      95,272                       89,288
   Accumulated depreciation                                                          (36,436)                     (34,412)
-------------------------------------------------------------------------------------------------------------------------
                                                                                 $    58,836                   $   54,876
                                                                                 ----------------------------------------
Other assets and deferred charges                                                ----------------------------------------
   Prepaid expenses                                                              $     1,751                   $    1,091
   Investment in joint venture                                                           468                          490
   Unamortized loan fees                                                                 682                        1,211
   Deferred charges and assets of
     Valencia Water Company                                                            4,985                        5,243
   Other                                                                               6,110                        5,595
-------------------------------------------------------------------------------------------------------------------------
                                                                                 $    13,996                   $   13,630
                                                                                 ----------------------------------------
                                                                                 ----------------------------------------
Accrued expenses
   Deferred compensation                                                         $     7,800                   $    6,161
   Operating and other accruals                                                        3,665                        4,898
   Project accruals                                                                   27,446                       24,241
   Other                                                                               4,285                        4,335
-------------------------------------------------------------------------------------------------------------------------
                                                                                 $    43,196                   $   39,635
                                                                                 ----------------------------------------
                                                                                 ----------------------------------------
Other liabilities
   Warranty and other reserves                                                   $     6,255                   $    6,743
   Deferred taxes of Valencia Water Company                                            5,862                        5,700
   Other                                                                              10,249                        9,105
-------------------------------------------------------------------------------------------------------------------------
                                                                                 $    22,366                   $   21,548
                                                                                 ----------------------------------------
                                                                                 ----------------------------------------

</TABLE>
                                       30

<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

NOTE 6. COMMERCIAL LEASES

Minimum lease payments to be received under non-cancelable operating leases as
of December 31, 1997 are as follows:

<TABLE>
<CAPTION>
IN THOUSANDS
----------------------------------------------------------------------------------------
<S>                                                                             <C>
        1999                                                               $     18,614
        2000                                                                     18,709
        2001                                                                     17,867
        2002                                                                     16,883
        2003                                                                     13,595
        Thereafter                                                               85,674
        --------------------------------------------------------------------------------
                                                                           $    171,342*
                                                                           --------------
                                                                           --------------
</TABLE>

*  THIS AMOUNT DOES NOT INCLUDE CONTINGENT RENTALS WHICH MAY BE RECEIVED UNDER
   CERTAIN LEASES BASED ON LESSEE SALES OR APARTMENT RENTALS. CONTINGENT AND
   APARTMENT RENTALS RECEIVED FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND
   1996 WERE (IN THOUSANDS) $11,429, $9,934, AND $8,991, RESPECTIVELY.

-------------------------------------------------------------------------------
NOTE 7. MORTGAGE AND OTHER DEBT

<TABLE>
<CAPTION>
                                                                                                        DECEMBER 31,       
                                                                                  INTEREST      -------------------------
IN THOUSANDS                                                                        RATES             1998         1997
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>            <C>            <C>
Unsecured lines of credit                                                        Variable         $ 23,200       $  8,100
Prudential (portfolio mortgage)                                                    8.995%           44,686         45,306
Prudential (ranch mortgage)                                                         8.45%           10,560         10,800
Pacific Life
   (Valencia Water Company)                                                          8.0%           11,000         11,000
Bank of America
   (commercial mortgage)                                                            7.95%               --          3,302
Metropolitan
   (unsecured notes)                                                                 6.9%           12,000         18,000
Wells Fargo
   (Valencia Town Center)                                                        Variable           40,000         40,000
Community facilities bonds
   (Valencia Town Center)                                                        4.5-7.5%           16,163         16,678
Bank of America
   (homebuilding joint venture)                                                      9.0%               --          3,760
-------------------------------------------------------------------------------------------------------------------------
                                                                                                  $157,609       $156,946
                                                                                                  -----------------------
                                                                                                  -----------------------
</TABLE>

In November, 1997, the Company replaced its existing bank lines, totaling $119
million, with a $200 million three-year, unsecured revolving line of credit led
by Wells Fargo and J.P. Morgan. In 1998, the line was reduced to $159 million.
The interest rate is LIBOR plus 1.2% and the commitment fee is .25% per annum of
the unused portion. In addition, the Company has a $1 million line of credit
with Valencia Bank & Trust. Letters of credit outstanding against available
lines of credit totaled $26.8 million and $16.7 million, respectively, at
December 31, 1998 and 1997.

The Prudential portfolio mortgage is secured by five of the Company's commercial
properties. The terms of the note require monthly principal and interest
payments of $389,000 until maturity on March 1, 1999 when a principal balance of
approximately $44.7 million is due. To replace this mortgage, the Company
expects to complete a $50 million financing on March 1, 1999 secured by three
apartment complexes for a 10-year term at an average rate of 6.51%.

                                      31

<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

The Prudential ranch mortgage is a non-recourse mortgage financing secured by
the 14,000-acre New Columbia Ranch property. The terms of the note call for
interest payments on each May 1 and November 1 and annual principal payments of
$240,000 until maturity on November 1, 2003.

Valencia Water Company has an $11 million financing with Pacific Life secured by
the utility's property and equipment. The terms of the financing call for
semi-annual interest payments with the principal payable in full at maturity on
June 1, 2009. The loan is not guaranteed by the Company. Valencia Water Company
also has a $2 million line of credit with Wells Fargo which is not guaranteed by
the Company.

The commercial mortgage with Bank of America was paid in full in July, 1998.

The terms of a $30 million, seven-year unsecured financing with a remaining
principal balance of $12 million, call for interest payments payable
semi-annually and principal payments in equal annual installments of $6 million.

The note matures on December 31, 2000.

The terms of the $40 million revolving mortgage facility secured by the Valencia
Town Center regional mall require a commitment fee of .125% per annum of the
unused portion. Borrowings bear interest at LIBOR plus 1.0% or Wells Fargo's
prime rate, at the election of the Company. At December 31, 1998, the interest
rate on the borrowings was 6.71%. The credit facility expires in December, 1999.

In October 1992, tax-exempt community facilities bonds were issued to finance a
portion of the costs of certain public infrastructure improvements located
within or in the vicinity of Valencia Town Center, the Company's regional
shopping mall. The bonds will be repaid over 20 years from special taxes levied
on the mall property.

In December, 1996, the Company entered into a joint venture with Warmington
Homes to construct 72 homes in Valencia NorthPark. A construction loan was
obtained from Bank of America with a contractual maximum of $6.6 million and
interest at the prime rate plus .75%. The loan is guaranteed by Warmington
Homes. Proceeds from 1998 home sales in the joint venture were used to fully
repay the loan.

Annual maturities of existing long-term debt are approximately (in thousands)
$51,506 in 1999, $6,895 in 2000, $970 in 2001, $1,060 in 2002, $10,515 in 2003
and $23,463 thereafter. The unsecured lines of credit and the Wells Fargo
revolving mortgage facility are lines of credit with no scheduled repayment
terms.

Capitalized Interest and Interest Income: During 1998, 1997 and 1996, total
interest expense incurred amounted to (in thousands) $8,067, $10,527, $10,325,
net of $3,354, $2,252 and $2,146, which was capitalized, respectively. Interest
income from investments and notes receivable totaled (in thousands)$1,451 in
1998, $1,641 in 1997 and $1,504 in 1996.

-------------------------------------------------------------------------------
NOTE 8. EMPLOYEE BENEFIT PLANS

Incentive Compensation Plan: Under the terms of the Company's Executive
Incentive Plan, the Board of Directors may authorize incentive compensation
awards to key management personnel of up to five percent of each year's income.
The Board of Directors authorized awards of $3,327,000, $1,907,000 and
$1,481,000 for the years ended December 31, 1998, 1997 and 1996, respectively.

Unit Compensation Plans: The Company has two unit-based compensation plans,
which are described below. The Company applies the provisions of APB Opinion No.
25 and related interpretations in accounting for its plans. Accordingly,
compensation expense is only recognized for market price fluctuations in
connection with option appreciation rights under the unit option plan. Had
compensation costs been determined consistent with SFAS No. 123, the Company's
net income and net income per unit would have been reduced to the pro forma
amounts indicated below:

                                     32

<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

<TABLE>
<CAPTION>
                                                                                            YEARS ENDED DECEMBER 31,    
                                                                                     -----------------------------------
IN THOUSANDS, EXCEPT PER UNIT                                                         1998           1997          1996
------------------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>           <C>          <C>
Net Income
     As reported                                                                      $64,080       $44,493      $41,889
     Pro forma                                                                         60,227        43,489       41,503
Income Per Unit
     As reported-assuming dilution                                                     $ 1.86       $  1.28      $  1.18
     Pro forma                                                                           1.75          1.25         1.17
                                                                                      ----------------------------------
                                                                                      ----------------------------------
</TABLE>

Pro forma net income reflects only options granted in 1998, 1997, 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options' vesting
period of four years and compensation cost for options granted prior to January
1, 1995 is not considered.

Unit Option Plan: In January, 1995, the Board of Directors approved the 1995
Option/Award Plan, which superseded the Option, Appreciation Rights and
Restricted Units Plan. Under the terms of the Plan, an additional 600,000 units
may be granted as options, restricted units, unit rights or appreciation rights
to key employees. In November, 1997, the Plan was amended to increase the number
of units which may be granted by 3,050,000 units.

Options, restricted units or appreciation rights may not be granted at a price
below the market price on date of grant. Non-qualified options and appreciation
rights are exercisable 25% after the end of each of the first four years and
terminate in ten years. The following non-qualified, market price options, all
without appreciation rights, were granted: 1998 - 215,419; 1997 - 291,400; 1996
- 236,500. In 1997, expense of $1.2 million was recorded and no expense or
recovery was recorded in 1998 or 1996 for market price fluctuations in
connection with option appreciation rights granted prior to 1991. Restricted
unit rights granted as part of the Company's Management Unit Ownership Program
vest 20% at the end of each of the first five years. The following restricted
unit rights were granted: 1998 - 2,936; 1997 - 4,580; 1996 - 778.

In November, 1997, the Board of Directors approved a premium price option
program for key executives tied to the performance of the Company's partnership
units. Options totaling 2.45 million units were granted to the Company's six top
executives. The number of options granted is larger than the Company's typical
market-price option program due to the increased risks associated with the
premium price and forfeiture provisions and is in lieu of market price options
for the six executives over the next three years. Under the terms of the
program, participants are granted options in two tranches, each of which has a
five-year option life and becomes exercisable in three years but is subject to
forfeiture if certain performance criteria are not met.

The per unit weighted-average fair value of non-qualified, market price options
granted in 1998, 1997 and 1996 was $10.02, $7.40 and $6.06, respectively, on the
date of grant using the Black-Scholes option pricing model with the following
weighted-average assumptions: 1998 - distribution yield 2.8%, expected
volatility 29.4%, risk-free interest rate 5.5% and an expected life of 10 years;
1997 - distribution yield of 3.0%, expected volatility of 29.3%, risk-free
interest rate of 6.0% and expected life 10 years; 1996 - distribution yield of
3.0%, expected volatility of 29.8%, risk-free interest rate of 7.0% and expected
life 10 years.

The per unit weighted average fair value of premium price options granted in
1997 was $3.53 for the first tranche and $3.35 for the second tranche using the
Black-Scholes option pricing model with the following weighted average
assumptions: distribution yield of 1.6%, expected volatility of 21.0%, risk-free
interest rate of 6.40% and an expected life of five years.

                                      33

<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

At December 31, 1998, 428,819 units were available for future grants. A summary
of the status of the Company's Option/Award Plan is presented below:

<TABLE>
<CAPTION>
                                                                                                           WEIGHTED AVERAGE
                                                                           UNITS                           EXERCISE PRICE
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>                                <C>
Outstanding at December 31, 1995                                         1,145,363                             $ 17.57
   Granted                                                                 237,278                               16.75
   Exercised                                                               (10,467)                              14.63
   Cancelled                                                              (106,376)                              17.25
----------------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1996                                         1,265,798                               17.46
   Granted                                                               2,745,980                               31.33
   Exercised                                                              (230,511)                              16.09
   Cancelled                                                               (41,584)                              14.94
----------------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1997                                         3,739,683                               27.68
   Granted                                                                 218,355                               30.03
   Exercised                                                               (54,479)                              17.50
   Cancelled                                                               (27,507)                              23.50
----------------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1998                                         3,876,052                             $ 27.96
                                                                         ---------------------------------------------------
                                                                         ---------------------------------------------------
</TABLE>

At December 31, 1998 and 1997, the number of options exercisable was $863,904
and 702,488, respectively, and the weighted average exercise price of those
options was $18.31 and $18.12, respectively.

The following summarizes information about outstanding options at December 31,
1998:

<TABLE>
<CAPTION>
   RANGE OF                         NUMBER                    WEIGHTED AVERAGE         WEIGHTED AVERAGE
 EXERCISE PRICES                  OUTSTANDING                  EXERCISE PRICE           REMAINING LIFE
---------------------------------------------------------------------------------------------------------
<S>                               <C>                         <C>                      <C>
$13.00-$16.75                        694,063                     $14.93                     5.9
$19.75-$23.00                        368,369                     $21.47                     7.0
$29.50-$33.39                      2,804,300                     $32.13                     4.1
</TABLE>


The following summarizes information about exercisable options at December 31,
1997:

<TABLE>
<CAPTION>
   RANGE OF                           NUMBER                     WEIGHTED AVERAGE
EXERCISE PRICES                     EXERCISABLE                   EXERCISE PRICE
----------------------------------------------------------------------------------
<S>                                 <C>                          <C>
$13.00-$16.75                          559,622                         $14.72
$19.75-$23.00                          167,632                         $20.75
$29.50-$33.39                          136,650                         $30.01
</TABLE>

Employee Unit Purchase Plan: A total of 250,000 units has been reserved for
issuance under the Company's Unit Purchase Plan. Under the terms of the plan,
employees may have up to 15% of their base salary withheld to purchase the
Company's partnership units. The purchase price is a specified percentage (no
less than 85% and no more than 100%, as determined by the Plan Administrator for
each purchase period) of the lower of the market price on the first day of the
purchase period or the last day of the purchase period.

Under the plan, the Company sold 6,965, 6,049 and 6,428 units to employees in
1998, 1997 and 1996, respectively. The weighted average fair value of these
units was $3.64 for 1998, $3.66 for 1997 and $2.80 for 1996 using the
Black-Scholes model with the following assumptions: expected life of seven
months due to salary withholdings throughout the year; distribution yield of
3.0% and expected volatility of 20.6% for all years; risk-free interest rate of
5.45% for 1998, 5.45% for 1997 and 6.4% for 1996; and an exercise price equal to
85% of the lower of the market price on the first day of the purchase period and
the market price on the last day of the purchase period.

Retirement Plans: The Retirement Plan is Company funded and is qualified under
ERISA. Generally, all employees of the Company and subsidiaries of the Company
are eligible to participate in the Retirement Plan after one year of employment
and attainment of age 21. Participants' benefits accumulated through December
31, 1996 are calculated as 40.5% of the highest average annual earnings up to
Social Security covered compensation, plus 

                                      34

<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

60% of average annual earnings in excess of covered compensation, reduced pro 
rata for years of service less than 30. Benefits which accumulate after 
January 1, 1997 are calculated as 32.4% of the social security wage base and 
48% of the excess over covered compensation.

The Company's contribution to the Retirement Plan is determined by consulting 
actuaries on the basis of customary actuarial considerations, including total 
covered payroll of participants, benefits paid, earnings and appreciation in 
the Retirement Plan funds.

The Board of Directors has adopted a Pension Restoration Plan, pursuant to 
which the Company will pay any difference between the maximum amount payable 
under ERISA and the amount otherwise payable under the Plan.

The Company's funding policy is to contribute no more than the maximum 
tax-deductible amount. Plan assets are invested primarily in equity and fixed 
income funds.

The Company also has a Supplemental Executive Retirement Plan and a 
Retirement Plan for Directors. The additional pension cost for these plans 
was $106,000 in 1998, $124,000 in 1997, and $690,000 in 1996. In 1996, a 
settlement and curtailment loss of $453,000 was incurred in connection with 
the termination of the Retirement Plan for Directors and replacement with a 
Deferred Equity Plan for Outside Directors. This loss is included in 1996 
general and administrative expenses.

The following table sets forth the plans' funded status and amounts 
recognized in the Company's financial statements for the Retirement and the 
Pension Restoration Plans:

<TABLE>
<CAPTION>
                                                                                      DECEMBER 31,
                                                                           ------------------------------------
IN THOUSANDS                                                                     1998               1997
---------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                    <C>
CHANGE IN BENEFIT OBLIGATION
Projected benefit obligation, beginning of year:                                  $  20,281          $  18,124
  Service cost                                                                          685                555
  Interest cost                                                                       1,370              1,295
  Amendments                                                                             --                 --
  Benefits paid                                                                      (1,531)            (1,450)
  Actuarial loss                                                                      3,156              1,757
---------------------------------------------------------------------------------------------------------------
Projected benefit obligation, end of year                                         $  23,961          $  20,281
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------

CHANGE IN PLAN ASSETS
Plan assets, beginning of year:                                                   $  18,957          $  16,555
  Actual return on plan assets                                                        1,707              3,851
  Employer contribution                                                                   1                  1
  Benefits paid                                                                      (1,531)            (1,450)
---------------------------------------------------------------------------------------------------------------
Plan assets, end of year                                                          $  19,134          $  18,957
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------

Funded Status                                                                    $  (4,827)         $  (1,324)
Unrecognized transition obligation                                                     (68)              (102)
Unrecognized prior service cost                                                        869                961
Unrecognized (gain) loss                                                               681            (2,485)
---------------------------------------------------------------------------------------------------------------
Net amount recognized - prepaid (accrued) benefit cost                           $  (3,345)         $  (2,950)
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
</TABLE>

                                      35

<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

<TABLE>
<CAPTION>
                                                                                     DECEMBER 31,                           
                                                             --------------------------------------------------------------
IN THOUSANDS                                                  1998                       1997                      1996
---------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                         <C>                       <C>
Components of Net Periodic Benefit Cost
   Service cost                                            $   685                     $   555                    $   692
   Interest cost                                             1,370                       1,295                      1,244
   Expected return on plan assets                           (1,643)                     (1,467)                    (1,458)
   Amortization of unrecognized
     transition obligation                                     (34)                        (34)                       (34)
   Amortization of unrecognized
     prior service cost                                         92                          61                         61
   Amortization of unrecognized gain                           (74)                         (4)                        26
---------------------------------------------------------------------------------------------------------------------------
   Pension expense                                         $   396                     $   406                    $   531
---------------------------------------------------------------------------------------------------------------------------
                                                           ----------------------------------------------------------------
</TABLE>

The projected benefit obligation, accumulated benefit obligation (ABO) and 
fair value of assets for the plan with assets less than ABO were $4,028,025, 
$1,428,247, and $0, respectively at December 31, 1998, and $3,074,365, 
$1,231,108, and $0 at December 31, 1997.

<TABLE>
<CAPTION>
                                                            -------------------------------------------------------
                                                                           1998                        1997
                                                            -------------------------------------------------------
<S>                                                                       <C>                         <C>
The assumptions used in the accounting were:
   Discount rate                                                           6.50%                       7.00%
   Rate of increase in compensation levels                                 5.00%                       5.00%
   Expected long-term return of assets                                     9.00%                       9.00%
-------------------------------------------------------------------------------------------------------------------
</TABLE>

Employee Savings Plan: The Company has an Employee Savings Plan which is 
available to all eligible employees. Certain employee contributions may be 
supplemented by Company contributions. Company contributions approximated 
$371,000 in 1998, $319,488 in 1997 and $294,000 in 1996.

Deferred Cash Bonus Plan: In February 1991, the Compensation Committee of the 
Board of Directors awarded deferred bonuses payable January 15, 1999. The 
amount to be paid is based upon the relative percentage return on the market 
value of the Company's depositary units compared to the percentage return on 
the Standard and Poor's 500 Index over a nine-year period. A total of 
$176,500 was earned and paid under this program.

Other Benefits: The Company does not provide postretirement or postemployment 
benefits other than those plans described above and, as such, there is no 
obligation to be recognized under SFAS Nos. 106 and 112.

-------------------------------------------------------------------------------
NOTE 9. COMMITMENTS AND CONTINGENCIES

The Company is involved in litigation and various claims, including those
arising from its ordinary conduct of business. Management is of the opinion that
the ultimate liability from this litigation will not materially affect the
Company's consolidated financial condition. The Company believes it has adequate
insurance to protect itself against any future material property and casualty
losses.

In the ordinary course of business, and as part of the entitlement and
development process, the Company is required to provide performance bonds to the
County of Los Angeles and the City of Santa Clarita to assure completion of
certain public facilities. At December 31, 1998, the Company had performance
bonds outstanding totaling approximately $126 million.

As a significant landowner, developer and holder of commercial properties, there
exists the possibility that environmental contamination conditions may exist
that would require the Company to take corrective action. The Company believes
such costs will not materially affect the Company's consolidated financial
condition.

-------------------------------------------------------------------------------
NOTE 10. BUSINESS SEGMENT REPORTING

In accordance with the requirements of SFAS No. 131 - DISCLOSURES ABOUT SEGMENTS
OF AN ENTERPRISE AND RELATED INFORMATION, the Company's reportable business
segments and respective accounting policies of the segments are the same as
those described in Note 2. BUSINESS SEGMENTS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES.


                                      36
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

Management evaluates segment performance based primarily on revenues before 
property sales and contribution to income before property sales and 
allocation of incentive compensation. Interest revenues and expenses are 
evaluated and reported on a consolidated net basis and are not allocated to 
the Company's business segments.

The following table provides financial information regarding management's 
measures of the Company's business segments and other significant items and 
also provides a reconciliation to the Company's consolidated totals:

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31, 1998
                             -------------------------------------------------------------------------------------------------
                                                   CONTRIBUTION        DEPRECIATION                              CAPITAL
                                 REVENUES            TO INCOME       AND AMORTIZATION          ASSETS           EXPENDITURES
------------------------------------------------------------------------------------------------------------------------------
<S>                              <C>               <C>                <C>                      <C>              <C>
Real Estate
  Residential                        $ 70,867           $  23,999             $    37            $16,320             $    494
  Industrial and commercial           172,320              49,248                  14            170,493                4,610
  Community development                    --             (10,047)                 43             17,278                   67
  Income-producing properties          38,622              17,754               7,277            147,216               97,419
  Valencia Water Company               10,209               2,889 (a)           1,956             53,719                7,587
Agriculture                            12,660               2,196                 594             17,048                  190
Central administration                     --             (10,879)                180             10,133                  555
------------------------------------------------------------------------------------------------------------------------------
                                      304,678              75,160              10,101            432,207              110,922
Interest and other, net                    --              (7,180)                 --                 --                   --
All other                                  --              (3,900)                 --                 --                   --
------------------------------------------------------------------------------------------------------------------------------
TOTAL                               $ 304,678            $ 64,080            $ 10,101           $432,207            $ 110,922
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
                                                               YEAR ENDED DECEMBER 31, 1997
                             -------------------------------------------------------------------------------------------------
                                                      CONTRIBUTION        DEPRECIATION                              CAPITAL
                                    REVENUES            TO INCOME       AND AMORTIZATION          ASSETS           EXPENDITURES
------------------------------------------------------------------------------------------------------------------------------
<S>                                <C>                <C>               <C>                     <C>                <C>
Real Estate
  Residential                        $ 67,682            $ 15,759              $    9            $16,226              $    53
  Industrial and commercial            61,996              19,524                  16            106,870               13,189
  Community development                    --             (10,638)                 54             20,653                   95
  Income-producing properties          33,404              15,624               7,466            180,728               56,309
  Valencia Water Company               11,170               3,378 (a)           1,810             51,058                3,317
Agriculture                            33,449              21,505                 580             20,812                  735
Central administration                     --              (8,122)                213              7,585                  558
------------------------------------------------------------------------------------------------------------------------------
                                      207,701              57,030              10,148            403,932               74,256
Interest and other, net                    --              (9,137)                 --                 --                   --
All other                                  --              (3,400)                 --                 --                   --
------------------------------------------------------------------------------------------------------------------------------
TOTAL                               $ 207,701            $ 44,493            $ 10,148           $403,932            $  74,256
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
                                                               YEAR ENDED DECEMBER 31, 1996
                             -------------------------------------------------------------------------------------------------
                                                   CONTRIBUTION        DEPRECIATION                              CAPITAL
                                 REVENUES            TO INCOME       AND AMORTIZATION          ASSETS           EXPENDITURES
------------------------------------------------------------------------------------------------------------------------------
<S>                              <C>               <C>                <C>                      <C>              <C>
Real Estate
  Residential                       $ 128,634            $ 40,563             $    21            $25,079              $    --
  Industrial and commercial            29,844               4,009                  21             82,882               14,138
  Community development                    --             (11,328)                 56             17,643                   59
  Income-producing properties          28,742              14,134               5,528            169,832               56,274
  Valencia Water Company                9,762               3,302 (a)           2,398             48,109                8,277
Agriculture                            23,204              10,948                 608             21,193                  438
Central administration                     --              (8,365)                225              8,750                   98
------------------------------------------------------------------------------------------------------------------------------
                                      220,186              53,263               8,857            373,488               79,284
Interest and other, net                    --              (9,562)                 --                 --                   --
All other                                  --              (1,812)                 --                 --                   --
------------------------------------------------------------------------------------------------------------------------------
TOTAL                               $ 220,186            $ 41,889            $  8,857           $373,488            $  79,284
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
</TABLE>


ALL OF THE COMPANY'S REAL ESTATE OPERATIONS ARE CONDUCTED ON THE COMPANY'S 
PROPERTIES IN THE VALENCIA AREA OF SOUTHERN CALIFORNIA.  AGRICULTURAL 
OPERATIONS ARE CONDUCTED ON THE COMPANY'S PROPERTIES IN SOUTHERN AND CENTRAL 
CALIFORNIA.  ACCORDINGLY, FINANCIAL INFORMATION BASED ON GEOGRAPHIC AREA IS 
NOT PRESENTED. REVENUES FROM THE RESIDENTIAL SEGMENT INCLUDED $49.1 MILLION 
IN 1996 FROM THE MCDOWELL MOUNTAIN RANCH PROJECT IN SCOTTSDALE, ARIZONA WHICH 
WAS SOLD IN APRIL, 1996.

SALES BY BUSINESS SEGMENT TO INDIVIDUAL CUSTOMERS REPRESENTING MORE THAN 10% 
OF THE COMPANY'S CONSOLIDATED REVENUES ARE AS FOLLOWS:

<TABLE>
<CAPTION>
IN THOUSANDS                       1998             1997              1996
----------------------------------------------------------------------------
<S>                              <C>              <C>                <C>
Industrial and Commercial        $111,000
Residential                                                          $43,542
</TABLE>

(A) INCLUDES INCOME TAX EXPENSE OF (IN THOUSANDS) $1,071 IN 1998, $1,281 IN 1997
AND $1,057 IN 1996.

                                      37

<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

-------------------------------------------------------------------------------
NOTE 11. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

Quarterly financial information for the Company fluctuates due to the uneven
nature of real estate closing activity and the skewing of results by individual
large sales. The following is a summary of selected quarterly financial data for
1998 and 1997:

<TABLE>
<CAPTION>
IN THOUSANDS,                                                                             QUARTER                          
                                                        -----------------------------------------------------------------
EXCEPT PER UNIT                                             FIRST              SECOND             THIRD          FOURTH
-------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>                <C>               <C>              <C>
Revenues
   1998                                                 $    23,762        $    149,299      $     78,061     $    53,556
   1997                                                      36,001              48,729            67,303          55,668
-------------------------------------------------------------------------------------------------------------------------
Operating income
   1998                                                 $     5,603        $     51,854      $     20,594     $     5,843
   1997                                                      15,004              21,936            17,239           9,719
-------------------------------------------------------------------------------------------------------------------------
Net income
   1998                                                 $       257        $     45,741      $     16,291     $     1,791
   1997                                                      10,553              17,151            12,539           4,250
-------------------------------------------------------------------------------------------------------------------------
Net income per unit
   1998                                                 $       .01        $       1.32      $        .48     $       .05
   1997                                                         .30                 .50               .36             .12
-------------------------------------------------------------------------------------------------------------------------
Net income per unit - assuming dilution
   1998                                                 $       .01        $       1.31      $        .47     $       .05
   1997                                                         .30                 .49               .36             .12
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

         None

                                      38
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The Registrant was reorganized from a corporation to a California limited 
partnership on January 8, 1985. The general partners of the Partnership are 
Newhall Management Limited Partnership (the Managing General Partner) and 
Newhall General Partnership. Two executive officers and the Managing General 
Partner are the general partners of Newhall General Partnership. Newhall 
Management Corporation and Newhall General Partnership are the general 
partners of the Managing General Partner.

The Managing General Partner, Newhall Management Limited Partnership, has 
exclusive management and control of the affairs of the Partnership and shares 
in Partnership income and losses on the basis of the number of Partnership 
units owned by it. The Managing General Partner of Newhall Management Limited 
Partnership, Newhall Management Corporation, will make all decisions and take 
all action deemed by it necessary or appropriate to conduct the business and 
affairs of Newhall Management Limited Partnership and, therefore, of the 
Partnership.

The duties and responsibilities of directors are carried out by the Board of 
Directors of the Managing General Partner of the Managing General Partner, 
Newhall Management Corporation. Each voting shareholder of Newhall Management 
Corporation also is a director of Newhall Management Corporation 
("Corporation") and only voting shareholders may be directors of that 
corporation. Every voting shareholder and director has a number of votes in 
all matters equal to the number of votes of every other voting shareholder 
and director. Upon ceasing to be a director, a shareholder may be a nonvoting 
shareholder for a period of time prior to the repurchase of his or her shares 
by the Corporation. See further discussion of the shareholders' agreement and 
voting trust agreement below.

The shareholder-directors of Newhall Management Corporation are as follows:

Thomas L. Lee, age 56, was appointed Chairman and Chief Executive Officer of 
the Corporation upon its formation in November, 1990 and of the former 
Managing General Partner in 1989. He joined the predecessor corporation in 
1970 and has served in various executive capacities. Mr. Lee was elected as a 
director in 1985. He is a director of Blue Shield of California and CalMat, 
Inc. and a trustee of California Institute of the Arts.

George L. Argyros, age 62, was elected a director of the Corporation in 
September, 1995. He has been Chairman and Chief Executive Officer of Arnel & 
Affiliates, an investment company, since 1968. He is a director of DST 
Systems, Tecstar, First American Financial Corporation, Doskocil, Inc., and 
Rockwell International. He is a trustee of the California Institute of 
Technology and President and Chief Executive Officer of the Horatio Alger 
Association.

Gary M. Cusumano, age 55, has been President and Chief Operating Officer of 
the Corporation and the former Managing General Partner since 1989 and was 
elected a director of the Corporation in July, 1995. Mr. Cusumano is a 
director of Watkins-Johnson Company, Henry Mayo Newhall Memorial Hospital and 
Chairman of the Board of Directors of the California Chamber of Commerce.

Thomas V. McKernan, Jr., age 54, has been a director of the Corporation since 
September, 1994. Mr. McKernan has been President and Chief Executive Officer 
of the Automobile Club of Southern California since 1991. He is a director of 
the American Automobile Association, Los Angeles Area Chamber of Commerce, 
California Chamber of Commerce, Orthopedic Hospital, Payden & Rygel Mutual 
Funds, Ramona Girls School, and Forest Lawn Memorial Park.

Henry K. Newhall, age 60, has served as a director of the Corporation, the 
former Managing General Partner and the predecessor corporation, 
respectively, since 1982. Dr. Newhall retired in August 1998 as General 
Manager, Technology, Oronite Additives Division of Chevron Chemical Company. 
He has served in various managerial and consulting positions with Chevron 
since 1971.

                                      39
<PAGE>

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)

Jane Newhall, age 85, has served as a director of the Corporation, the former 
Managing General Partner and the predecessor corporation, respectively, since 
1960. Ms. Newhall, a private investor, is a director of the Henry Mayo 
Newhall Foundation. She is a life trustee of Mills College, the San Francisco 
Theological Seminary, the Graduate Theological Union and Donaldina Cameron 
House.

Peter T. Pope, age 64, was elected a director of the Corporation in 1992. Mr. 
Pope has been Chairman, President and Chief Executive Officer of Pope & 
Talbot, Inc. since 1990. He is a director of Pope Resources and Harmac 
Pacific Inc.

Carl E. Reichardt, age 67, has served as a director of the Corporation, the 
former Managing General Partner and the predecessor corporation, 
respectively, since 1980. Mr. Reichardt was Chairman of the Board of 
Directors of Wells Fargo & Company and Wells Fargo Bank, N.A., from 1983 
until December, 1994 and a director until April, 1998. He is a director of 
Ford Motor Company, Columbia/HCA Healthcare Corporation, Pacific Gas and 
Electric Company, ConAgra, Inc., SunAmerica, Inc. and McKesson Corporation.

Thomas C. Sutton, age 56, was elected a director of the Corporation in 
November, 1991. He has been Chairman of the Board and Chief Executive Officer 
of Pacific Life Insurance Company since 1990. Mr. Sutton is a director of 
Southern California Edison, The Irvine Company, Association of California 
Life Insurance Companies and Pimco Advisors. He is a trustee of the Committee 
for Economic Development.

Barry Lawson Williams, age 54, was elected a director of the Corporation in 
July, 1996. Mr. Williams has been President of Williams Pacific Ventures, 
Inc., a venture capital consulting and business mediation firm which he 
founded, and a General Partner of WDG Ventures Ltd., a real estate 
development fund, since 1987. Mr. Williams is a director of Pacific Gas and 
Electric Company, CH2M Hill, Ltd., Simpson Manufacturing Company, CompUSA, 
R.H. Donnelly and USA Group, Inc. He is a trustee of Northwestern Mutual Life 
Insurance Company.

Ezra K. Zilkha, age 73, has served as a director of the Corporation, the 
former Managing General Partner and the predecessor corporation, 
respectively, since 1977. Since 1956, Mr. Zilkha has been President of Zilkha 
& Sons, Inc., a private investment company. From 1991 to 1993 he was Chairman 
of Union Holdings, Inc., an industrial holding company. He is a director of 
Cambridge Associates and Heartland Technology, Inc. Mr. Zilkha is a trustee 
of The American Society of the French Legion of Honor, trustee emeritus of 
Wesleyan University and an honorary trustee of the Brookings Institution. He 
is Chairman of the Executive Committee of the International Center for the 
Disabled.

Each of the shareholder-directors may be contacted at the principal executive 
offices of the Partnership and is a citizen of the United States.

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires 
Newhall Management Corporation and its officers and directors, the general 
partners, and persons who own more than ten percent of the Company's 
partnership units, to file reports of ownership and changes in ownership with 
the Securities and Exchange Commission and the New York Stock Exchange. The 
Company assists officers, directors and ten-percent unitholders to file their 
Section 16(a) reports and retains a copy of the forms filed. Written 
representations that all required reports have been filed are obtained at the 
end of each year. Based upon this information, the Company believes that, 
during the year ended December 31, 1998, all such filing requirements were 
fulfilled.

The Board of Directors manages and controls the overall business and affairs 
of the Corporation, of the Managing General Partner, and of the Partnership. 
The members of the Board of Directors are elected by the 
shareholder-directors of the Corporation, unless there is a vacancy on the 
Board in which case the remaining board members may fill the vacancy, without 
the approval of the limited partners and with each shareholder-director of 
the Corporation having an equal number of votes. Because the shareholders and 
directors are the same persons, it is expected that the shareholders will 
re-elect themselves to serve as directors.

It is the current policy of the Corporation that all directors of the 
Corporation, except for the initial directors of the former Managing General 
Partner and Mr. Lee, will retire at age 70. If a new director is elected, he 
or she is required to become a shareholder by purchasing the number of shares 
determined by the Board of Directors.

                                      40
<PAGE>

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)


The Limited Partnership Agreement ("the Partnership Agreement") of the 
Partnership requires the General Partners to own at least one percent (1%) of 
the total number of Partnership units outstanding at all times. In order to 
meet this 1% requirement, the shareholder-directors had originally 
contributed Partnership units as capital to the former Managing General 
Partner. The determination as to how many Partnership units each 
shareholder-director would contribute was based upon the shareholdings of the 
shareholder-director in the predecessor corporation and his or her ability to 
contribute such Partnership units in order that the General Partners would 
own at least 1% of the total number of Partnership units outstanding at all 
times.

Messrs. Henry Newhall and Zilkha each effectively has contributed to the 
Managing General Partner a total of 72,000 Partnership units. Ms. Newhall 
effectively has contributed to the Managing General Partner a total of 71,650 
Partnership units. Messrs. Lee and Cusumano each effectively has contributed 
36,000 Partnership units. Messrs. Argyros, Reichardt, Pope, Sutton, McKernan 
and Williams each effectively has contributed to the Managing General Partner 
a total of 2,000 Partnership units. Mr. Edwin Newhall Woods, who retired from 
the Board of Directors in September 1996, has agreed to leave 72,000 units 
contributed by him until his units are replaced. The Partnership units 
contributed to the Managing General Partner total 371,650 or 1.1% of the 
total number of partnership units outstanding at December 31, 1998.

It should be noted that a shareholder will receive the same distributions 
from the Partnership with regard to his or her Partnership units regardless 
of whether such Partnership units are represented by limited partner 
interests in Newhall Management Limited Partnership or by general partner 
interests in Newhall Management Limited Partnership (which in turn are 
represented by common stock in the Corporation). All Partnership 
distributions and allocations to the Managing General Partner with respect to 
the Partnership units held by such Partner will be passed on to each limited 
partner of the Managing General Partner or shareholder of the Corporation as 
distributions in proportion to the actual number of units or shares 
beneficially owned by such limited partner or shareholder, as the case may be.

The shareholder-directors of the Corporation and the Corporation are parties 
to a shareholders' agreement and a voting trust agreement. These agreements 
provided for the transfer of all the shares of Newhall Management Corporation 
to a voting trust, held in the name of the Trustee. The Secretary of Newhall 
Management Corporation serves as Trustee. In all matters the Trustee will 
vote all the shares in accordance with the direction of a majority of the 
shareholder-directors, with each shareholder-director having one vote on each 
matter (irrespective of the actual number of shares beneficially owned by 
such person).

The shareholders' agreement and the bylaws of the Corporation restrict the 
ability of a shareholder-director to transfer ownership of shares of the 
Corporation. Certain events, such as failure to own at least one limited 
partner unit in Newhall Management Limited Partnership, failure to consent to 
a Subchapter S election under the Internal Revenue Code, failure to 
re-execute the trust agreement, ceasing to serve as a director, failure of a 
shareholder-director's spouse to sign any required consent, a material breach 
by a shareholder-director of the shareholders' agreement or voting trust 
agreement, a levy upon the shares of a shareholder, or a purported transfer 
of shares to someone other than a new or existing director upon approval of 
the Board of Directors, are considered to be repurchase events. Upon such a 
repurchase event, the shareholder must immediately resign as a director and 
the shareholder will lose voting rights under the voting trust agreement. 
Upon the occurrence of a repurchase event, a shareholder's shares will be 
repurchased by the Corporation or the Corporation may direct their purchase 
by a successor director. The Corporation has agreed to repurchase for cash 
equal to the market value of the Partnership units representing such shares 
(or provide for the purchase of) all shares of a shareholder-director subject 
to a repurchase event within one year of the repurchase event and to use its 
best efforts to effect such repurchase (purchase) as soon as possible after 
the repurchase event. There can be no assurance that the Corporation will be 
able to find a replacement for a departing shareholder-director who will 
purchase shares.

The shareholders' agreement expires if Newhall Management Corporation ceases 
to serve as the Managing General Partner of the Managing General Partner of 
the Partnership, or Newhall Management Limited Partnership ceases to be the 
Managing General Partner of the Partnership, if all parties to the 
shareholders' agreement consent to its termination, or with respect to any 
individual shareholder, upon the repurchase of all the shareholder's shares.

The term of the voting trust is limited by laws to 10 years, but a party to 
the voting trust will be deemed to have resigned as a director of the 
Corporation and will have to sell his shares, subject to repurchase by the 
Corporation, 

                                      41
<PAGE>

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)

unless, at the times provided in the voting trust agreement, the party 
re-executes and renews the voting trust for the purpose of keeping it 
continually in effect. The voting trust agreement terminates if Newhall 
Management Corporation ceases to serve as a general partner of the Managing 
General Partner of the Partnership, or Newhall Management Limited Partnership 
ceases to be the Managing General Partner of the Partnership, or with respect 
to any individual shareholder if a shareholder no longer owns any shares.

The shareholder-directors, as limited partners, are also parties to the 
limited partnership agreement of Newhall Management Limited Partnership. The 
limited partnership agreement has restrictions on transfer similar to the 
shareholders' agreement and provides for repurchase of the limited 
partnership units of a limited partner upon the occurrence of repurchase 
events which are similar to those of the shareholders' agreement, including 
the cessation of being a director by a limited partner in the case of a 
limited partner who is a director.

Upon the occurrence of a repurchase event, Newhall Management Limited 
Partnership would have one full year to transfer Partnership units 
representing the limited partner's interest to the limited partner. A limited 
partner could not compel the return of Partnership units for at least one 
year from the date a limited partner chooses to obtain return of Partnership 
units. Even then, Newhall Management Limited Partnership cannot, and cannot 
be compelled to, distribute Partnership units to the limited partner if 
Newhall Management Limited Partnership would thereafter own less than 1% of 
the Partnership's Partnership units.

The limited partners, as limited partners, have no voting rights except as 
expressly set forth in the limited partnership agreement or granted pursuant 
to law. Such voting privileges include matters such as (i) electing general 
partners in specified instances, (ii) amending the limited partnership 
agreement, (iii) dissolving the limited partnership, (iv) electing a general 
partner to serve as the Managing General Partner, and (v) removing a general 
partner. Items (ii) and (iii) require the separate concurrence of the 
Managing General Partner.

Persons other than directors of Newhall Management Corporation may serve as 
limited partners of Newhall Management Limited Partnership and Newhall 
Management Corporation has the authority pursuant to the limited partnership 
agreement to cause additional units to be issued. The partnership agreement 
provides limited instances in which a general partner shall cease to be a 
general partner.

Newhall Management Limited Partnership will dissolve (i) when a general 
partner ceases to be a general partner (other than by removal) unless there 
is at least one other general partner or all partners agree in writing to 
continue the business of the partnership and to admit one or more general 
partners, (ii) if Newhall Management Limited Partnership becomes insolvent, 
(iii) upon the disposition of substantially all assets of Newhall Management 
Limited Partnership, (iv) 90 days after an affirmative vote of the limited 
partners to dissolve pursuant to the partnership agreement, or (v) upon the 
occurrence of any event which makes it unlawful for the business of Newhall 
Management Limited Partnership to be continued.

Newhall General Partnership, a California general partnership, is a general 
partner for the purposes of continuing the business of the Partnership and 
serving as an interim Managing General Partner if Newhall Management Limited 
Partnership or its successor ceases to serve as Managing General Partner. So 
long as Newhall Management Limited Partnership or its successor remains as 
Managing General Partner, Newhall General Partnership will have no right to 
take part in the management and control of the affairs of the Partnership.

The general partners of Newhall General Partnership are Newhall Management 
Limited Partnership, the chief executive officer of Newhall Management 
Corporation and another officer or director of Newhall Management Corporation 
selected from time to time by the board of directors of Newhall Management 
Corporation. Thomas L. Lee is the Chief Executive Officer of Newhall 
Management Corporation and, therefore, is a general partner of Newhall 
General Partnership.

Gary M. Cusumano, President and Chief Operating Officer of Newhall Management 
Corporation, has been selected by the board of directors of Newhall 
Management Corporation to be a general partner of Newhall General 
Partnership. For as long as Newhall Management Limited Partnership serves as 
a general partner of the Partnership, Newhall Management Limited Partnership 
shall serve as a general partner of Newhall General Partnership and the 
individual general partners of Newhall General Partnership shall be the chief 
executive officer of Newhall Management Corporation and another officer or 
director selected by the board of directors of Newhall Management Corporation.

                                      42
<PAGE>

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)

The managing partner of Newhall General Partnership is the chief executive 
officer of Newhall Management Corporation and shall have management and 
control of the ordinary course of day to day business of Newhall General 
Partnership. Matters outside the ordinary course of the day to day business 
of Newhall General Partnership shall be decided by a majority vote of the 
partners except that a unanimous vote will be required to, among other 
things, admit a new partner (other than the chief executive officer or other 
officer or director of Newhall Management Corporation).

After giving effect to 2-for-1 unit splits on December 20, 1985 and January 
29, 1990, each of the partners of Newhall General Partnership have 
contributed twenty Partnership units to Newhall General Partnership. No 
additional capital contributions are required. The income, losses and 
distributions allocated to Newhall General Partnership with respect to the 
units will be allocated among the partners of Newhall General Partnership in 
the ratio of the units contributed by each of them.

The ability of a partner to withdraw from Newhall General Partnership or to 
transfer an interest in Newhall General Partnership is limited by the 
partnership agreement of Newhall General Partnership. Individual partners of 
Newhall General Partnership may not withdraw except upon appointment of a 
successor by the board of directors of Newhall Management Corporation. In 
addition, an individual general partner may not transfer his interest in 
Newhall General Partnership except with the written consent of Newhall 
Management Limited Partnership. Newhall Management Limited Partnership, as a 
general partner of Newhall General Partnership, may not withdraw unless: (i) 
it no longer serves as a general partner of the Partnership; (ii) Newhall 
General Partnership no longer serves as a general partner of the Partnership; 
or (iii) Newhall General Partnership dissolves and its business is not 
continued.

If Newhall Management Limited Partnership no longer serves as a general 
partner of the Partnership, simultaneously, it will stop serving as a general 
partner of Newhall General Partnership. Any individual general partner of 
Newhall General Partnership who is serving as a general partner by virtue of 
holding an office or position with Newhall Management Corporation, will stop 
serving as a general partner of Newhall General Partnership if either (i) 
Newhall Management Limited Partnership is replaced as a general partner of 
the Partnership, or (ii) Newhall Management Limited Partnership is no longer 
a general partner of Newhall General Partnership and individual partners are 
designated pursuant to the partnership agreement.

Newhall General Partnership will dissolve when the Partnership is dissolved, 
liquidated and wound up and any trust or other entity formed for the purpose 
of liquidating or winding up the Partnership is liquidated and wound up. 
Newhall General Partnership will dissolve earlier upon: (i) the distribution 
of substantially all of its property; (ii) the unanimous agreement of its 
partners; (iii) ceasing to serve as a general partner of the Partnership; or 
(iv) the occurrence of an event which would make it unlawful to conduct its 
business.

The partnership agreement requires the Partnership to pay all of the costs 
and expenses incurred or accrued by the general partners in connection with 
the business and affairs of the Partnership as the Managing General Partner 
in its sole discretion authorizes or approves from time to time. These costs 
and expenses include overhead and operating expenses, officer, employee, 
director and general partner compensation and other employee benefits paid by 
the general partners. Such compensation and benefits may be determined and 
changed from time to time without the approval of the limited partners.



                                      43


<PAGE>

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)


EXECUTIVE OFFICERS OF THE MANAGING GENERAL PARTNER

<TABLE>
<CAPTION>

                                                                                               Date of
                                                                                 Age           Office 
                                                                                 ---           -------
<S>                                                                              <C>           <C>
THOMAS L. LEE                                                                    56
 Chairman and Chief Executive Officer                                                           07/89


GARY M. CUSUMANO                                                                 55
 President and Chief Operating Officer                                                          07/89

THOMAS E. DIERCKMAN                                                              50
 Senior Vice President - Valencia Division                                                      09/94
 Senior Vice President - Real Estate Operations                                                 07/90


JAMES M. HARTER                                                                  52
 Senior Vice President - Newhall Ranch Division                                                 09/94
 Senior Vice President - Community Development                                                  08/92


STUART R. MORK                                                                   46
 Senior Vice President and Chief Financial Officer                                              01/96
 Vice President and Chief Financial Officer                                                     01/95
 Vice President - Finance                                                                       01/94
 Vice President - Finance and Treasurer                                                         07/92


DANIEL N. BRYANT                                                                 39
 Vice President - Asset Management                                                              01/98
 Director - Asset Management                                                                    07/96
 Director - Property Management and Leasing                                                     12/94
 Vice President - Commercial/Industrial Real Estate of Valencia Company,
     a division of The Newhall Land and Farming Company                                         01/93

JOHN R. FRYE                                                                     54
 Vice President - Agriculture                                                                   09/85

DONALD L. KIMBALL                                                                41
 Vice President - Finance and Controller                                                        01/97
 Vice President - Controller                                                                    07/94
 Controller                                                                                     04/90


JAMES R. WHEELER                                                                 48

 Senior Vice President, Residential - Valencia                                                  07/98
 Vice President, Residential -- Valencia                                                        03/96
 Vice President - Mainland Division, Castle & Cooke Homes, Inc.                                 07/94
 Vice President - The William Lyon Company                                                      01/90

         The officers serve at the pleasure of the Board of Directors.

</TABLE>


                                      44
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION


          The following tables set forth information as to each of the five 
highest paid Executive Officers and their compensation for services rendered 
to the Company and its subsidiaries:


                          SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>

                                        -----------------------------------  -------------------------------------
                                                Annual Compensation                  Long Term Compensation
                                        -----------------------------------  -------------------------------------
                                                                                        Awards           Payouts
                                                                             --------------------------  ---------
                                                                    Other    Restricted      Number of                    All
                                                                   Annual      Stock        Securities     LTIP          Other
           Name and                                    Bonus        Comp.      Awards       Underlying    Payouts        Comp.
     Principal Position          Year     Salary        (1)          (2)        (3)       Options/SARs      (4)           (5)
------------------------------  -----   ----------  -----------  ----------  -----------  -------------  ----------  -----------
<S>                              <C>    <C>          <C>          <C>             <C>         <C>        <C>           <C>
Thomas L. Lee                    1998   $ 362,000    $ 430,364    $ 64,343        -                 -    $ 56,739      $ 38,824
   Chairman and                  1997     362,000      205,073      65,650        -           730,000           -        36,605
   Chief Executive Officer       1996     322,000      181,000      61,450        -            25,000           -        33,640

Gary M. Cusumano                 1998     274,000      320,078      68,365        -                 -      44,130        31,240
   President and                 1997     274,000      155,221      68,500        -           574,000           -        28,829
   Chief Operating Officer       1996     264,000      132,000      66,000        -            20,000           -        26,706


Thomas E. Dierckman              1998     226,000      169,197       4,300        -                 -      37,826        19,541
   Senior Vice President         1997     214,000       85,522       4,300        -           367,000                    14,764
                                 1996     214,000       73,321       4,500        -            14,000           -        14,827

Stuart R. Mork                   1998     230,000      154,410         425        -                 -      12,609        15,580
   Senior Vice President and     1997     200,000       85,320         350        -           367,000           -        10,139
   Chief Financial Officer       1996     200,000       80,000         365        -            14,000           -         8,058


James M. Harter                  1998     200,000      147,263         255        -                 -           -        10,567
   Senior Vice President         1997     175,000       84,655           -        -           315,000           -         5,520
                                 1996     170,000       64,600           -        -            12,000           -         4,821

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

</TABLE>

(1)  Represents bonus accrued during the current calendar year based on earnings
     for such period and paid in the subsequent calendar year. A part of the
     1998 bonus will be paid in partnership units in accordance with the
     Company's Management Unit Ownership Program as follows: Mr. Mork ($54,450),
     Mr. Dierckman ($58,299) and Mr. Harter ($103,084). Part of the 1997 and
     1996 bonuses were paid in partnership units as follows: Mr. Lee
     (1996-$31,735), Mr. Mork (1997 - $19,905; 1996 - $17,245), Mr. Dierckman
     (1997 - $25,522; 1996 - $20,721), and Mr. Harter (1997 - $84,655; 1996 - 
     $64,600).

(2)  Includes general partner fees paid to Messrs. Lee and Cusumano as general
     partners of Newhall General Partnership of $60,000 each and director fees
     of $4,000 to Mr. Cusumano and $3,500 to Mr. Dierckman as directors of a
     wholly-owned subsidiary.

(3)  Messrs. Dierckman, Mork and Harter have received 1,450, 730, and 1,691 unit
     rights, respectively, which entitles them to receive one partnership unit
     for each unit right under certain circumstances.

(4)  Represents deferred cash bonus granted in July, 1990 and earned as of
     December 31, 1998.

(5)  Totals include the following: (1) Company matching contributions to the
     Employee Savings Plan and Savings Restoration Plan, (2) excess life
     insurance premiums, and (3) long-term disability insurance premiums for
     Messrs. Lee and Cusumano.

                                      45
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION (continued)


                     OPTION/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                       -----------------------------------------------------------------
                                           Individual Grants                                                          -------------
                       -----------------------------------------------------------------                                 Value of
                                                                                                                      Options as of
                                                                                         --------------------------   Grant Date as
                                                                                         Potential Realizable Value    Computed by
                          Number of         % of Total                                   at Assumed Annual Rates of   the Modified 
                         Securities        Options/SARs       Exercise                    Stock Price Appreciation    Black-Scholes
                         Underlying         Granted To        Or Base                         for Option Term(3)        Options 
                        Options/SARs       Employees in        Price        Expiration   --------------------------     Valuation
        Name             Granted (1)        Fiscal Year        ($/Sh)         Date            5 %          10 %         Model (4)
---------------------  --------------     --------------   --------------  ------------- ------------- ------------   -------------
<S>                               <C>      <C>                <C>           <C>          <C>            <C>            <C>
Thomas L. Lee                     0




Gary M. Cusumano                  0




Thomas E. Dierckman               0




Stuart R. Mork                    0




James M. Harter                   0

</TABLE>

(1)  Premium price options were granted in November, 1997 and were in lieu of
     market price options for the next three years.


                                      46
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION (continued)


              AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
                     AND FISCAL YEAR-END OPTION/SAR VALUES

<TABLE>
<CAPTION>

                                                       ---------------------------------
                                                                   Number of                 ----------------------------------
                                                             Securities Underlying                  Value of Unexercised
                                                           Unexercised Options/SARs              In-the-Money Options/SARs
                             Shares                            at Fiscal Year-End                   at Fiscal Year-End (1)
                            Acquired                   ---------------------------------     ----------------------------------
                              On
                            Exercise       Value                               Un-                                    Un-
          Name               ( # )        Realized      Exercisable        exercisable        Exercisable        Exercisable
------------------------  -----------  -------------   ---------------    --------------     ----------------   ---------------
<S>                          <C>         <C>               <C>              <C>                 <C>                 <C>
Thomas L. Lee                 --           --               171,888           745,062           $1,409,406          $268,594


Gary M. Cusumano              --           --               131,813           585,937            1,090,500           214,875


Thomas E. Dierckman          1,757       $ 52,930            87,375           376,125              679,359           153,578


Stuart R. Mork                 219          6,597            66,625           375,875              605,859           179,328


James M. Harter               --           --                36,250           319,750              380,703           131,984
                          -----------  -------------   ---------------    --------------     ----------------   ---------------

         Total               1,976       $ 59,527           493,951         2,402,749           $4,165,827          $948,359
                          -----------  -------------   ---------------    --------------     ----------------   ---------------
                          -----------  -------------   ---------------    --------------     ----------------   ---------------

-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  Based on the difference in the unit price of $26.00 at December 31, 1998,
     and the exercise price of the underlying options.


                                      47
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)


EMPLOYEE BENEFIT PLANS

         The following are descriptions of the principal employee benefit 
plans of the Company.

RETIREMENT PLANS

Under the Retirement Plan, participants' benefits are calculated as 40.5% of 
the average annual compensation, including salary and bonus, of the highest 
five calendar years of the preceding ten years up to Social Security covered 
compensation, plus 60% of the average annual compensation in excess of 
covered compensation, reduced pro rata for years of service less than 30. 
Benefits which accumulate after January 1, 1997 are calculated as 32.4% of 
the social security wage base and 48% of the excess over covered 
compensation. Under the Pension Restoration Plan, the Company will pay any 
difference between the ERISA and Internal Revenue Code maximum amount payable 
under the Retirement Plan and the amount otherwise payable, including amounts 
restricted by the compensation limit.

The following table reflects the estimated annual benefits paid as a single 
life annuity upon retirement at age 65 under the Retirement Plan and Pension 
Restoration Plan at various assumed compensation ranges and credited years of 
service:

<TABLE>
<CAPTION>
                                                       Years of Service                          
                         --------------------------------------------------------------------------
    Compensation              10                   20                  30                  40      
    ------------         ------------         ------------        ------------        -------------
       <S>                 <C>                  <C>                  <C>                <C>
       $125,000            $ 24,000             $ 48,000             $ 72,000           $ 72,000
        200,000              39,000               78,000              117,000            117,000
        275,000              54,000              108,000              162,000            162,000
        350,000              69,000              138,000              207,000            207,000
        425,000              84,000              168,000              252,000            252,000
        450,000              89,000              178,000              267,000            267,000
        500,000              99,000              198,000              297,000            297,000
        550,000             109,000              218,000              327,000            327,000
</TABLE>

Credited years of service as of December 31, 1998 (to the nearest whole year) 
and average annual compensation for the highest five years of the last ten 
years are as follows: 28 years and $530,000 for Mr. Lee; 29 years and 
$420,000 for Mr. Cusumano; 11 years and $235,000 for Mr. Mork; 16 years and 
$275,000 for Mr. Dierckman; and 6 years and $215,000 for Mr. Harter. An 
amendment to the Retirement Plan effective January 1, 1997 will reduce the 
amounts that each executive will receive at retirement from the full amounts 
shown in the above table. Based on years of service upon retirement at age 65 
and the proportion of service rendered before January 1, 1997, the percentage 
of benefit from the above table for each executive will be as follows: Mr. 
Lee - 98.0%; Mr. Cusumano - 98.7%; Mr. Mork - 85.2%; Mr. Dierckman - 90.0%; 
and Mr. Harter - 84.4%.

CHANGE IN CONTROL SEVERANCE PROGRAM

The Partnership entered into severance agreements in March, 1988 with two 
executive officers, Thomas L. Lee and Gary M. Cusumano, and in November, 1997 
with three senior vice presidents and five vice presidents, under which each 
such officer is entitled to certain benefits in the event of a "change of 
control." Under the provisions of the severance agreements, a "change of 
control" is deemed to have occurred when (i) any "person" (other than a 
trustee or similar person holding securities under an employee benefit plan 
of the Partnership, or an entity owned by the Unitholders in substantially 
the same proportions as their ownership of units) becomes the beneficial 
owner of 25% or more of the total voting power represented by the 
Partnership's then outstanding voting securities, (ii) Newhall Management 
Corporation is removed as Managing General Partner of the Managing General 
Partner, or (iii) the holders of the voting securities of the Partnership 
approve a merger or consolidation of the Partnership with any other entity, 
other than a merger or consolidation which would result in the voting 
securities of the Partnership outstanding immediately prior thereto 
continuing to represent (either by remaining outstanding or by being 
converted into voting securities of the surviving entity) at least 75% of the 
total voting power represented by the voting securities of the Partnership or 
such surviving entity outstanding immediately after such merger or 
consolidation, or (iv) a plan of complete liquidation of the Partnership is 
adopted or the holders of the voting securities of the Partnership approve an 
agreement for the sale or disposition by the Partnership (in one transaction 
or a series of transactions) of all or substantially all the Partnership's 
assets. Entitlement to benefits 


                                      48
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)

arises if, within two years following a change in control, the officer's 
employment is terminated or if he or she elects to terminate his or her 
employment following action by the Partnership which results in (i) a 
reduction in salary or other benefits, (ii) change in location of employment 
(iii) a change in position, duties, responsibilities or status inconsistent 
with the officer's prior position or a reduction in responsibilities, duties, 
or offices as in effect immediately before the change in control, or (iv) the 
failure of the Partnership to obtain express assumption by any successor of 
the Partnership's obligations under the severance agreement.

Benefits payable under the agreements to Messrs. Lee and Cusumano consist of 
(i) payment in a single lump sum equal to base salary and general partners 
fees for three years, (ii) payment in a single lump sum of three times the 
average bonus payments for the two fiscal years preceding the change in 
control, (iii) continuation of participation in insurance and certain other 
fringe benefits for three years, (iv) immediate vesting of deferred 
compensation, nonqualified retirement benefits, options and other unit-based 
rights, (v) a retirement benefit equivalent to the additional benefits that 
would have accrued under retirement plans if employment had continued for two 
years, and (vi) reduction of required service for full retirement benefits 
from 30 years to 20 years through a non-qualified arrangement. The benefits 
payable to senior vice presidents are the same as for Messrs. Lee and 
Cusumano except that base salary, bonus and fringe benefits would be paid for 
two years and the retirement benefit for one year. Certain vice presidents 
would receive base salary, bonus and fringe benefits for one year. Benefits 
payable under the agreements are in lieu of any severance benefits under the 
Partnership's general severance policy. The agreements are not contingent 
upon the officers actively seeking other employment, but provide for offset 
of fringe benefits provided by a new employer.

COMPENSATION OF THE DIRECTORS

The Partnership Agreement provides that the compensation of the general 
partners and their partners, directors, officers and employees shall be 
determined by the Managing General Partner. Both the compensation committee 
and the nominating committee of the Board of Directors of Newhall Management 
Corporation, the Managing General Partner of Newhall Management Limited 
Partnership, have been granted authority by the Board of Directors to 
determine certain compensation issues. Non-employee members of the Board 
receive an annual retainer fee of $24,000 for serving on the Board, $2,000 
for serving on the Audit Committee and $1,000 for serving on any other 
committee of the Board. In addition, independent directors receive a fee of 
$1,000 for attending each meeting of the Board or committee of which they are 
a member. Committee chairpersons receive a fee of $500 in addition to the 
regular meeting fee for each committee meeting they conduct. Employees 
serving on the Board of Directors do not receive directors' fees. Directors' 
compensation may be deferred until separation from the Board. Deferred 
amounts earn interest at the Wells Fargo Bank prime rate. Members of the 
Board of Directors will also receive reimbursement for travel and other 
expenses related to attendance at meetings of the Board of Directors and of 
the committees. In addition, the Partnership Agreement requires the 
Partnership to reimburse the Managing General Partner for any federal or 
California income taxes imposed upon the Managing General Partner or its 
Managing General Partner as a result of its activities as Managing General 
Partner. Under the terms of the 1995 Option/Award plan adopted by the Board 
of Directors on January 18, 1995, each non-employee Board member 
("Independent Director") may elect to have all or any portion of the annual 
retainer fees paid in depositary units or, as amended on July 15, 1998, in 
options thereon instead of cash.

The 1995 Option/Award Plan also provides each Independent Director serving on 
the Board on January 18, 1995, and each newly elected or appointed 
Independent Director, with a non-statutory option ("Automatic Option") to 
purchase 1,500 depositary units. On the third Wednesday of July of each year 
that occurs after January 18, 1995, each continuing Independent Director will 
automatically receive an Automatic Option to purchase 500 depositary units. 
Each Automatic Option vests immediately and has a term of 10 years. 
Generally, the Independent Director may exercise his or her option for a 
period of 3 months after termination of service as an Independent Director 
for any reason other than death or "retirement," 12 months after the date of 
death and 36 months after the date of "retirement." "Retirement" means the 
first day the Independent Director ceases to serve as an Independent Director 
after serving as an Independent Director for at least five years.

In addition, outside directors automatically receive 500 unit rights on the 
third Wednesday of July of each year pursuant to the terms of the Deferred 
Equity Compensation Plan for Outside Directors which was adopted effective 
November 1, 1996. Unit rights entitle a director to receive an equal number 
of partnership units upon separation from the Board of Directors for any 
reason.


                                      49
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION (continued)


COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Company has a $40 million line of credit for Valencia Town Center with 
Wells Fargo Bank, N.A. (the "Bank"), all of which was borrowed at December 
31, 1998. Valencia Water Company, a subsidiary of the Company, maintains a $2 
million credit line with the Bank. There were no borrowings outstanding 
against this line of credit at December 31, 1998. Additionally, the Company 
has a $159 million revolving credit facility managed jointly by the Bank and 
Morgan Guaranty Trust of New York, $23.2 million of which was used at 
December 31, 1998. Certain of the Company's employee benefit plans have 
invested approximately $23 million in funds managed by the Bank. Thomas L. 
Lee, Chairman and Chief Executive Officer of the Company, and Carl E. 
Reichardt, Chairman and Chief Executive Officer of Wells Fargo & Company and 
the Bank, served as directors of Wells Fargo & Company and the Bank until 
November 1998 and April 1998, respectively.

In June 1994 Valencia Water Company, a wholly-owned subsidiary of the 
Company, borrowed $11 million from Pacific Life Insurance Company. In 
addition, the Company has acquired two life insurance policies for its two 
senior officers with face amounts of approximately $1.5 million each from 
Pacific Life. Thomas C. Sutton, a director of the Company, is Chairman of the 
Board and Chief Executive Officer of Pacific Life Insurance Company.

All of the foregoing transactions are at rates and terms comparable to those 
of similar transactions with unrelated parties.

REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS OF NEWHALL 
MANAGEMENT CORPORATION

COMPENSATION COMMITTEE CHARTER

The Compensation Committee, which is entirely comprised of independent 
directors, evaluates the performance of the Chief Executive Officer, 
determines or approves compensation of all executive officers of the Company 
and reviews management development issues. It has regularly scheduled 
meetings two times a year, and meets at other times as appropriate. During 
1998, the committee met two (2) times.

SENIOR MANAGEMENT COMPENSATION PHILOSOPHY

The Company believes its success is greatly influenced by the caliber of its 
employees. The Company's compensation program for senior management is 
designed to attract, motivate and retain a highly skilled, professional and 
dedicated work force. In this regard, Newhall Land's senior management 
compensation program consists of:

-    Base salary compensation tied to prevailing real estate industry
     compensation practices.

-    Annual merit and incentive pay compensation (bonuses) primarily related to
     the Company's and manager's performance for the previous fiscal year.

-    Long-term incentive compensation in the form of unit options, restricted
     units and unit rights directly tied to increasing unitholder value. This
     component of compensation can be highly volatile because it is directly
     related to Company performance.

The Company's objective is for the base salary, annual incentive compensation 
and long-term incentive compensation of senior management to approximate the 
median levels for an industry comparison group consisting primarily of real 
estate companies with which the Company competes for executive talent. From 
year-to-year, however, relative compensation levels may vary due largely to 
variances in individual and Company performance. It should be pointed out 
that the companies with which the Company competes for executive talent are 
not the same as those in the Wilshire Real Estate Securities Index shown in 
the performance graph. In addition, for managers other than the Chief 
Executive Officer and the Chief Operating Officer, there is a subjective 
element to incentive compensation which relates to his or her success in 
meeting individual business and personal goals determined at the beginning of 
each year. The goals for the business segment he or she manages are based 
primarily on increasing unitholder values through profitability and, most 
importantly, the value of the Company's landholdings.

                                      50
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)


BASE SALARY COMPENSATION

The base salary for each executive officer is determined on the basis of an 
evaluation of the responsibilities of each position compared to other 
positions in the Company and to base salary levels in effect for comparable 
positions at the Company's principal competitors for executive talent. In 
addition, the qualifications of the executive officer including training and 
experience is considered in determining base salary. Salaries are reviewed 
and adjustments to each executive officer's base salary, if any, are made on 
an annual basis. External salary data provided to the Committee by an 
independent compensation consulting firm indicate that salaries for 1998 were 
generally at or below the median level.

ANNUAL MERIT AND INCENTIVE COMPENSATION (BONUSES)

Annual bonuses under the Company's Executive Incentive Plan adopted by the 
Board of Directors are earned by each executive officer on the basis of the 
Company's earnings, division performance and/or the attainment of individual 
goals in the previous fiscal year. Target earnings projections for the 
Company and each division and individual goals are developed at the beginning 
of the year. Target bonuses are determined as percentages of base salaries 
for each management group based upon ability to influence the success of the 
Company and are generally set to produce bonuses comparable to other real 
estate companies over a period of time. The bonuses earned are then 
calculated at the end of the year using the target percentages, increased or 
decreased by multiples which give effect to the earnings achieved and 
individual goals accomplished. The multiple results in the bonus percentage 
attributable to Company earnings being increased at twice the percentage by 
which actual earnings exceed targeted earnings and reduced at three times the 
percentage by which actual earnings are less than targeted earnings. There 
are no bonuses for this component of the formula if earnings are less than 
75% of target. The aggregate amount of such incentive bonuses may not exceed 
5% of the Company's net income after deducting the incentive awards. The 
target bonuses (except for Mr. Lee's bonus) are recommended by the Company's 
Chief Executive Officer, Mr. Lee, and approved by the Compensation Committee 
and the Board of Directors.

Beginning in 1996, senior executives are paid 50% of the excess of their 
current year's bonus over 1995 in partnership units until they reach their 
unit ownership guidelines described below. Additionally, any manager may 
elect to receive all or any part of his or her annual bonus in partnership 
units and to defer receipt of such partnership units for up to five (5) years.

The total of the bonuses paid for 1998 was $3,237,000 (or 5.0% of 1998 income 
after deducting bonuses), versus $1,907,000 in 1997 (4.3% of income after 
deducting bonuses), a 70% increase from 1997 to 1998. The increase in bonuses 
for 1998 recognizes the record revenues, earnings and per unit appraised 
value of the Company's assets achieved in 1998. Revenues increased 46% and 
earnings improved 44% compared to 1997. An unprecedented 110 acres of 
industrial property closed escrow and a record 1,232 residential lots and 
homes were sold in 1998. The Company's master-planned community of Valencia 
dominates the new home market in the Santa Clarita Valley with 37% of the 
market and continues to capture 12% of the market for all of Los Angeles 
County. The Company's new 21,600 home master-planned community, Newhall 
Ranch, received tentative approval of the Los Angeles County Board of 
Supervisors during 1998.

LONG-TERM INCENTIVE COMPENSATION

The Committee endorses the view that equity ownership of the Company aligns 
management's and unitholders' interests and thereby enhances unitholders' 
value. The equity component of compensation includes unit options, 
appreciation rights, restricted units, unit rights and bonuses paid in 
partnership units (described above) under the Company's 1995 Option/Award 
Plan. Option awards are generally made at mid-year to key management 
personnel who are in positions to make substantial contributions to the 
long-term success of the Company. These awards mature and are expected to 
grow in value over time and for that reason represent compensation which is 
attributable to service over a period of up to ten years. This focuses 
attention on managing the Company from the perspective of an owner with an 
equity stake in the business.

The size of the unit options granted to each executive officer is based on 
the aggregate exercise price. Generally it is set at a multiple of salary 
which the Committee deems appropriate in order to create a meaningful 
opportunity for ownership based upon the individual's current position with 
the Company. The unit options granted also take 

                                      51
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)


into account comparable awards to individuals in similar positions in the 
industry, as reflected in external surveys and as reported to the Committee 
by an independent compensation consultant, and the individual's potential for 
future responsibility and promotion over the option term.

There were no appreciation rights or restricted units granted during the 
year. In 1994 the Company adopted unit ownership guidelines for management. 
Managers are encouraged to own units having a market value ranging from 50% 
to 600% of base salary. As an inducement to purchase partnership units the 
Company offers one unit right for every five units purchased. A unit right 
entitles the recipient to receive one partnership unit for each unit right. 
Unit rights vest at the rate of twenty percent a year over a five year period.

In November 1997, a special grant of 2,450,000 premium price options was made 
to the top six executive officers of the Company to provide additional 
incentive for them to deliver near-term, substantial price growth in the 
outstanding partnership units and to enhance their incentive compensation to 
be more comparable with that of publicly-traded real estate companies. The 
options were granted in two tranches, both of which are exercisable in three 
years provided certain price performance objectives are met. The first 
tranche vests if within two years the market price of the Partnership's 
outstanding partnership units increases by 25% and the second tranche vests 
if within three years the market price increases 33 1/3 %. Alternatively, the 
options will vest if during the applicable period the total return on an 
outstanding partnership unit equals or exceeds the 75th percentile of a peer 
group of other publicly-traded real estate companies. The market price 
increased 25% and the first tranche vested during 1998. A prorated portion of 
vested options will be exercisable upon death, disability or retirement 
within three years. The options are forfeited if neither of the price 
performance goals is met. The premium price options expire five years 
following their grant date. The premium price options were frontloaded so the 
six executives will not receive any other options for the next three years.

CHIEF EXECUTIVE OFFICER COMPENSATION

Mr. Lee's base salary was $362,000 in 1998, the same as last year, In 
addition he was paid general partners fees of $60,000 for managing Newhall 
General Partnership, a general partner of the Company, and a bonus for 1998 
of $430,364 for total cash compensation of $852,364. A study by a 
compensation consulting firm during 1998 indicates that Mr. Lee's cash and 
total direct compensation (short-term cash plus long-term incentive) are both 
below the medians of the chief executive officers of a peer group of 
companies with similar revenues, market capitalization and business focus. 
The Compensation Committee has elected to increase Mr. Lee's annual bonus and 
long-term incentive compensation to align more of his total direct 
compensation with the interests of the Company's owners. During 1998 Mr. 
Lee's efforts led to tentative approval of Newhall Ranch, the largest single 
new development in the history of Los Angeles County, by the County Board of 
Supervisors, record results in nearly every major segment of the Company's 
business and an increase in earnings of 44%.

Mr. Lee's bonus for 1998 of $430,364, versus $205,073 for 1997, equals his 
target bonus of 70% of his salary plus 48%, twice the percentage by which net 
income per unit exceeded target, pursuant to the Company's Executive 
Incentive Plan (see description of Annual Merit and Incentive Compensation 
(Bonus) Plan on page 51). The amount of the bonus earned was based entirely 
upon Company earnings.

In 1997 Mr. Lee received 700,000 premium price options in lieu of annual 
grants as described above. The benefits of these unit options, as well as 
previously granted market price options, are expected to be realized over the 
next five to ten years during which Mr. Lee's emphasis on strategic planning, 
particularly land entitlements and investments in income producing properties 
are expected to yield benefits for the Company's investors.

SECTION 162 LIMIT

Section 162(m) of the Internal Revenue Code limits federal income tax 
deductions for compensation paid to the Chief Executive Officer and the four 
other most highly compensated officers of a public company to $1 million per 
year, but contains an exception for performance-based compensation that 
satisfies certain conditions. The Company believes that Section 162(m) does 
not apply to publicly-traded limited partnerships such as the Company. Even 
if Section 162(m) were applicable to the Company, however, the compensation 
paid the Chief Executive Officer and each of the four other most highly 
compensated officers, excluding performance-based compensation, is well below 
$1 million per year.

                                      52
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)

COMPENSATION COMMITTEE MEMBERS

The Compensation Committee of the Board of Directors of Newhall Management
Corporation is comprised of the following five independent directors:

         Peter T. Pope (Chairman)
         Thomas V. McKernan, Jr.
         Carl E. Reichardt
         Thomas C. Sutton
         Barry Lawson Williams












                                      53

<PAGE>


                      The Newhall Land and Farming Company
                           Stock Performance Analysis

<TABLE>
<CAPTION>
                                                                                                                     5 Year
                                             1993        1994        1995         1996        1997        1998    Total Return
                                             -----       -----       -----        -----       -----       -----   ------------
                          <S>               <C>         <C>         <C>          <C>         <C>         <C>        <C> 
                          NHL               100.00       77.95      112.40       114.31      207.90      183.62      83.62%
                          S&P 500           100.00      101.31      139.30       171.44      228.63      294.48     194.48%
                          WRESI*            100.00       94.40      115.83       158.42      190.01      148.62      48.62%
</TABLE>

<TABLE>
<CAPTION>
                                                                                                                         10 Year
              1988     1989      1990      1991      1992      1993      1994      1995     1996     1997     1998     Total Return
              -----    -----     -----     -----     -----     -----     -----     -----    -----    -----    -----    ------------
<S>            <C>    <C>       <C>       <C>       <C>       <C>       <C>       <C>      <C>      <C>       <C>         <C>
NHL            100    109.50     60.25     75.61     58.10     67.00     52.22     75.31    76.58   139.29    123.02       23.02%
S&P 500        100    131.66    127.46    166.37    179.10    197.12    199.70    274.59   337.94   450.67    580.47      480.47%
WRESI*         100    101.77     52.38     59.32     53.51     63.91     60.34     74.04   101.26   121.45     95.00       -5.00%

</TABLE>

Assumes $100 invested on December 31, 1993 for the 5-year graph and December 
31, 1988 for the 10-year graph. Total return includes reinvestment of 
dividends.

* As of 12/31/1998 the Wilshire Real Estate Securities Index consists of the 
following real estate operating companies: Catellus Development Corporation, 
Homestead Valley Properties, Lodgian Inc., The Newhall Land and Farming 
Company, Prime Hospitality, Inc., Red Roof Inns, and Trizec Hahn Corp.

                                      54
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND 
         MANAGEMENT (CONTINUED)

DIRECTORS AND OFFICERS

The following table sets forth the number of units beneficially owned by each 
director of Newhall Management Corporation, each of the Company's five 
highest paid executives and all directors and officers as a group as of 
December 31, 1998.

<TABLE>
<CAPTION>
                                                           Amount and Nature                   Percent
    Name                                                of Beneficial Ownership                of Class
----------------                                   --------------------------------            --------
<S>                                                 <C>             <C>                         <C>
George L. Argyros                                      61,822           (1) (2) (3)              0.2%
Gary M. Cusumano                                      260,550           (1) (2) (4)              0.8
Thomas E. Dierckman                                   104,152           (2) (4) (5)              0.3
James M. Harter                                        46,198           (2) (4) (5)                *
Thomas L. Lee                                         272,299       (1) (2) (4) (5)              0.8
Thomas V. McKernan, Jr.                                12,120           (1) (2) (3)                *
Stuart R. Mork                                         73,010           (2) (4) (5)              0.2
Henry K. Newhall                                      881,859       (1) (2) (3) (6)              2.7
Jane Newhall                                        1,086,462           (1) (2) (3)              3.3
Peter T. Pope                                          12,866           (1) (2) (3)                *
Carl E. Reichardt                                      96,347       (1) (2) (3) (7)              0.3
Thomas C. Sutton                                       17,695       (1) (2) (3) (8)                *
Barry Lawson Williams                                   6,491           (1) (2) (3)                *
Ezra K. Zilkha                                      1,190,493       (1) (2) (3) (9)              3.6
All directors and officers
 as a group                                         4,347,915                                   13.3  %

</TABLE>

* Represents less than 0.1% of the securities outstanding.

(1)  Includes 72,000 units each for Messrs. Henry K. Newhall and Zilkha, 71,650
     units for Ms. Jane Newhall, 2,000 units each for Messrs. Argyros, McKernan,
     Pope, Reichardt, Sutton and Williams which are held by the Managing General
     Partner. Includes 36,000 units held by the Managing General Partner and 20
     units contributed to Newhall General Partnership by Messrs. Cusumano and
     Lee. Of the total of 299,650 units held by the Managing General Partner
     beneficially for the directors, 20 units have been contributed to Newhall
     General Partnership, and of those 20 units, 10 units have been contributed
     back to the Managing General Partner by Newhall General Partnership. See
     Item 10 of this Annual Report on Form 10-K for information on a
     shareholders' agreement, voting trust agreement and limited partnership
     agreement relating to these units.

(2)  Includes 131,813 units for Mr. Cusumano, 87,375 for Mr. Dierckman, 36,250
     for Mr. Harter, 171,888 for Mr. Lee, 4,419 units for Mr. McKernan, 66,625
     for Mr. Mork, 2,500 for Mr. Williams, 3,000 for Mr. Argyros and 3,500 each
     for Ms. Newhall and Messrs. Newhall, Pope, Reichardt, Sutton and Zilkha
     which they have the right to acquire pursuant to the Company's 1995
     Option/Award Plan.

(3)  Includes 1,549 units for Mr. Argyros, 1,701 for Mr. McKernan, 5,631 for Mr.
     Newhall, 11,312 for Ms. Newhall, 4,140 for Mr. Pope, 9,547 for Mr.
     Reichardt, 2,805 for Mr. Sutton, 1,018 for Mr. Williams and 14,393 for Mr.
     Zilkha which they are entitled to receive upon separation from the Board of
     Directors of Newhall Management Corporation pursuant to the Company's
     Deferred Equity Compensation Plan for Outside Directors.

(4)  Includes unit rights to receive an equal number of partnership units under
     certain circumstances pursuant to the 1995 Option/Award Plan of 560 for Mr.
     Cusumano, 1,450 for Mr. Dierckman, 1,691 for Mr. Harter, 1,207 for Mr. Lee
     and 730 for Mr. Mork.


                                      55
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND 
         MANAGEMENT (CONTINUED)


(5)  Includes units held by the Company's Employee Savings Plan of 2,360 for Mr.
     Dierckman, 1,253 for Mr. Harter, 1,696 for Mr. Lee and 2,162 for Mr. Mork.

(6)  The Partnership is advised that Henry K. Newhall has sole voting and
     investment power as to 98,222 units, 89,091 of which are held by trusts for
     which he is the trustee and beneficiary. Voting and investment power is
     shared with others as to 711,637 units held by certain trusts.

(7)  Includes 3,000 units held by trusts for which Mr. Reichardt has sole voting
     and investment power as the trustee.

(8)  The Partnership is advised that Mr. Sutton has sole voting and investment
     power as to 9,390 units held by a trust for which he is a trustee.

(9)  Includes 230,600 units held by Zilkha & Sons, Inc. for which the
     Partnership is advised that Mr. Zilkha has sole voting and investment power
     and 30,000 units held by Mr. Zilkha's wife for which he disclaims
     beneficial ownership.

Except as indicated otherwise in the above notes, the specified persons 
possess sole voting and investment power as to the indicated number of units 
to the best of the Company's knowledge.

Certain provisions of the Partnership's Limited Partnership Agreement require 
the affirmative vote of holders of at least 75% of the Partnership's voting 
power to approve (i) the removal of any general partner or the election of 
any general partner as the Partnership's managing general partner; or (ii) 
certain business combinations and other specified transactions ("Business 
Combinations") with, or proposed by or on behalf of, persons beneficially 
owning 10% or more of the Partnership's voting power, unless such Business 
Combination is either approved by a majority of the present directors of 
Newhall Management Corporation (or by directors who are nominated by them) or 
certain price and procedural requirements are satisfied.

CERTAIN UNITHOLDER

The following table sets forth the name, address and unitholdings of the only 
person known to the Partnership to be a beneficial owner of more than five 
percent of the outstanding units of the Partnership as of December 31, 1998. 
Such unitholder has sole voting and investment power to the best knowledge of 
the Partnership.

<TABLE>
<CAPTION>

                                                      Amount                 Percent
 Name  and  Address                             Beneficially Owned          Of Class
--------------------                            ------------------          --------
<S>                                                 <C>                       <C>
State Farm Mutual Automobile                        3,400,758                 10.4%
  Insurance Company
One State Farm Plaza
Bloomington, Illinois 61710

</TABLE>

To the best knowledge of the management of the Company, no other person owned 
beneficially more than five percent of the outstanding units of the Company 
on that date. With respect to the above information, the Company has relied 
upon the Schedule 13G filing.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

For additional related party information see COMPENSATION COMMITTEE 
INTERLOCKS AND INSIDER PARTICIPATION in Item 11 - Executive Compensation.

                                      56


<PAGE>

                                     PART IV

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

(a) Documents filed with this report:

    1.   See Index to Financial Statements on page 20 of this Annual Report 
         on Form 10-K.

    2.   Financial Statement Schedules: Schedule III - Real Estate and 
         Accumulated Depreciation with accountants' report thereon. Other 
         schedules have been omitted because they are not applicable or the 
         required information is shown in the consolidated financial 
         statements and notes thereto.
    
    3.   Exhibits (listed by numbers corresponding to the Exhibit Table of 
         Item 601 in Regulation S-K):

         3(a) The Newhall Land and Farming Company (a California Limited 
              Partnership) Limited Partnership Agreement incorporated by 
              reference to Exhibit 3(e) to Registrant's Registration 
              Statement on Form S-14 filed August 24, 1984.

          (b) First Amendment to Limited Partnership Agreement of The Newhall 
              Land and Farming Company (a California Limited Partnership) 
              incorporated by reference to Exhibit 3(b) of the Company's 
              Annual Report on Form 10-K for the year ended December 31, 
              1993, (Commission File Number 1-7585).

         4    Depositary Receipt for Units of Interest, The Newhall Land and 
              Farming Company (a California Limited Partnership) incorporated 
              by reference to Exhibit 4 of the Company's Annual Report on 
              Form 10-K for the year ended December 31, 1990, (Commission 
              File Number 1-7585).

  * 10(a) The Newhall Land and Farming Company 1995 Option/Award Plan 
          incorporated by reference to the Company's Registration Statement on
          Form S-8 dated March 22, 1995.
    
  *   (b) Newhall Executive Incentive Plan incorporated by reference to Exhibit
          10(f) to Registrant's Registration Statement on Form S-14 filed August
          24, 1984.

  *   (c) The Newhall Land and Farming Company Employee Savings Plan
          incorporated by reference to the Company's Registration Statement on
          Form S-8 dated May 24, 1994.

  *   (d) The Newhall Land and Farming Company Retirement Plan Restatement,
          Amendments No. 1 through 5, incorporated by reference to Exhibit 10(d)
          to the Company's Annual Report on Form 10-K for the year ended
          December 31, 1993, (Commission File Number 1-7585).

  *   (e) Form of Severance Agreements.

  *   (f) The Newhall Land and Farming Company Supplemental Executive Retirement
          Plan (Restated effective January 15, 1992) incorporated by reference
          to Exhibit 10(g) to the Company's Annual Report on Form 10-K for the
          year ended December 31, 1991, (Commission File Number 1-7585).

  *   (g) The Newhall Land and Farming Company Senior Management Survivor Income
          Plan incorporated by reference to the Company's Annual Report on Form
          10-K for the year ended December 31, 1993, (Commission File Number
          1-7585).

      (h) Form of Indemnification Agreement between the Partnership and its
          General Partners and the general partners, partners, shareholders,
          officers and directors of its General Partners, or of the Managing
          General Partner of the Managing General Partner, as amended,
          incorporated by reference to Exhibit 28(g) to the Company's report on
          Form 8-K filed December 11, 1990, (Commission File Number 1-7585).

                                      57
<PAGE>

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

      (i) Tax Payment and Tax Benefit Reimbursement Agreement incorporated by
          reference to Exhibit 28(f) to the Company's report on Form 8-K filed
          December 11, 1990, (Commission File Number 1-7585).

  *   (j) The Newhall Land and Farming Company Deferred Cash Bonus Plan
          incorporated by reference to Exhibit 10(l) of the Company's Annual
          Report on Form 10-K for the year ended December 31, 1990, (Commission
          File Number 1-7585).

  *   (k) Form of award issued under The Newhall Land and Farming Company
          Deferred Cash Bonus Plan incorporated by reference to Exhibit 10(m) of
          the Company's Annual Report on Form 10-K for the year ended December
          31, 1990, (Commission File Number 1-7585).

  *   (l) The Newhall Land and Farming Company Employee Savings Restoration Plan
          As Amended Effective January 1, 1999, incorporated by reference to the
          Company's Report on Form 10-Q for the quarter ended September 30,
          1998.

  *   (m) The Newhall Land and Farming Company Pension Restoration Plan (As
          amended through July 15, 1998) incorporated by reference to the
          Company's Report on Form 10-Q for the quarter ended September 30,
          1998.

      (n) Trust Agreement dated January 15, 1992 between the Partnership and
          Newhall Management Corporation incorporated by reference to Exhibit
          10(p)to the Company's Annual Report on Form 10-K for the year ended
          December 31, 1991, (Commission File Number 1-7585).

      (o) The Newhall Land and Farming Company Employee Unit Purchase Plan
          incorporated by reference to the Company's Registration Statement on
          Form S-8 dated May 24, 1994.

  *   (p) Amendment No. 1 to The Newhall Land and Farming Company Retirement
          Plan incorporated by reference to the Company's Annual Report on Form
          10-K for the year ended December 31, 1994, (Commission File Number
          1-7585).

      (q) The Newhall Land and Farming Company Deferred Equity and Compensation
          Plan for Outside Directors incorporated by reference to the Company's
          report on Form S-8 dated November 1, 1996.

  *   (r) Amendment No. 2 to The Newhall Land and Farming Company Retirement
          Plan dated August 1, 1996 incorporated by reference to the Company's
          Annual Report on Form 10-K for the quarter ended December 31, 1996.

  *   (s) Amendment No. 3 to The Newhall Land and Farming Company Retirement
          Plan dated July 15, 1998, incorporated by reference to the Company's
          Report on Form 10-Q for the quarter ended September 30, 1998.

  *   (t) Amendment No. 1 to The Newhall Land and Farming Supplemental Executive
          Retirement Plan dated January 15, 1997 incorporated by reference to
          the Company's Annual Report on Form 10-K for the year ended December
          31, 1996.

  *   (u) The Amended and Restated Newhall Management Corporation Retirement
          Plan for Directors dated September 18, 1996 incorporated by reference
          to the Company's Annual Report on Form 10-K for the year ended
          December 31, 1996.

  *   (v) First Amendment to The Newhall Land and Farming Company 1995
          Option/Award Plan dated November 19, 1997 incorporated by reference to
          the Company's Annual Report on Form 10-K for the year ended December
          31, 1997.

  *   (w) Form of award for premium price options granted under The Newhall Land
          and Farming Company 1995 Option/Award Plan incorporated by reference
          to the Company's Annual Report on Form 10-K for the year ended
          December 31, 1997.

                                      58
<PAGE>

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

  *   (x) Amendment No. 2 to The Newhall Land and Farming Company Savings Plan
          dated July 15, 1998, incorporated by reference to the Company's Report
          on Form 10-Q for the quarter ended September 30, 1998.

      (y) Valencia Marketplace Purchase and Sale Agreement dated January 7, 1998
          and subsequent First, Second, Third and Fourth Amendments incorporated
          by reference to the Company's Report on Form 10-Q for the quarter
          ended March 31, 1998.

      (z) Fifth Amendment dated May 29, 1998 to the Valencia Marketplace
          Purchase and Sale Agreement incorporated by reference to the Company's
          Report on Form 8-K filed June 19, 1998.

    11    Computation of earnings per unit.

    21    Subsidiaries of the Registrant.

    23    Independent Auditors' Consent.
 
    27    Financial Data Schedule.

    99(a) Articles of Incorporation of Newhall Management Corporation, as
          amended, incorporated by reference to Exhibit 28(b) to the Company's
          report on Form 8-K filed December 11, 1990, (Commission File Number
          1-7585).

      (b) Bylaws of Newhall Management Corporation incorporated by reference to
          Exhibit 28(c) to the Company's report on Form 8-K filed December 11,
          1990, (Commission File Number 1-7585), and Amendment Number 1 dated
          July 17, 1991 incorporated by reference to Exhibit 28(b) to the
          Company's Annual Report on Form 10-K for the year ended December 31,
          1991, (Commission File Number 1-7585).

      (c) Shareholders' Agreement between Newhall Management Corporation, its
          shareholders and the Newhall Management Corporation Voting Trust
          incorporated by reference to Exhibit 28(d) to the Company's report on
          Form 8-K filed December 11, 1990, (Commission File Number 1-7585), and
          Amendment to Shareholders' Agreement dated as of November 20, 1991
          incorporated by reference to Exhibit 28(c) to the Company's Annual
          Report on Form 10-K for the year ended December 31, 1991, (Commission
          File Number 1-7585).

      (d) Voting Trust Agreement between Newhall Management Corporation, the
          Trustee, and the individual shareholders of Newhall Management
          Corporation incorporated by reference to Exhibit 28(e) to the
          Company's report on Form 8-K filed December 11, 1990, (Commission File
          Number 1-7585).

      (e) Partnership Agreement of Newhall General Partnership incorporated by
          reference to Exhibit 28(e) to Registrant's Registration Statement on
          Form S-14 filed August 24, 1984, and the Certificate of Amendment of
          Partnership Agreement of Newhall General Partnership, dated November
          14, 1990 incorporated by reference to Exhibit 28(e) of the Company's
          Annual Report on Form 10-K for the year ended December 31, 1990,
          (Commission File Number 1-7585).

      (f) Limited Partnership Agreement of Newhall Management Limited
          Partnership, incorporated by reference to Exhibit 28(a) to the
          Company's report on Form 8-K filed December 11, 1990, (Commission File
          Number 1-7585).

  *  The items marked above constitute Executive Compensation Plans and
Arrangements.

(b) No report on Form 8-K was filed in the fourth quarter ended December 31, 
1998.


                                      59
<PAGE>


    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.

                                THE NEWHALL LAND AND FARMING COMPANY
                                  (a California Limited Partnership) 
                                               Registrant

                                 By    Newhall Management Limited Partnership,
                                         Managing General Partner

                                 By    Newhall Management Corporation,
                                         Managing General Partner

Date:  March 17, 1999            By     /s/  THOMAS L. LEE                 
                                       ------------------------------------
                                       Thomas L. Lee
                                       Chairman and Chief Executive Officer

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

Date:  March 17, 1999            By         /s/ THOMAS L. LEE                 
                                            ------------------------------------
                                            Thomas L. Lee, Chairman
                                            and Chief Executive Officer
                                            Newhall Management Corporation
                                            (Principal Executive Officer)

Date:  March 17, 1999            By         /s/ STUART R. MORK              
                                            ------------------------------------
                                            Stuart R. Mork

                                            Senior Vice President and 
                                            Chief Financial Officer
                                            Newhall Management Corporation
                                            (Principal Financial Officer)

Date:  March 17, 1999            By         /s/   DONALD L. KIMBALL     
                                            ------------------------------------
                                            Donald L. Kimball, Vice President - 
                                            Finance and Controller
                                            Newhall Management Corporation
                                            (Principal Accounting Officer)

                                      60
<PAGE>

Directors of Newhall Management Corporation:

Date:  March 17, 1999                  By  /s/   George L. Argyros    
                                           -----------------------------------
                                                     George L. Argyros

Date:  March 17, 1999                  By  /s/   Gary M. Cusumano            
                                           -----------------------------------
                                                     Gary M. Cusumano

Date:  March 17, 1999                  By  /s/   Thomas L. Lee             
                                           -----------------------------------
                                                     Thomas L. Lee

Date:  March 17, 1999                  By  /s/   Thomas V. McKernan, Jr.   
                                           -----------------------------------
                                                     Thomas V. McKernan, Jr.

Date:  March 17, 1999                  By  /s/   Henry K. Newhall         
                                           -----------------------------------
                                                     Henry K. Newhall

Date:  March 17, 1999                  By  /s/   Jane Newhall              
                                           -----------------------------------
                                                     Jane Newhall

Date:  March 17, 1999                  By   /s/   Peter T. Pope           
                                           -----------------------------------
                                                     Peter T. Pope

Date:  March 17, 1999                  By   /s/   Carl E. Reichardt        
                                           -----------------------------------
                                                     Carl E. Reichardt

Date:  March 17, 1999                  By   /s/   Thomas C. Sutton          
                                           -----------------------------------
                                                     Thomas C. Sutton

Date:  March 17, 1999                  By   /s/   Barry Lawson Williams    
                                           -----------------------------------
                                                     Barry Lawson Williams

Date:  March 17, 1999                  By   /s/   Ezra K. Zilkha         
                                           -----------------------------------
                                                     Ezra K. Zilkha

                                      61

<PAGE>

                      The Newhall Land and Farming Company
                   SCHEDULE III - REAL ESTATE AND ACCUMULATED
                                  DEPRECIATION
                                December 31, 1998
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                                                             
                                                                                                Gross Amount at Which Carried
                                               Initial Cost of Development       Costs            at December 31, 1998 (C)   
                                               ---------------------------     Capitalized    ----------------------------------- 
                                     Encum-                  Buildings and      Subsequent              Buildings and             
Description                          brances    Land         Improvements     to Completion   Land      Improvements    Total  
-----------                          -------  -------        -------------    -------------   -----     -------------  ------- 
<S>                                 <C>       <C>            <C>                <C>           <C>          <C>         <C>
OPERATING PROPERTIES          
--------------------          
Apartments                    
Northglen                              (A)    $   744        $   12,797         $   (83)       $   744     $ 12,714    $13,458    
Portofino                              (A)      2,031            13,656               7          2,031       13,663     15,694    
SkyCrest                               (A)      3,661            18,620             -            3,661       18,620     22,281    
                              
Shopping Centers              
Valencia Town Center                $56,163    22,136            41,425           3,213         22,136       44,638     66,774    
Valencia Town Center -        
 Ring Road                                        -              12,009             -              -         12,009     12,009    
River Oaks                             (A)      2,354             5,302             820          2,354        6,122      8,476    
NorthPark Village Square                        2,642             5,506             -            2,642        5,506      8,148    
Castaic Village                                 5,384             6,319             -            5,384        6,319     11,703    
                                    
HOTEL                               
-----                               
Valencia Hilton Garden Inn (B)                    -                 -               -              -           -          -       
Hyatt Valencia Hotel and            
 Conference Center                                -              41,594             -              -         41,594     41,594    
                                    
OFFICE AND MIXED USE PROJECTS       
-----------------------------           
Town Center Office                                                                                                                  
 Building                                       1,547             7,474             -            1,547        7,474      9,021    
City Center Office Building                     2,614             4,192           1,426          2,614        5,618      8,232    
Six Story Office Building                         -              13,854             -              -         13,854     13,854    
Plaza del Rancho                                1,457             4,621             -            1,457        4,621      6,078    

SINGLE TENANT FACILITIES
------------------------
Office/Records Storage                            569             2,151             -              569        2,151      2,720    
Retail Store - Trader Joe's                       269               546             -              269          546        815    
Spectrum Health Club                            1,000             6,156             -            1,000        6,156      7,156    
Restaurant - El Torito                            248               802             -              248          802      1,050    
Restaurant - Hamburger Hamlet                     459               708             -              459          708      1,167    
Restaurant - Red Lobster                          134               -               -              134            -        134    
Restaurant - Wendy's                               91               300             -               91          300        391    
                                   
OTHER PROPERTIES AND LAND          
UNDER LEASE                                       979             1,368              20            979        1,388      2,367    
-------------------------           -------   -------          --------          ------        -------     --------   --------    
TOTAL OPERATING PROPERTIES           56,163    48,319           199,400           5,403         48,319      204,803    253,122    
                                    -------   -------          --------          ------        -------     --------   --------    
PROPERTIES UNDER DEVELOPMENT       
----------------------------

Entertainment Complex                             -               9,238             -              -          9,238      9,238    
VTC Office Retail                                                 3,253                                       3,253      3,253
Valencia Town Center Apartments                   -               6,720             -              -          6,720      6,720    
Parking Structures                                                9,787                                       9,787      9,787
Preconstruction costs -            
 various other projects                           -               6,035             -              -          6,035      6,035    
                                    -------   -------          --------          ------        -------     --------   --------    
TOTAL PROPERTIES UNDER             
 DEVELOPMENT                            -         -              35,033             -              -         35,033     35,033    
                                    -------   -------          --------          ------        -------     --------   --------    
TOTAL                               $56,163   $48,319          $234,433          $5,403        $48,319     $239,836   $288,155    
                                    -------   -------          --------          ------        -------     --------   --------    
                                    -------   -------          --------          ------        -------     --------   --------    


<CAPTION>

                                                    Year                        
                                   Accumulated    Completed/  Depreciable       
Description                        Depreciation   Acquired       Lives          
-----------                       -------------   ----------  -----------       
<S>                               <C>               <C>          <C>
OPERATING PROPERTIES                                                            
--------------------                                                            
Apartments                                                                      
Northglen                         $  (6,217)        1988         (D)           
Portofino                            (6,075)        1989         (D)           
SkyCrest                             (2,252)        1997         (D)           
                                                                                    
Shopping Centers                                                                    
Valencia Town Center                (14,479)        1992         (D)           
Valencia Town Center -                                                              
 Ring Road                              (28)        1998         (D)           
River Oaks                           (2,393)        1987         (D)           
NorthPark Village Square               (528)        1996         (D)           
Castaic Village                      (1,576)        1992         (D)           
                                                                                     
HOTEL                                                                                
-----                                                                                
Valencia Hilton Garden Inn (B)          -           1991         (D)           
Hyatt Valencia Hotel and                                                        
 Conference Center                     (569)        1998         (D)           
                                                                                     
OFFICE AND MIXED USE PROJECTS                                                        
-----------------------------                                                        
Town Center Office                                                                   
 Building                              (593)        1996         (D)           
City Center Office Building          (2,197)        1991         (D)           
Six Story Office Building               (90)        1998         (D)           
Plaza del Rancho                       (313)        1997         (D)           
                                                                                     
SINGLE TENANT FACILITIES                                                            
------------------------
Office/Records Storage                 (148)        1996         (D)           
Retail Store - Trader Joe's             (80)        1994         (D)           
Spectrum Health Club                   (332)        1997         (D)           
Restaurant - El Torito                 (364)        1986         (D)           
Restaurant - Hamburger Hamlet          (245)        1990         (D)           
Restaurant - Red Lobster                -           1986         (D)           
Restaurant - Wendy's                   (108)        1984         (D)           
                                                                                     
OTHER PROPERTIES AND LAND    
UNDER LEASE                            (856)       Various       (D)           
-------------------------          --------                                    
TOTAL OPERATING PROPERTIES          (39,443)                                   
                                   --------                                    
PROPERTIES UNDER DEVELOPMENT                                                       
----------------------------

Entertainment Complex                   -                                      
VTC Office Retail                                                                    
Valencia Town Center Apartments         -                                      
Parking Structures                                                                   
Preconstruction costs -                                                             
 various other projects                 -                                     
                                   --------                                   
TOTAL PROPERTIES UNDER                                                              
 DEVELOPMENT                            -                                     
                                   --------                                   
TOTAL                              $(39,443)                                  
                                   --------                                   
                                   --------                                   
</TABLE>

                                      62

<PAGE>
                                       
                       The Newhall Land and Farming Company
                           SCHEDULE III (CONTINUED)
                              December 31, 1998

(A)  Part of a portfolio mortgage secured by five properties, including the 
     Company's headquarters building, with a remaining principal balance of 
     $44.7 million at December 31, 1998.

(B)  Joint venture accounted for as an equity investment.

(C)  The aggregate cost for federal income tax purposes is approximately 
     $307,999 at December 31, 1998.

(D)  Reference is made to Note 2 of the Notes to Consolidated Financial 
     Statements for information related to depreciation.

(E)  Reconciliation of total real estate carrying value for the three years 
     ended December 31, 1998 are as follows:
     (In thousands)

<TABLE>
<CAPTION>
                                                           1998               1997                  1996
                                                         ---------          ---------            ---------
     <S>                                                 <C>                <C>                  <C>
     Balance at beginning of period                      $ 262,634          $ 215,193            $ 161,532
       Additions:
        Cash expenditures                                  101,789             69,403               70,471
       Deletions:
        Cost of real estate sold                           (76,268)           (21,962)             (16,810)
                                                         ---------          ---------            ---------
     Balance at end of period                            $ 288,155          $ 262,634            $ 215,193
                                                         ---------          ---------            ---------
                                                         ---------          ---------            ---------

</TABLE>

(F)  Reconciliation of real estate accumulated depreciation for the three 
     years ended December 31, 1998 are as follows:
     (In thousands)

<TABLE>
<CAPTION>
                                                            1998               1997                 1996
                                                          --------           --------             --------
     <S>                                                  <C>                <C>                  <C>
     Balance at beginning of period                       $ 35,431           $ 32,552             $ 27,028
       Additions:
        Charged to expense                                   7,277              7,466                5,528
        Other                                                    -                  -                  262
       Deletions:
        Cost of real estate sold                            (3,265)            (4,587)                (266)
                                                          --------           --------             --------
     Balance at end of period                             $ 39,443           $ 35,431             $ 32,552
                                                          --------           --------             --------
                                                          --------           --------             --------
</TABLE>

<PAGE>

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors of Newhall Management Corporation 
  and Partners of The Newhall Land and Farming Company:

Under date of January 20, 1999, we reported on the consolidated balance 
sheets of The Newhall Land and Farming Company and subsidiaries as of 
December 31, 1998, and 1997, and the related consolidated statements of 
income, changes in partners' capital, and cash flows for each of the years in 
the three-year period ended December 31, 1998, as contained in the annual 
report on Form 10-K for the year 1998. In connection with our audits of the 
aforementioned consolidated financial statements, we also audited the related 
schedule of real estate and accumulated depreciation as of December 31, 1998 
and for each of the years in the three year period then ended. This financial 
statement schedule is the responsibility of the Company's management. Our 
responsibility is to express an opinion on this financial statement schedule 
based on our audits.

In our opinion, the financial statement schedule, when considered in relation 
to the basic consolidated financial statements taken as a whole, presents 
fairly, in all material respects, the information set forth therein.

Los Angeles, California                   /S/ KPMG LLP
January 20, 1999



                                       64

<PAGE>

                      THE NEWHALL LAND AND FARMING COMPANY

                                INDEX TO EXHIBITS

         Item 14(a)3

<TABLE>
<CAPTION>

         Exhibit
         Number               Description 
         -------              -----------
         <S>          <C>
          11          Computation of earnings per unit

          21          Subsidiaries of the Registrant

          23          Independent Auditors' Consent

          27          Financial Data Schedule
</TABLE>