<PAGE>

                                      FORM 10-K
                          SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, DC  20549


[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934
                      For the fiscal year ended October 31, 1997
                                          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 - 333-31025
                                                   ---------

                              KSL RECREATION GROUP, INC.
                (Exact name of registrant as specified in its charter)


               Delaware                                        33-0747103
------------------------------------------             -------------------------
     (State or other jurisdiction of                       (I.R.S. Employer
    incorporation or organization)                      Identification Number)

         56-140 PGA Boulevard
          La Quinta, California                                  92253
------------------------------------------             -------------------------
 (Address of principal executive office)                      (Zip Code)

           Registrant's telephone number including area code:  760-564-1088


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

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. [  ]

State the aggregate market value of the voting stock held by non-affiliates of
the registrant:  None

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

Common Stock, $.01 par value, 1,000 shares (January 15, 1998)

DOCUMENTS INCORPORATED BY REFERENCE:  None

<PAGE>

                                        INDEX

                                                                            Page
                                                                            ----


Part I.
Item 1.   Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2.   Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 3.   Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 4.   Submission of Matters to a Vote of Security Holders. . . . . . . . . 8

Part II.
Item 5.   Market for the Registrant's Common Equity and Related Stockholder
          Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 6.   Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . .10
Item 7.   Management's Discussion and Analysis of Financial Condition and
          Results of Operations. . . . . . . . . . . . . . . . . . . . . . . .11
Item 8.   Financial Statements and Supplementary Data. . . . . . . . . . . . .17
Item 9.   Changes in and Disagreements with Accountants on Accounting and
          Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . .35

Part III.
Item 10.  Directors and Executive Officers . . . . . . . . . . . . . . . . . .36
Item 11.  Executive Compensation . . . . . . . . . . . . . . . . . . . . . . .40
Item 12.  Security Ownership of Certain Beneficial Owners and Management . . .45
Item 13.  Certain Relationships and Related Transactions . . . . . . . . . . .46

Part IV.
Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K. . .48




                                          2
<PAGE>

PORTIONS OF THIS ANNUAL REPORT ON FORM 10-K INCLUDE "FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH
FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS, UNCERTAINTIES AND OTHER FACTORS
WHICH COULD CAUSE ACTUAL RESULTS TO MATERIALLY DIFFER FROM THOSE PROJECTED OR
IMPLIED. THE MOST SIGNIFICANT OF SUCH RISKS, UNCERTAINTIES AND OTHER FACTORS ARE
DESCRIBED IN THIS ANNUAL REPORT.

                                       PART I.

ITEM 1.   BUSINESS

GENERAL

     KSL Recreation Group, Inc. was incorporated on March 14, 1997, under the 
laws of the State of Delaware. KSL Recreation Group, Inc., together with its 
subsidiaries (the "Company"), are engaged in service-based recreation through 
the ownership and management of resorts, golf courses, private clubs, and 
activities related thereto. The Company's operations currently include: (i) 
the La Quinta Resort & Club ("La Quinta") and PGA WEST ("PGA WEST"), located 
in the Palm Springs, California area, which, together, constitute the 
Company's "Desert Resorts" operations; (ii) Doral Golf Resort and Spa 
("Doral"), located near Miami, Florida; (iii) a hotel and recreational 
complex at Lake Lanier near Atlanta, Georgia ("Lake Lanier Islands"); (iv) 
Grand Traverse Resort ("Grand Traverse"), located in the northwest portion of 
the lower peninsula of Michigan; and (v) KSL Fairways ("Fairways"), which 
operates 22 golf course properties located in six states. The Company is 
wholly owned by KSL Recreation Corporation, a Delaware corporation 
incorporated on May 19, 1993 ("Parent"), approximately 96.7% of the common 
stock (84.5% on a fully diluted basis) of which is owned by partnerships 
formed at the direction of Kohlberg Kravis Roberts & Co., L.P., an affiliate 
of Kohlberg Kravis Roberts & Co.

     In July, 1993, Parent, through a subsidiary, acquired Fairways. In
December, 1993, Parent, through certain subsidiaries, acquired Desert Resorts
and Doral. On May 15, 1996, Parent, through a subsidiary, began operating Lake
Lanier Islands pursuant to an interim management agreement with Lake Lanier
Islands Development Authority ("LLIDA"), an agency of the State of Georgia,
which leases the property from the U. S. Army Corps of Engineers. Shortly after
the Company's formation in March 1997, the subsidiaries of the Parent which
owned Desert Resorts, Doral and Fairways, and managed Lake Lanier Islands became
wholly owned subsidiaries of the Company. In August 1997, the Company closed on
a fifty-year sublease of Lake Lanier Islands and acquired Grand Traverse.

     The Company's operations comprise numerous, interrelated services,
including lodging, conference services, corporate hospitality programs and
facilities, food and beverage, private and resort golf operations, club
membership programs, and entertainment and athletic focused special events.

DESERT RESORTS

     Desert Resorts is located in the City of La Quinta, California, a golf and
recreation destination located near Palm Springs, California. Since the
acquisition of Desert Resorts, the Company has invested significant capital in
facilities-related improvements, initiated measures designed to enhance and
expand the revenue base, and introduced numerous operating efficiencies.

     Desert Resorts includes La Quinta, formerly known as the La Quinta Hotel,
which opened in 1926. La Quinta currently offers 640 "casita"-style hotel rooms
(Spanish-style cottages) spread over approximately 45 acres of grounds,
featuring indigenous architecture and a campus-like setting, and caters to both
corporate groups, individual guests and recreation enthusiasts. La Quinta's
facilities include approximately 66,000 square feet of conference space, eight
restaurants, 25 pools, 38 spas, three championship 18-hole golf courses, three
clubhouses and 23 tennis courts.

     Desert Resorts also includes PGA WEST, a residential and resort golf
community comprised of five championship 18-hole golf courses, three clubhouses
and nineteen tennis courts. Both PGA WEST and La Quinta operate private club
businesses, which represent a growth opportunity at both Desert Resorts and
throughout the Company.

     Both La Quinta's and PGA WEST's private club operations provide golf and
tennis facilities, golf and tennis instruction, special events, and dining and
social activities to its members.  A full golf membership at La Quinta currently
requires a $47,500 deposit, which is fully refundable in thirty years (or sooner
under certain circumstances), and annual golf dues of $5,160.  A full golf
membership at PGA WEST currently requires a $55,000 deposit, which is fully
refundable in thirty years (or sooner under certain circumstances), and annual
golf dues of $5,940.

     On May 16, 1997, KSL Desert Resorts, Inc., the subsidiary of the Company
which owned Desert Resorts, was merged into its then parent, KSL Landmark
Corporation.  Concurrently, the name of KSL Landmark Corporation was changed to
KSL Desert Resorts, Inc., now a direct, wholly owned subsidiary of the Company.
On October 31, 1997, certain wholly owned subsidiaries of the Parent, KSL


                                          3
<PAGE>

Travel, Inc., KSL Vacation Resorts, Inc. and Wild West Desert Properties, Inc.,
became wholly owned subsidiaries of KSL Desert Resorts, Inc.

DORAL GOLF RESORT AND SPA

     Doral is a golf destination resort located approximately fifteen miles from
downtown Miami, Florida and approximately ten miles from Miami International
Airport. Since the acquisition of Doral in 1993, the Company has invested
significant capital in an overall property renovation, has initiated measures
designed to enhance and expand the revenue base, and has introduced significant
operating efficiencies.

     Doral includes 646 hotel rooms, approximately 75,000 square feet of
conference space, five championship 18-hole golf courses including the recently
restored "Blue Monster" golf course, the home of the Doral-Ryder Open, and the
Gold Course which was recently rebuilt under the direction of golf professional
and designer Raymond Floyd, a 9-hole executive golf course, Jim McLean's golf
instruction program, the Arthur Ashe Tennis Center, featuring fifteen courts,
one swimming pool, three restaurants and a private club. One of Doral's five
championship golf courses, the Silver Course, was acquired by the Company on
October 31, 1997.

     Facilities at Doral also include the Spa at Doral, which includes 48 guest
suites, approximately 85,000 square feet of fitness and spa facilities, 25
massage rooms, seven facial rooms, three swimming pools, two saunas and two
restaurants. The Spa at Doral offers a variety of services, including personal
fitness training, massage therapy, health and beauty amenities, stress reduction
and nutrition training.

     Members of Doral's private club are provided use of the resort's golf,
tennis and fitness facilities, golf and tennis instruction, special events,
dining and social activities.  A full golf membership at Doral currently
requires a $15,000 deposit which is fully refundable in thirty years (or sooner
under certain circumstances), and annual dues of approximately $3,720.

LAKE LANIER ISLANDS

     On August 1, 1997, the Company entered into the fifty year sublease of Lake
Lanier Islands, a resort recreation area of approximately 1,041 acres.  Lake
Lanier Islands is a regional destination resort and recreational complex located
approximately 45 miles from downtown Atlanta. It is situated on Lake Lanier, an
approximately 38,000 acre lake with approximately 520 miles of shoreline and
numerous lakeside primary and secondary homes.

     Lake Lanier Islands features a 224-room hotel, 12,500 square feet of
conference space, three retail outlets, two restaurants, a swimming pool, a golf
course, three tennis courts and several daily ticketed attractions, including
extensive beach and water park facilities, houseboat and fishing boat rental
operations, riding stables, campgrounds, pavilions, an amphitheater, group and
social outings and front gate admissions.

GRAND TRAVERSE

     On August 11, 1997, the Company acquired Grand Traverse and related golf
and recreational facilities. Grand Traverse is a regional destination resort
located in the northwest portion of the lower peninsula of Michigan, which
covers approximately 1,370 acres, and features a 425-room hotel, approximately
55,000 square feet of conference space, two championship 18-hole golf courses,
nine tennis courts, four racquetball courts, three swimming pools, three
restaurants, approximately 73,000 square feet of fitness facilities,
approximately 23,000 square feet of retail space and a private club operation.
One of Grand Traverse's two courses, "The Bear," was designed by golf
professional and designer Jack Nicklaus. The Company is also in the process of
constructing a third championship 18-hole golf course, which is being designed
by professional golfer and golf course designer Gary Player. Grand Traverse also
operates a condominium leasing program comprised of approximately 230 rental
units.

     Grand Traverse's private club operation also provides golf, tennis and
fitness facilities, sports instruction, special events, dining and social
activities to its members.  A full golf membership at Grand Traverse currently
requires a $12,500 deposit which is fully refundable in thirty years (or sooner
under certain circumstances), and annual golf dues of approximately $1,500.

FAIRWAYS

     Fairways is based in Manassas, Virginia and operates 22 golf course
properties (21 of which are owned and one of which is leased) located in
numerous markets in the Eastern and Midwestern United States. These properties
include sixteen 18-hole golf courses, three 27-hole golf courses and three
36-hole golf courses, comprising private, semi-private, and daily fee golf
operations.


                                          4
<PAGE>

     At the time it was acquired by the Company in July 1993, Fairways owned and
operated eleven golf course properties, one of which was subsequently sold.
Since July 1993, Fairways has acquired twelve additional golf course properties.
Of Fairway's 22 properties, five are private clubs, twelve are semi-private
clubs and five are public (or daily fee) facilities. The Company's operating
strategy for Fairways has been to form "clusters" of courses within geographic
areas in order to create economies of scale in management and purchasing and to
promote reciprocity among clubs for the members within these clusters.

     Approximately 938,000 rounds were played at all Fairways courses in 
fiscal 1997, of which members played approximately 393,000 rounds and 
non-members played approximately 545,000 rounds. Individual golf dues range 
from $900 to $5,700 annually.

MARKETING PROGRAMS

     The Company attempts to position Desert Resorts, Doral and Grand Traverse
at the premium end of the specific markets in which they compete. Lake Lanier
Islands is currently being positioned as an amenity oriented, regional resort
setting for corporate and other groups seeking alternatives to city-based
conference centers, as well as "Atlanta's Playground" for daily attractions and
special events. Fairways positions itself as "America's Leader in Quality,
Affordable Golf".

     To effectively position its operations, the Company's operating
subsidiaries use a number of marketing strategies and marketing channels. The
marketing function is largely decentralized to allow managers who are most
familiar with the guest or member population and with the specific property to
play an active role in developing the appropriate marketing strategy. The
Company uses a combination of print media, direct mail, telemarketing, local and
national public relations and, in the case of televised golf tournaments,
television, to develop market awareness, to create a property's image and to
market golf, lodging, memberships, food and beverage and special events to
targeted consumers. Although specific marketing activities are largely
decentralized, the Company's corporate office develops and implements national
marketing and promotional programs, controls trademarks and trademark licensing
agreements, engages public relations firms and advertising agencies, coordinates
communications with media sources, develops video materials, interactive CDs and
internet web sites, and develops and manages televised golf tournaments.

CUSTOMERS

     The Company's operations attract a broad range of customers. The customers
typically include frequent independent travelers (FIT), corporate and other
group participants as well as active users of recreational services. At Desert
Resorts and Doral, the customers are drawn from an international, national and
regional customer base and often exhibit the higher spending patterns of
affluent corporate and leisure travelers. Desert Resorts' private clubs attract
members and non-member guests on a national scale, with higher concentrations of
customers from southern California. The private club at Doral typically attracts
local corporate and individual golf and fitness enthusiasts.

     Lake Lanier Islands draws customers from Georgia and the southeastern
United States. The hotel operations at Lake Lanier Islands draw significant
numbers of both corporate and other group participants and FIT guests. Lake
Lanier Islands' other facilities attract a mix of customers with a wide array of
interests, including active golfers and daily attraction users, such as boaters
and water park attendees.

     Grand Traverse draws customers largely from Michigan and the Midwest. Its
customers include affluent FIT and corporate guests. Grand Traverse's private
club typically attracts local fitness and golf enthusiasts.

     Fairways' golf facilities attract members and daily fee golf participants
from the community in which the applicable facility is located. Its golf club
customers include families and individual golf enthusiasts from a broad range of
socioeconomic backgrounds.

CERTAIN FACTORS AFFECTING RESORTS AND GOLF COURSES

     Turf grass conditions must be satisfactory to attract play on the Company's
golf courses. Severe weather or other factors, including grass diseases or
pestilence, could cause unexpected problems with turf grass conditions at any
golf course or at courses located within the same geographic area. Turf grass
conditions at each of the Company's golf courses also depend to a large extent
on the quality and quantity of available water. The availability of sufficient
water is affected by various factors, many of which are not within the Company's
control. While the Company believes that it currently has sufficient access to
water to operate its golf course in the manner in which they are currently
operated, there can be no assurance that certain conditions, including weather,
governmental regulation or environmental concerns, will not materially adversely
affect the supply of water to a particular golf course or courses in the future.

     The Company currently operates golf courses in nine states which may
experience natural conditions which are beyond its control (such as periods of
extraordinarily dry, wet, hot and cold weather, or unforeseen natural events
such as hurricanes, fires, floods,


                                          5
<PAGE>

severe storms, tornadoes or earthquakes). These conditions may occur at any time
and may have a significant impact on the condition and availability of one or
more golf courses for play and on the number of customers a golf course can
attract.

CERTAIN UNINSURED RISKS

     The Company currently carries comprehensive liability, fire, flood (for
certain courses) and extended coverage insurance with respect to its resorts and
all of the golf courses owned or leased by it, with policy specifications and
insured limits and deductibles customarily carried for similar properties. There
are, however, certain types of losses (such as those losses incurred as a result
of earthquakes, which are of particular concern with respect to Desert Resorts,
or hurricanes, which are of particular concern with respect to the Company's
Florida properties) which may be either uninsurable, only partially insurable or
not economically insurable. As a result, in the event of such a loss, the
Company could lose all or a significant portion of both its capital invested in,
and anticipated profits from, one or more of the Company's resorts and/or golf
courses.

FACTORS AFFECTING RESORT VISITORS AND GOLF PARTICIPATION

     The success of efforts to attract visitors to resorts is dependent upon
discretionary spending by consumers, which may be adversely affected by general
and regional economic conditions. In the case of the Company's resorts, the
regional economies of southern California, South Florida, and the states of
Michigan and Georgia are significant to its operations, although Desert Resorts
and Doral attract customers from throughout the United States and abroad. A
decrease in tourism or in consumer spending on travel and/or recreation could
have an adverse effect on the Company's business, financial condition and
results of operations.

     The success of efforts to attract and retain members at a private or
semi-private club and the number of rounds played at a public golf course are
also dependent upon discretionary spending by consumers, which may be adversely
affected by general and regional economic conditions. In the case of Fairways
golf operations, the regional economies of Florida, Wisconsin and the
Mid-Atlantic United States are particularly important. A decrease in the number
of golfers or their rates of participation or in consumer spending on golf could
have an adverse effect on the Company's business, financial condition and
results of operations.

COMPETITION

     The recreation industry is highly competitive. The Company's resorts
compete with other golf and recreation-based resorts. These include premier
independent resorts as well as national hotel chains. In addition, the Company's
resorts compete with other recreational businesses, such as cruise ships and
gaming casinos. The Company believes that it competes based on brand name
recognition, location, room rates and the quality of its services and amenities.

     Golf courses compete for players and members with other golf courses
located in the same geographic areas. The Company's golf courses compete based
on the overall quality of their facilities (including the quality of its
customer service), the maintenance of their facilities, available amenities,
location and overall value. The number and quality of golf courses in a
particular area could have a material effect on the revenue of any of the
Company's golf courses, which could in turn affect the Company's financial
performance and results of operations. There can be no assurance that continued
construction of competing facilities, or renewed or strong and sustained
interest in existing competing facilities, will not adversely effect the
Company's future financial performance.

     The Company competes for the purchase and lease of golf courses with
several national and regional golf course companies. Certain of the Company's
national competitors have larger staffs and more golf courses currently leased,
owned or under management than the Company. In addition, certain national
competitors have greater capital resources than the Company and some of such
competitors may have access to capital at a lower cost than is currently
available to the Company. There can be no assurance that such competition will
not adversely affect the Company's results of operations or ability to maintain
or increase sales and market share.

SEASONALITY

     The operations of the Company are seasonal. Primarily due to the popularity
of Desert Resorts and Doral during the winter and early spring months, a
significant percentage of the Company's revenues and operating income are
recognized in the first two quarters of the fiscal year. Lake Lanier Islands,
Grand Traverse and Fairways offset a portion of the seasonality associated with
Desert Resorts and Doral because they generate a significant percentage of their
revenue and operating income during the summer months which are recognized in
the last two quarters of the fiscal year.

LICENSES AND TRADEMARKS

     The Company is a party to the Professional Golfers' Association License
Agreement ("PGA License Agreement") pursuant to which it is permitted and
licensed to use the PGA WEST name and logos in sales, promotion, advertising,
development and/or operations


                                          6
<PAGE>

of certain property located in the city of La Quinta, California, known as "PGA
WEST" (the "PGA WEST Property"). The PGA License Agreement provides the Company
with (i) the exclusive rights in the United States to the name "PGA WEST" in
connection with the PGA WEST Property and (ii) the exclusive rights in the
states of California and Arizona to the names "PGA" and "PGA of America" in
connection with the PGA WEST Property. The term of the PGA License Agreement
extends through the later of (i) the date on which all of the residential units
located on the PGA WEST Property have been sold and (ii) the date on which the
Company ceases to use the name "PGA WEST" in the name of golf clubs, golf
courses, hotels and/or any other commercial, office or residential developments
then located on the PGA WEST Property. The Company believes that the PGA WEST
logo is an important aspect of the Company's business because of the prestige
associated with the Professional Golfers' Association. The PGA License Agreement
provides for royalty payments on an annual basis through 2005, although the
exact amount of any royalty payments with respect to the PGA mark will be
determined by reference to the number and sales of residential units by KSL Land
Corporation, an affiliate of the Company engaged in the real estate development
business ("KSL Land").

     KSL Land has in the past made all royalty payments attributable to its land
sales and is expected to continue to do so in the future; however, KSL Land has
not agreed in writing to do so, is not controlled by the Company and no
assurance can be given that KSL Land will pay any future royalty owing under the
PGA License Agreement. Failure to comply with the terms of the PGA License
Agreement, including any failure to pay royalties arising out of land sales by
KSL Land, could result in the payment of monetary damages by the Company. Such
occurrence could have a material adverse effect on the Company.

     The Company is also a licensee under a license agreement with the PGA TOUR.
The PGA TOUR license agreement provides the Company with the exclusive rights to
use the names "PGA TOUR" and "TPC" in connection with the sales, promotion,
marketing and operation of PGA WEST. The PGA TOUR agreement is expected to
terminate no earlier than January 1, 2006.

     The Company owns the "Blue Monster" name and has obtained from Carol
Management Corporation ("Carol Management"), the former owner of Doral Golf
Resort and Spa, an irrevocable, perpetual license for the "Doral" name in
connection with the Company's operation, marketing and promotion of the
facilities located at Doral. In addition, Carol Management is prohibited from
licensing the "Doral" mark for any purpose anywhere in southern Florida, but
retains the right to license the Doral mark elsewhere. Although failure by the
Company to comply with the terms of the Doral license agreement could result in
monetary damages, Carol Management does not have the right to terminate the
Doral license agreement in the event of a breach by the Company.

EMPLOYEES

     For the year ended October 31, 1997, the Company employed approximately
6,000 persons during its peak seasons and approximately 3,900 persons during its
off-peak seasons. In addition, Parent employs approximately 31 persons who
render services in connection with the Company's operations at its corporate
headquarters. The Company believes that its employee relations are good.
Although none of the Company's employees is currently represented by a labor
union, certain union representatives have recently sought unsuccessfully to
organize certain of the Company's employees at Desert Resorts and Doral.

GOVERNMENTAL REGULATION

     ENVIRONMENTAL MATTERS. Operations at the Company's resort and community
golf courses involve the use and storage of various hazardous materials such as
herbicides, pesticides, fertilizers, batteries, solvents, motor oil and
gasoline. Such laws often impose liability regardless of whether a property
owner or operator knew of, or was responsible for, the release of hazardous
materials. In addition, the failure to remediate contamination at a property may
adversely affect the ability of a property owner to sell such real estate or to
pledge such property as collateral for a loan. The Company believes that it is
in compliance in all material respects with applicable federal, state and local
environmental laws and regulations.

     GENERAL. The Company is subject to the Fair Labor Standards Act and various
state laws governing such matters as minimum wage requirements, overtime and
other working conditions and citizenship requirements. Some of the Company's
resort and golf course employees receive the federal minimum wage and any
increase in the federal minimum wage would increase the Company's labor costs.
In addition, the Company is subject to certain state "dram-shop" laws, which
provide a person injured by an intoxicated individual the right to recover
damages from an establishment that wrongfully served alcoholic beverages to the
intoxicated individual. The Company is also subject to the Americans with
Disabilities Act of 1990 and the Equal Employment Opportunity Act. The Company
believes it is operating in substantial compliance with applicable laws and
regulations governing its operations.


                                          7
<PAGE>

ITEM 2.   PROPERTIES

PROPERTIES                         CITY/STATE                OWNED OR LEASED

 Desert Resorts
     La Quinta Resort & Club       La Quinta, California           Owned
     PGA WEST                      La Quinta, California           Owned

 Doral Golf Resort and Spa         Miami, Florida                  Owned

 Lake Lanier Islands               Lake Lanier Islands, Georgia    Leased

 Grand Traverse Resort             Acme, Michigan                  Owned

 KSL Fairways
     Birkdale Golf and C.C.        Richmond, Virginia              Owned
     Broad Bay C.C.                Virginia Beach, Virginia        Owned
     Countryside Golf Club         Roanoke, Virginia               Owned
     Kiln Creek Golf and C.C.      Newport News, Virginia          Owned
     Malborough C.C.               Upper Marlboro, Maryland        Owned
     Monroe Valley Golf Club       Jonestown, Pennsylvania         Owned
     Montclair C.C.                Dumfries, Virginia              Owned
     Patuxent Greens C.C.          Laurel, Maryland                Owned
     Prince William Golf Club      Dulles, Virginia                Leased
     Tantallon C.C.                Ft. Washington, Maryland        Owned
     The Club at Hidden Creek      Navarre, Florida                Owned
     Indigo Lakes Golf and C.C.    Daytona Beach, Florida          Owned
     Pebble Creek                  Tampa, Florida                  Owned
     Scenic Hills C.C.             Pensacola, Florida              Owned
     Shalimar Pointe Golf and C.C. Shalimar, Florida               Owned
     Tiger Point Golf & C.C.       Gulf Breeze, Florida            Owned
     Walden Lake Golf and C.C.     Plant City, Florida             Owned
     Wellington C.C.               Wellington, Florida             Owned
     Lake Windsor G. C.            Windsor, Wisconsin              Owned
     Memphis Oaks C.C.             Memphis, Tennessee              Owned
     Mequon C.C.                   Mequon, Wisconsin               Owned
     Willow Run G.C.               Pewaukee, Wisconsin             Owned

     Descriptions of the Company's significant properties are provided in
"Business".  All properties are owned or leased by subsidiaries of the Company.
The corporate office is located within PGA WEST in La Quinta, California.

ITEM 3.   LEGAL PROCEEDINGS

     The Company is involved in certain legal proceedings generally incidental
to its normal business activities.  Management of the Company does not believe
that the outcome of any of these proceedings will have a material adverse effect
on the Company.

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

     No matters were submitted to a vote of stockholders during the fourth
quarter of fiscal year 1997.


                                          8
<PAGE>

                                       PART II.

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

     Currently, there is no market for the common stock of the Company or its
Parent.




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<PAGE>

ITEM 6.  SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA

     The following information should be read in conjunction with the
consolidated financial statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere herein.

<TABLE>
<CAPTION>
                                                                  (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
                                                                                                                   PERIOD ENDED
                                                                         YEAR ENDED OCTOBER 31,                     OCTOBER 31,
                                                          1997(3)         1996           1995          1994(2)        1993(1)
                                                          -------         ----           ----          -------        -------
  <S>                                                  <C>            <C>            <C>            <C>             <C>
  Revenues . . . . . . . . . . . . . . . . . . . .     $  226,070     $  182,249     $  159,266     $  124,210       $  8,631
  Net income (loss). . . . . . . . . . . . . . . .          (363)         19,741       (16,172)        (7,729)          (488)

  Cash and cash equivalents. . . . . . . . . . . .         24,056          9,329         10,112         39,396          6,393
  Total assets . . . . . . . . . . . . . . . . . .        636,041        578,852        578,955        565,583         68,420
  Long-term debt (including current portion) . . .        366,020        271,436        324,604        324,343         37,716

  Earnings (Loss) Per Share:
    Before extraordinary item. . . . . . . . . . .     $    2,801     $ (12,379)     $ (16,172)     $  (5,527)       $  (488)
    Extraordinary gain (loss). . . . . . . . . . .        (3,164)         32,120              -        (2,202)              -
                                                       ----------     ----------     ----------     ----------       --------

  Total Earnings (Loss) Per Share. . . . . . . . .     $    (363)     $   19,741     $ (16,172)     $  (7,729)       $  (488)
                                                       ----------     ----------     ----------     ----------       --------
                                                       ----------     ----------     ----------     ----------       --------
  Weighted average number of
    common shares and common share equivalents . .          1,000          1,000          1,000          1,000          1,000
                                                       ----------     ----------     ----------     ----------       --------
                                                       ----------     ----------     ----------     ----------       --------
  Other Data:
  Net Membership Deposits (4). . . . . . . . . . .     $    8,311     $    4,391     $    6,347     $   24,218       $      -
  Adjusted Net Membership Deposits(5). . . . . . .          8,311          4,391            234            351              -
  Other non-cash items . . . . . . . . . . . . . .            563            873            885            228              -
</TABLE>
 

1)   Reflects operations from July 6, 1993 (date of commencement of operations)
     through October 31, 1993.
2)   Desert Resorts and Doral were acquired in December, 1993. Accordingly, the
     Company's operating results for fiscal 1994 include only ten months of
     operations for Desert Resorts and Doral.
3)   Full operations of Lake Lanier Islands and Grand Traverse commenced in
     August 1997. Accordingly, the Company's operating results for 1997 included
     management fees for Lake Lanier Islands through July, and approximately
     three months of operations of both Lake Lanier Islands and Grand Traverse.
4)   Net Membership Deposits is defined as the amount of refundable membership
     deposits paid by new and upgraded resort club members and by existing
     members who have converted to new membership plans, in cash, plus principal
     payments in cash received on notes in respect thereof, minus the amount of
     any refunds paid in cash with respect to such deposits.
5)   Adjusted Net Membership Deposits is defined as Net Membership Deposits,
     excluding in fiscal 1995 and fiscal 1994, $6.1 million and $23.9 million,
     respectively, of Net Membership Deposits which, because these amounts were
     paid by existing resort club members in connection with the initial
     conversion of such members to new membership plans at Desert Resorts, were
     considered nonrecurring in nature.


                                          10
<PAGE>

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

     THE FOLLOWING DISCUSSION AND ANALYSIS OF THE COMPANY'S FINANCIAL 
CONDITION AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE 
COMPANY'S HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO 
INCLUDED ELSEWHERE IN THIS DOCUMENT. DOLLAR AMOUNTS INCLUDED IN THIS SECTION 
ARE IN THOUSANDS.

     The Company generates revenues at Desert Resorts, Doral and Grand Traverse
from room revenues, greens fees, food and beverage sales and, to a lesser
extent, membership dues and merchandise (pro shop and retail) sales.  At
Fairways, revenues are generated through non-refundable initiation fees,
membership dues, greens fees, golf cart rentals, merchandise (pro shop) sales
and food and beverage sales. Rooms revenue, water park revenues, food and
beverage sales and to a lesser extent, golf fees, merchandise sales, and
admission fees drive revenues at Lake Lanier Islands.

     Revenues at Desert Resorts, Doral and Grand Traverse do not include Net
Membership Deposits, which are defined as the amount of refundable membership
deposits paid by new and upgraded resort club members and by existing members
who have converted to new membership plans, in each case in cash, plus principal
payments in cash received on notes in respect thereof, minus the amount of any
refunds paid in cash with respect to such deposits. These membership deposits
are fully refundable in thirty years (or sooner under certain circumstances). In
accordance with generally accepted accounting principles (GAAP), the Company
accounts for membership deposits as "cash provided from financing activities" in
its statement of cash flows and reports a liability in its balance sheet equal
to the amount of such membership deposits.

     In addition to statement of operation data in accordance with GAAP, this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" includes a discussion of the Company's Adjusted EBITDA, which is
defined as net income before income tax expense (benefit), net interest expense,
depreciation and amortization, loss on sale of golf facility, extraordinary
items and other non-cash items, plus Adjusted Net Membership Deposits. Adjusted
Net Membership Deposits is defined as Net Membership Deposits, excluding in
fiscal 1994 and fiscal 1995, $23,900 and $6,100, respectively, of Net Membership
Deposits which, because these amounts were paid by existing resort club members
in connection with the initial conversion of such members to new membership
plans at Desert Resorts, were non-recurring in nature. In fiscal 1994 and 1995,
Desert Resorts introduced new membership programs at the PGA WEST and La Quinta
private clubs, respectively. These new programs, which provide for the payment
of a fully refundable (in thirty years, or sooner under certain circumstances)
membership deposit to join one or both of the clubs were offered, on an optional
basis, to then existing members of each of the two private clubs. Accordingly,
existing members who chose to convert to the new membership program paid a new
membership deposit. Information regarding Adjusted EBITDA has been provided
because the Company believes that it assists in understanding the Company's
operating results. The Company views cash flow from membership sales as an
important component of operating cash flow measure as membership sales are
recurring in nature as the club builds its membership and replaces the natural
turnover. Also, the significant payroll and operating expenses necessary to
create, sell and maintain a private club operation are treated as ongoing
expenses in the Company's Statement of Operations and therefore recognizing the
cash flow from sales is an appropriate match in determining the overall
performance of the club operation. It is important to note that the membership
cash flow included in Adjusted EBITDA is only the cash amount collected net of
financed sales and refunds. From the Company's perspective, EBITDA and net
membership cash flow together as Adjusted EBITDA provide the most accurate
measure of the recurring cash flow performance of the operations.  As
structured, these private club membership sales are not treated as revenue for
GAAP purposes and therefore do not appear in the Company's Statement of
Operations, but are reflected in the Company's Statement of Cash Flows.

     Adjusted EBITDA should not be construed as an indicator of the Company's
operating performance or as an alternative to operating income as determined in
accordance with GAAP. Additionally, Adjusted EBITDA should not be construed by
investors as a measure of the Company's liquidity or ability to meet all cash
needs or as an alternative to cash flows from operating, investing and financing
activities as determined in accordance with GAAP, nor should Adjusted EBITDA be
construed by investors as an alternative to any other determination under GAAP.


                                          11
<PAGE>

FISCAL YEAR ENDED OCTOBER 31, 1997 COMPARED TO FISCAL YEAR ENDED OCTOBER 31,
1996

     REVENUES.  Revenues increased by $43,821, or 24%, from $182,249 in fiscal
1996 to $226,070 in fiscal 1997. This increase reflected increases in revenues
at each of the Company's existing operating units and the partial year addition
of two operating units in Lake Lanier Islands and Grand Traverse.

     DESERT RESORTS.  Revenues at Desert Resorts increased by $12,857, or 16%,
     from $79,258 in fiscal 1996 to $92,115 in fiscal 1997. This increase was
     primarily attributable to (i) an increase in room revenue of $3,236, or
     14%, from $23,225 in fiscal 1996 to $26,461 in fiscal 1997 (ii) an increase
     in food and beverage sales of $3,280, or 18%, from $17,984 in fiscal 1996
     to $21,264 in fiscal 1997 and (iii) an increase in golf fees and dues of
     $2,679, or 12%, from $22,242 in fiscal 1996 to $24,921 in fiscal 1997. The
     increase in room revenues was attributable to an increase in occupancy. The
     increased occupancy reflected the successful booking of more group and
     corporate business supported by a new ballroom and related facilities,
     which were completed in April 1996. The increases in food and beverage
     sales and golf fees and dues were primarily attributable to the increases
     in occupancy rate and the addition of a private golf course completed in
     January 1996.

     DORAL.  Revenues at Doral increased by $13,815, or 24%, from $57,343 in
     fiscal 1996 to $71,158 in fiscal 1997. During fiscal 1997, (i) room
     revenues increased by $4,853, or 22%, from $22,117 in fiscal 1996 to
     $26,970 in fiscal 1997, (ii) food and beverage sales increased by $2,736,
     or 16%, from $17,049 in fiscal 1996 to $19,785 in fiscal 1997, (iii) golf
     fees and dues increased by $3,242, or 46%, from $7,084 in fiscal 1996 to
     $10,326 in fiscal 1997 and (iv) spa revenues increased by $932, or 30%,
     from $3,112 in fiscal 1996 to $4,044 in fiscal 1997. The increase in room
     revenues was primarily attributable to an increase in occupancy. The
     increases in golf fees and dues and food and beverage sales were primarily
     attributable to the increase in occupancy rate and, in the case of golf
     fees and dues, the completion of the rebuilding of the Gold Course, the
     "Blue Monster" course, and expanded sales and marketing programs.

     FAIRWAYS.  Revenues at Fairways increased by $221, or less than 1%, from 
     $44,766 in fiscal 1996 to $44,987 in fiscal 1997. This increase was 
     primarily attributable to (i) an increase in golf fees and dues of 
     $1,412, or 5%, from $29,594 in fiscal 1996 to $31,006 in fiscal 1997, 
     which was (ii) offset in part by a decrease in food and beverage sales 
     of $429, or 5%, from $9,305 in fiscal 1996 to $8,876 in fiscal 1997. The 
     increases in golf fees and dues were primarily attributable to the 
     acquisition of four golf facilities in fiscal 1996.

     LAKE LANIER ISLANDS.  Revenues at Lake Lanier Islands increased by $8,024.
     In fiscal 1997, total revenues were $8,905 consisting primarily of
     management fees of $1,440 received from November 1, 1996 to the closing of
     the sublease at August 1, 1997, food and beverage revenue of $1,914, water
     park revenue of $1,160, room revenue of $1,680, and other revenue of $2,711
     for the period August 1, 1997 to October 31, 1997.

     GRAND TRAVERSE.  Revenues at Grand Traverse were $8,904 from August 11,
     1997 (acquisition date) to October 31, 1997, consisting of rooms revenue of
     $4,100, food and beverage revenue of $2,760 and other revenues of $2,044.

     OPERATING EXPENSES.  Operating expenses increased by $26,175, or 16%, from
$167,057 in fiscal 1996 to $193,232 in fiscal 1997. Operating expenses,
excluding depreciation and amortization, increased by $22,309, or 16%, from
$143,258 in fiscal 1996 to $165,567 in fiscal 1997, primarily as a result of
increased activity resulting from the opening of new facilities, the addition of
Grand Traverse and Lake Lanier Islands, and higher occupancy rates at the
Company's resorts. The primary components of the increase were (i) an increase
in payroll and benefits of $8,896, or 14%, from $63,039 in fiscal 1996 to
$71,935 in fiscal 1997, reflecting increases in staff and changes in incentive
programs, (ii) an increase in other expenses of $11,506, or 15%, from $77,020 in
fiscal 1996 to $88,526 in fiscal 1997, and (iii) an increase in corporate fees
of $1,907, or 60%, from $3,199 in fiscal 1996 to $5,106 in fiscal 1997. As a
percentage of revenues, operating expenses, excluding depreciation and
amortization, declined from 79% of revenues in fiscal 1996 to 73% of revenues in
fiscal 1997. Depreciation and amortization increased by $3,866, or 16%, from
$23,799 in fiscal 1996 to $27,655 in fiscal 1997. This increase was primarily
attributable to the completion of capital improvements at Desert Resorts and
Doral in fiscal 1996 and the addition of Grand Traverse and Lake Lanier Islands.

     OPERATING INCOME.  Operating income increased by $17,646, or 116%, from
$15,192 in fiscal 1996 to $32,838 in fiscal 1997 as a result of the factors
discussed above.

     NET INTEREST EXPENSE.  Net interest expense increased by $2,326, or 8%,
from $27,711 in fiscal 1996 to $30,037 in fiscal 1997. This increase was
primarily attributable to (i) increased indebtedness of the Company and (ii)
increased amortization of capitalized finance costs, partially offset by
interest income received on a note receivable from an affiliate.


                                          12
<PAGE>

     EXTRAORDINARY ITEMS.  The Company incurred an extraordinary loss, net of
income tax benefits, on the early extinguishment of indebtedness of $3,164, in
fiscal 1997. In fiscal 1996, the Company incurred an extraordinary gain, net of
income tax, on the early extinguishment of indebtedness of $32,120.

     NET INCOME.  Net income decreased by $20,104 from $19,741 in fiscal 1996 to
a net loss of $363 in fiscal 1997 as a result of the factors described above.
Excluding extraordinary items, net loss would have decreased by $15,180, or
123%, from a net loss of $12,379 in fiscal 1996 to a net income of $2,801 in
fiscal 1997.

     ADJUSTED EBITDA.  Adjusted EBITDA increased by $25,207, or 57%, from
$44,313 in fiscal 1996 to $69,520 in fiscal 1997. This increase was primarily
attributable to the factors described above and an increase in Adjusted Net
Membership Deposits of $3,920 from $4,391 in fiscal 1996 to $8,311 in fiscal
1997.

FISCAL YEAR ENDED OCTOBER 31, 1996 COMPARED TO FISCAL YEAR ENDED OCTOBER 31,
1995

     REVENUES.  Revenues increased by $22,983, or 14%, from $159,266 in fiscal
1995 to $182,249 in fiscal 1996. This increase reflected increases in revenues
at each of the Company's operating units.

     DESERT RESORTS.  Revenues at Desert Resorts increased by $4,425, or 6%,
     from $74,833 in fiscal 1995 to $79,258 in fiscal 1996. This increase was
     primarily attributable to (i) an increase in room revenue of $2,141, or
     10%, from $21,084 in fiscal 1995 to $23,225 in fiscal 1996, (ii) an
     increase in food and beverage sales of $736, or 4%, from $17,248 in fiscal
     1995 to $17,984 in fiscal 1996 and (iii) an increase in golf fees and dues
     of $523, or 2%, from $21,719 in fiscal 1995 to $22,242 in fiscal 1996. The
     increase in room revenues was attributable to an increase in occupancy. The
     increases in food and beverage sales and golf fees and dues were primarily
     attributable to the increases in occupancy rate.

     DORAL.  Revenues at Doral increased by $12,044, or 27%, from $45,299 in
     fiscal 1995 to $57,343 in fiscal 1996. This increase was primarily
     attributable to (i) the completion of the room renovation program in
     October 1995, which resulted in lower occupancy rates throughout fiscal
     1995, and (ii) the completion of the rebuilding of the Gold Course in
     January 1996, which resulted in lower golf revenues from May 1995 to
     January 1996. During fiscal 1996, (i) room revenues increased by $5,753, or
     35%, from $16,364 in fiscal 1995 to $22,117 in fiscal 1996, (ii) food and
     beverage sales increased by $4,072, or 31%, from $12,977 in fiscal 1995 to
     $17,049 in fiscal 1996, (iii) golf fees and dues increased by $192, or 3%,
     from $6,892 in fiscal 1995 to $7,084 in fiscal 1996 and (iv) spa revenues
     increased by $351, or 13% from $2,761 in fiscal 1995 to $3,112 in fiscal
     1996. The increase in room revenues was primarily attributable to an
     increase in occupancy. The increases in golf fees and dues and food and
     beverage sales were primarily attributable to the increase in occupancy
     rate and, in the case of golf fees and dues, the completion of the
     rebuilding of the Gold Course as discussed above, offset in part by lower
     revenues as a result of the restoration of the "Blue Monster" from April
     1996 to December 1996.

     FAIRWAYS.   Revenues at Fairways increased by $5,632, or 14%, from $39,134
     in fiscal 1995 to $44,766 in fiscal 1996. This increase was primarily
     attributable to (i) an increase in golf fees and dues of $5,229, or 21%,
     from $24,365 in fiscal 1995 to $29,594 in fiscal 1996 and (ii) an increase
     in food and beverage sales of $633, or 7%, from $8,672 in fiscal 1995 to
     $9,305 in fiscal 1996. The increases in golf fees and dues and food and
     beverage sales were primarily attributable to the acquisition of four golf
     facilities in fiscal 1996.

     LAKE LANIER ISLANDS.  Revenues at Lake Lanier Islands were $881 for fiscal
     1996, consisting of management fees from May 15, 1996 to October 31, 1996.

     OPERATING EXPENSES.  Operating expenses increased by $12,594, or 8%, from
$154,463 in fiscal 1995 to $167,057 in fiscal 1996. Operating expenses,
excluding depreciation and amortization, increased by $9,135, or 7%, from
$134,123 in fiscal 1995 to $143,258 in fiscal 1996, primarily as a result of
increased activity resulting from higher occupancy rates at the Company's
resorts and the acquisition of four golf facilities at Fairways in fiscal 1996.
The primary components of the increase were (i) an increase in payroll and
benefits of $2,042, or 3%, from $60,997 in fiscal 1995 to $63,039 in fiscal
1996, reflecting increases in staff and changes in incentive programs and
(ii) an increase in other expenses of $4,644, or 6%, from $72,376 in fiscal 1995
to $77,020 in fiscal 1996, (iii) an increase in corporate fees of $2,449 or 326%
from $750 in fiscal 1995 to $3,199 in fiscal 1996. As a percentage of revenues,
operating expenses, excluding depreciation and amortization, declined from 84%
of revenues in fiscal 1995 to 79% of revenues in fiscal 1996. Depreciation and
amortization increased by $3,459, or 17%, from $20,340 in fiscal 1995 to $23,799
in fiscal 1996. This increase was primarily attributable to the completion of
capital improvements at Desert Resorts and Doral in fiscal 1996.

     OPERATING INCOME.  Operating income increased by $10,389, or 216 %, from
$4,803 in fiscal 1995 to $15,192 in fiscal 1996 as a result of the factors
discussed above.


                                          13
<PAGE>

     NET INTEREST EXPENSE.  Net interest expense increased by $9,219, or 50%,
from $18,492 in fiscal 1995 to $27,711 in fiscal 1996. This increase was
primarily attributable to (i) the refinancing of indebtedness at Desert Resorts
at higher rates than the original financing and (ii) additional indebtedness
incurred at Fairways to fund the acquisition of three golf facilities in fiscal
1995 and four golf facilities in fiscal 1996, partially offset by higher
interest income due to higher cash balances and interest received on a note
receivable from an affiliate.

     LOSS ON SALE OF GOLF FACILITY AND EXTRAORDINARY ITEMS.  The Company
incurred an extraordinary gain, net of income taxes, on the early extinguishment
of indebtedness of $32,120, in fiscal 1996. In fiscal 1995, the Company incurred
a loss of $2,684 in connection with the sale of a golf facility at Fairways.

     NET INCOME.  Net income increased by $35,913 from a net loss of $16,172 in
fiscal 1995 to net income of $19,741 in fiscal 1996 as a result of the factors
described above. Excluding the effect of the loss on sale of golf facility and
extraordinary items, net loss would have decreased by $1,109, or 8%, from
$13,488 in fiscal 1995 to $12,379 in fiscal 1996.

     ADJUSTED EBITDA.  Adjusted EBITDA increased by $17,850, or 68%, from
$26,463 in fiscal 1995 to $44,313 in fiscal 1996. This increase was primarily
attributable to the factors described above and an increase in Adjusted Net
Membership Deposits of $4,157 from $234 in fiscal 1995 to $4,391 in fiscal 1996.

LIQUIDITY AND CAPITAL RESOURCES

     Historically, the Company has funded its capital and operating requirements
with a combination of operating cash flow, borrowings under the credit
facilities of its operating subsidiaries and equity investments from
partnerships formed at the direction of Kohlberg Kravis Roberts & Co., L.P.
(KKR). The Company has utilized these sources of funds to make acquisitions, to
fund significant capital expenditures at its properties, to fund operations and
to service debt under the credit facilities of its operating subsidiaries. The
Company presently expects to fund its future capital and operating requirements
at its existing operations through a combination of borrowings under the credit
facility and cash generated from operations.

     During fiscal 1997, cash flow provided by operating activities was
$100,104, compared to $15,218 for fiscal 1996. This increase was primarily due
to (i) the settlement of receivables due from Parent and its affiliates of
$46,446, (ii) the release of restricted cash to operating cash of $9,499 due to
the credit facility, (iii) the release of $2,411 in restricted cash due to the
execution of the Lake Lanier Islands sublease, (iv) an increase in accrued
interest payable of $7,435, and (v) a decrease in trade receivables of $4,027.
The positive impact on cash from the settlement of these receivables was offset
by the cash used in financing activities to provide a dividend and a net return
of capital to Parent of $51,655. During fiscal 1997, cash flow used in investing
activities was $87,276, compared to $12,755 for fiscal 1996. This change was
primarily attributable to the investment in Lake Lanier Islands, Grand Traverse
and the Silver Course for Doral of $58,575; the repayment to the Company of a
$23,065 note by an affiliate in fiscal 1996, as compared to the issuance of a
new $21,653 note by the Company to an affiliate in fiscal 1997, and was offset
by a decline in capital expenditures of $8,945, and a decline in acquisition of
golf course facilities of $15,274 in fiscal 1997 compared to fiscal 1996.

     During fiscal 1996, cash flow provided by operating activities was $15,218,
compared to cash flow used in operating activities of $6,860 for fiscal 1995.
This change was primarily attributable to (i) the reduction of a receivable owed
by Parent in 1996, (ii) the increase in revenues during fiscal 1996 and
(iii) improved management of working capital, offset in part by advances by the
Company to KSL Land. During fiscal 1996, cash flow used in investing activities
was $12,755, compared to $48,661 for fiscal 1995. This decrease was primarily
attributable to a reduction in capital expenditures of $28,392 in fiscal 1996
compared to fiscal 1995 and the repayment to the Company of a $23,065 note by an
affiliate in fiscal 1996, offset by an increase of $5,112 in fiscal 1996 of
funds used to acquire golf courses.

     From the beginning of fiscal 1994 to the end of fiscal 1996, the Company
spent approximately $33,500 at Desert Resorts to, among other things: (i) build
a new 24,000 square foot addition to the conference facilities at La Quinta;
(ii) construct a new championship golf course designed by Tom Weiskopf at PGA
WEST and renovate the Mountain Course at La Quinta; and (iii) build a new 28,000
square foot members' clubhouse at the Citrus Course at La Quinta. These
expenditures were funded primarily through operating cash flow.

     From the beginning of fiscal 1994 to the end of fiscal 1996, the Company 
spent approximately $33,000 at Doral to, among other things: (i) renovate all 
646 guest rooms and refurbish all 48 spa guest suites at the resort; (ii) 
renovate the 75,000 square feet of conference facilities and most of the 
public reception areas; and (iii) restore the famed "Blue Monster" Golf 
Course and rebuild the Gold Course under the direction of noted professional 
golfer and golf course designer Raymond Floyd. These expenditures were funded 
primarily through additional capital contributions from Parent.

                                          14
<PAGE>

     In connection with the Lake Lanier Islands sublease, the Parent contributed
$9,000 in cash to the Company to fund the purchase of certain equipment and
other assets used in the operation of the Lake Lanier Islands facilities that
were not leased pursuant to the sublease. In addition, the terms of the sublease
will require the Company to spend $5,000 for capital improvements at Lake Lanier
Islands over the first five years of the sublease.

     In April 1997, the Company sold $125,000 of senior subordinated redeemable
notes (the Notes) and entered into a new credit facility providing for term
loans of up to $100,000 and a revolving credit line of up to $175,000. The Notes
are redeemable beginning May 2002 at the Company's option at various rates
ranging from 105.125% at May 2002, decreasing to 100% at May 2005 and
thereafter. The Company is required to offer to buy the Notes at 101% upon a
change of control, as defined in the Notes agreement. Maximum borrowing under
the revolving credit line decrease from a maximum of $175,000 to $163,750 in
May 2000, $152,500 in May 2001, $137,500 in May 2002 and $118,750 in May 2003.

     The proceeds from the Notes, together with $100,000 of term loans under the
new credit facility and a $75,000 drawing under the revolving credit portion of
the new credit facility (collectively, the Refinancings) were used on April 30,
1997, (i) to repay approximately $265,000 of outstanding indebtedness of the
Company, (ii) to make a loan of approximately $20,800 to KSL Land, which was
used to repay indebtedness of KSL Land with respect to which a subsidiary of the
Company was a co-obligor, (iii) to pay prepayment penalties and fees and
expenses incurred in connection with the Refinancings and (iv) for general
corporate purposes. The stock of certain subsidiaries has been pledged to
collateralize the new credit facility. Prior to the Refinancings, long-term debt
was collateralized by substantially all of the assets of the Company.

     The Company is continually engaged in evaluating potential acquisition
candidates to add to its portfolio of properties at both its resort and
community golf businesses. In December, 1997, the Company entered into an
agreement to purchase the assets of Silver Spring Country Club, a 36-hole golf
facility in Menomonee Falls, Wisconsin for approximately $9,000. This
acquisition will be financed under the revolving credit portion of the Company's
credit facility. The Company expects that funding for future acquisitions may
come from a variety of sources, depending on the size and nature of any such
acquisitions. Potential sources of capital include cash generated from
operations, borrowings under the credit facility, additional equity investments
from Parent or partnerships formed at the direction of KKR or other external
debt or equity financings. There can be no assurance that such additional
capital sources will be available to the Company on terms which the Company
finds acceptable, or be available at all.

     The Company believes that its liquidity, capital resources and cash flows
from existing operations will be sufficient to fund capital expenditures,
working capital requirements and interest and principal payments on its
indebtedness for the foreseeable future. However, a variety of factors could
impact the Company's ability to fund capital expenditures, working capital
requirements and interest and principal payments, including a prolonged or
severe economic recession in the United States, departures from currently
expected demographic trends (for example, if the total number of golf rounds
played and golf spending are not as great as currently anticipated) or the
Company's inability to achieve operating improvements at existing and acquired
operations at currently expected levels. Moreover, the Company currently expects
that it will acquire additional resorts, golf facilities or other recreational
facilities, and in connection therewith, expects to incur additional
indebtedness. In the event that the Company incurs such additional indebtedness,
its ability to make principal and interest payments on its indebtedness,
including the Notes, may be adversely impacted.

SEASONALITY AND INFLATION

     The operations of the Company are seasonal. Primarily due to the popularity
of Desert Resorts and Doral during the winter and early spring months, a
significant percentage of the Company's revenues and operating income are
recognized in the first two quarters of the fiscal year. Lake Lanier Islands,
Grand Traverse and Fairways offset a portion of the seasonality associated with
Desert Resorts and Doral because they generate a significant percentage of their
revenue and operating income during the summer months which are recognized in
the last two quarters of the fiscal year.

     The Company believes that inflation does not materially impact its business
operations.


                                          15
<PAGE>

ACCOUNTING PRONOUNCEMENTS

     In fiscal 1996, the Company adopted the provisions of SFAS No. 121, 
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to 
be Disposed Of." The effects of adopting SFAS No. 121 were not material in 
relation to the Company's consolidated financial statements.

     In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings per Share" which changes the previous standards for computing
earnings per share and requires the disclosure of basic and diluted earnings per
share. For the year ended October 31, 1997, the amount reported as net income
per common share was not materially different than that which would have been
reported for basic and diluted earnings per share in accordance with SFAS 128.
This statement will be adopted by the Company beginning November 1, 1997.

     During 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," which established standards for the reporting
and displaying of comprehensive income. Comprehensive income is defined as all
changes in a Company's net assets except changes resulting from transactions
with shareholders. It differs from net income in that certain items currently
recorded to equity would be a part of comprehensive income. Comprehensive income
must be reported in a financial statement with the cumulative total presented as
a component of equity. This statement will be adopted by the Company beginning
November 1, 1998.

     During 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
will be effective for the Company beginning November 1, 1998. SFAS No. 131
redefines how operating segments are determined and requires disclosure of
certain financial and descriptive information about a company's operating
segments. The Company believes the segment information required to be disclosed
under SFAS No. 131 will be more comprehensive than previously provided,
including expanded disclosure of income statement and balance sheet items. The
Company has not yet completed its analysis of the operating segments on which it
will report.

OTHER MATTERS

     The Company relies heavily on computer technology to effectively carry out
its day-to-day operations. As the millennium approaches, the Company is
assessing all of its computer systems to ensure that they are "Year
2000"-compliant. In this process, the Company expects to both replace some
systems and upgrade others which are not Year 2000-compliant. The Company
expects its Year 2000 project to be completed on a timely basis. However, there
can be no assurance that the systems of other companies on which the Company may
rely also will be timely converted or that such failure to convert by another
company would not have an adverse effect on the Company's systems. The Company
presently believes, with modification to existing software and converting to new
software, the Year 2000 problem will not pose significant operational problems
and is not anticipated to be material to its financial position or results of
operations in any given year. The Company's stated expectations regarding its
Year 2000 project constitute forward-looking statements. Actual results could
differ materially from the Company's expectations due to unanticipated
technological difficulties or project delays. Reference is made to the
introductory paragraph of this annual report.






                                          16
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



                             INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholder of
KSL Recreation Group, Inc.

     We have audited the accompanying consolidated balance sheets of KSL
Recreation Group, Inc. and subsidiaries (the Company) as of October 31, 1997 and
1996, and the related consolidated statements of operations, stockholder's
equity and cash flows for each of the three years in the period ended
October 31, 1997. Our audits also included the financial statement schedule
listed in the index at Item 14. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.

     We conducted our audits 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 KSL
Recreation Group, Inc. and subsidiaries as of October 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended October 31, 1997 in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement schedule,
when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.

Deloitte & Touche LLP

Costa Mesa, California
January 23, 1998









                                          17
<PAGE>

                     KSL RECREATION GROUP, INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
(In thousands, except share and per share data)
                                                           1997           1996           1995
                                                           ----           ----           ----
<S>                                                     <C>            <C>            <C>
REVENUES:
Rooms revenue . . . . . . . . . . . . . . . . . .       $  59,393      $  45,548      $  37,678
Food and beverage sales . . . . . . . . . . . . .          54,598         44,338         38,897
Golf fees . . . . . . . . . . . . . . . . . . . .          42,641         35,371         32,646
Dues and fees . . . . . . . . . . . . . . . . . .          24,826         23,549         20,330
Other . . . . . . . . . . . . . . . . . . . . . .          44,612         33,443         29,715
                                                        ---------      ---------      ---------
   Total revenues . . . . . . . . . . . . . . . .         226,070        182,249        159,266
EXPENSES:
Payroll and benefits. . . . . . . . . . . . . . .          71,935         63,039         60,997
Other expenses. . . . . . . . . . . . . . . . . .          88,526         77,020         72,376
Depreciation and amortization . . . . . . . . . .          27,665         23,799         20,340
Corporate fee (Note 12) . . . . . . . . . . . . .           5,106          3,199            750
                                                        ---------      ---------      ---------
   Total operating expenses . . . . . . . . . . .         193,232        167,057        154,463
                                                        ---------      ---------      ---------
INCOME FROM OPERATIONS. . . . . . . . . . . . . .          32,838         15,192          4,803

OTHER INCOME (EXPENSE):
Interest income (Notes 3 and 12). . . . . . . . .           1,672          1,058          5,462
Interest expense. . . . . . . . . . . . . . . . .        (31,709)       (28,769)       (23,954)
Loss on sale of golf course (Note 14) . . . . . .               -              -        (2,684)
                                                        ---------      ---------      ---------
   Other expense, net . . . . . . . . . . . . . .        (30,037)       (27,711)       (21,176)
INCOME (LOSS) BEFORE MINORITY INTERESTS, INCOME
  TAXES AND EXTRAORDINARY ITEM. . . . . . . . . .           2,801       (12,519)       (16,373)
MINORITY INTERESTS IN LOSSES OF SUBSIDIARY. . . .             143             58            201
                                                        ---------      ---------      ---------

INCOME (LOSS) BEFORE INCOME TAXES AND
  EXTRAORDINARY ITEM. . . . . . . . . . . . . . .           2,944       (12,461)       (16,172)

INCOME TAX EXPENSE (BENEFIT) (Note 9) . . . . . .             143           (82)              -
                                                        ---------      ---------      ---------

INCOME (LOSS) BEFORE EXTRAORDINARY ITEM . . . . .           2,801       (12,379)       (16,172)

EXTRAORDINARY GAIN (LOSS) ON EARLY
  EXTINGUISHMENT OF DEBT (net of income tax expense
  (benefit) of ($2,007) and $16,757, respectively)
  (Note 13) . . . . . . . . . . . . . . . . . . .         (3,164)         32,120              -
                                                        ---------      ---------      ---------

NET INCOME (LOSS) . . . . . . . . . . . . . . . .       $   (363)      $  19,741      $(16,172)
                                                        ---------      ---------      ---------
                                                        ---------      ---------      ---------

EARNINGS (LOSS) PER SHARE:
Before extraordinary item . . . . . . . . . . . .       $   2,801      $(12,379)      $(16,172)
Extraordinary gain (loss) . . . . . . . . . . . .         (3,164)         32,120              -
                                                        ---------      ---------      ---------

TOTAL EARNINGS (LOSS) PER SHARE . . . . . . . . .       $   (363)      $  19,741      $(16,172)
                                                        ---------      ---------      ---------
                                                        ---------      ---------      ---------

WEIGHTED AVERAGE NUMBER OF COMMON SHARES. . . . .           1,000          1,000          1,000
                                                        ---------      ---------      ---------
                                                        ---------      ---------      ---------

</TABLE>
 
             See accompanying notes to consolidated financial statements.


                                          18
<PAGE>

                     KSL RECREATION GROUP, INC. AND SUBSIDIARIES

             CONSOLIDATED BALANCE SHEETS AS OF OCTOBER 31, 1997 AND 1996

(In thousands except share data)

 <TABLE>
<CAPTION>
ASSETS                                                                                        1997           1996
                                                                                              ----           ----
<S>                                                                                       <C>            <C>
CURRENT ASSETS:
  Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . .          $   24,056     $    9,329
  Restricted cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               1,790          6,038
  Trade receivables, net of allowance for doubtful
    receivables of $722 and $1,573 respectively. . . . . . . . . . . . . . . . .              14,185         11,046
  Inventories (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               7,383          7,266
  Current portion of notes receivable (Note 3) . . . . . . . . . . . . . . . . .               1,946          1,658
  Prepaid expenses and other current assets. . . . . . . . . . . . . . . . . . .               3,865          3,883
                                                                                          ----------     ----------
    Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .              53,225         39,220

PROPERTY AND EQUIPMENT, net (Notes 5, 7 and 8) . . . . . . . . . . . . . . . . .             431,436        362,867
NOTES RECEIVABLE FROM AFFILIATES (Note 12) . . . . . . . . . . . . . . . . . . .              21,653              -
NOTES RECEIVABLE, less current portion (Notes 3, 12 and 14). . . . . . . . . . .               5,177          4,015
RESTRICTED CASH, less current portion. . . . . . . . . . . . . . . . . . . . . .                 101          7,763
RECEIVABLE FROM PARENT (Notes 1 and 12). . . . . . . . . . . . . . . . . . . . .                   -         43,585
RECEIVABLES FROM AFFILIATES (Note 12). . . . . . . . . . . . . . . . . . . . . .                   -          3,694
EXCESS OF COST OVER NET ASSETS OF ACQUIRED ENTITIES, net of
   accumulated amortization of $13,756 and $10,007, respectively . . . . . . . .              90,343         87,274
OTHER ASSETS, net (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . .              34,106         30,434
                                                                                          ----------     ----------
                                                                                          $  636,041     $  578,852
                                                                                          ----------     ----------
                                                                                          ----------     ----------

LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
  Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          $    6,948     $    7,322
  Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              16,899         16,831
  Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . .              10,149          2,714
  Current portion of long-term debt (Note 7) . . . . . . . . . . . . . . . . . .               1,000          4,636
  Current portion of obligations under capital leases (Note 8) . . . . . . . . .               3,044          2,407
  Payable to affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . .                  29            719
  Deferred income, customer deposits and other . . . . . . . . . . . . . . . . .               6,429          5,404
                                                                                          ----------     ----------
    Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . .              44,498         40,033

LONG-TERM DEBT, less current portion (Note 7). . . . . . . . . . . . . . . . . .             326,500        260,416
OBLIGATIONS UNDER CAPITAL LEASES, less current portion (Note 8). . . . . . . . .              35,476          3,977
OTHER LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               1,168            885
MEMBER DEPOSITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              44,759         34,026
DEFERRED INCOME TAXES (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . .              15,202         16,760
MINORITY INTERESTS IN EQUITY OF SUBSIDIARY (Note 2). . . . . . . . . . . . . . .                 247            391

COMMITMENTS AND CONTINGENCIES (Note 11)

STOCKHOLDER'S EQUITY (Notes 6 and 10):
  Common stock, $.01 par value, 1,000 shares authorized and outstanding. . . . .                   -              -
  Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . .             197,535        227,424
  Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            (29,344)        (5,060)
                                                                                          ----------     ----------
  Total stockholder's equity . . . . . . . . . . . . . . . . . . . . . . . . . .             168,191        222,364
                                                                                          ----------     ----------
                                                                                          $  636,041     $  578,852
                                                                                          ----------     ----------
                                                                                          ----------     ----------
</TABLE>
 



             See accompanying notes to consolidated financial statements.


                                          19
<PAGE>

                     KSL RECREATION GROUP, INC. AND SUBSIDIARIES

                   CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
                 FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995



(In thousands)

 <TABLE>
<CAPTION>
                                                                                
                                                                  ADDITIONAL    
                                                     COMMON        PAID-IN      ACCUMULATED             
                                                      STOCK        CAPITAL        DEFICIT         TOTAL
                                                      -----        -------        -------         -----
<S>                                               <C>            <C>            <C>            <C>
BALANCE November 1, 1994 . . . . . . . . . .      $        -     $  196,594     $  (8,629)     $  187,965
Capital contributions (Note 10). . . . . . .               -         25,795              -         25,795
Net loss . . . . . . . . . . . . . . . . . .               -              -       (16,172)       (16,172)
                                                  ----------     ----------     ----------     ----------

BALANCE October 31, 1995 . . . . . . . . . .               -        222,389       (24,801)        197,588
Capital contributions (Note 10). . . . . . .               -          5,035              -          5,035
Net income . . . . . . . . . . . . . . . . .               -              -         19,741         19,741
                                                  ----------     ----------     ----------     ----------

BALANCE October 31, 1996 . . . . . . . . . .               -        227,424        (5,060)        222,364
Capital contributions (Note 10). . . . . . .               -          9,144              -          9,144
Dividends (Note 10). . . . . . . . . . . . .               -              -       (23,921)       (23,921)
Capital distributions (Note 10). . . . . . .               -       (39,033)              -       (39,033)
Net loss . . . . . . . . . . . . . . . . . .               -              -          (363)          (363)
                                                  ----------     ----------     ----------     ----------

BALANCE, October 31, 1997. . . . . . . . . .      $        -     $  197,535     $ (29,344)     $  168,191
                                                  ----------     ----------     ----------     ----------
                                                  ----------     ----------     ----------     ----------
</TABLE>
 
             See accompanying notes to consolidated financial statements.




                                          20
<PAGE>

                     KSL RECREATION GROUP, INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995

(In thousands)

 <TABLE>
<CAPTION>
                                                                               1997          1996          1995
                                                                               ----          ----          ----
<S>                                                                         <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . .      $   (363)     $   19,741    $  (16,172)
Adjustments to reconcile net income (loss) to net cash provided
  by (used in) operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . .         27,665         23,799         20,340
Amortization of debt issuance costs. . . . . . . . . . . . . . . . . .          1,720          2,112            777
Extraordinary loss (gain) on debt extinguishment . . . . . . . . . . .          5,171       (48,256)              -
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . .        (1,558)         16,760              -
Provision for losses on trade receivables. . . . . . . . . . . . . . .          (933)          1,004            (3)
Provision for losses on notes receivable . . . . . . . . . . . . . . .              -            228              -
Minority interests in losses of subsidiary . . . . . . . . . . . . . .          (143)           (58)          (201)
(Gain) loss on sales of property, net. . . . . . . . . . . . . . . . .          (141)             88          2,516
Changes in operating assets and liabilities, net of effects from
  investment in subsidiaries:
  Restricted cash. . . . . . . . . . . . . . . . . . . . . . . . . . .         11,910        (9,464)              6
  Trade receivables. . . . . . . . . . . . . . . . . . . . . . . . . .          4,027        (2,408)        (1,615)
  Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . .            386          (518)          (729)
  Prepaid expenses and other current assets. . . . . . . . . . . . . .          1,579          1,537          (464)
  Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . .            347          (292)              5
  Receivable from Parent . . . . . . . . . . . . . . . . . . . . . . .         43,442         10,069       (16,522)
  Receivables from affiliates. . . . . . . . . . . . . . . . . . . . .          3,004        (2,975)          1,669
  Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .          (308)          (596)        (1,318)
  Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . .          (532)        (2,894)            491
  Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . .        (2,433)          6,356          2,822
  Accrued interest payable . . . . . . . . . . . . . . . . . . . . . .          7,435          1,438            208
  Deferred income, customer deposits and other . . . . . . . . . . . .          (453)          (781)          1,034
  Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . .            282            328            296
                                                                           ----------     ----------     ----------
    Net cash provided by (used in) operating activities. . . . . . . .        100,104         15,218        (6,860)

CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in subsidiaries, net of cash acquired . . . . . . . . . . .       (58,575)           (50)           (65)
Purchases of property and equipment. . . . . . . . . . . . . . . . . .       (12,135)       (21,080)       (49,472)
Notes receivable from affiliate, net . . . . . . . . . . . . . . . . .       (21,653)         23,065             77
Acquisition of golf course facilities. . . . . . . . . . . . . . . . .              -       (15,274)       (10,162)
Proceeds from sales of property and equipment. . . . . . . . . . . . .            277            583          2,402
Collections on member notes receivable . . . . . . . . . . . . . . . .          3,704          1,908          8,594
Investment in partnerships . . . . . . . . . . . . . . . . . . . . . .          (515)        (1,907)          (571)
Proceeds from sale of investment in partnership. . . . . . . . . . . .          1,621              -              -
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              -              -            536
                                                                           ----------     ----------     ----------
    Net cash used in investing activities. . . . . . . . . . . . . . .       (87,276)       (12,755)       (48,661)
</TABLE>
 

             See accompanying notes to consolidated financial statements.


                                          21
<PAGE>

                     KSL RECREATION GROUP, INC. AND SUBSIDIARIES

                         CONSOLIDATED STATEMENTS OF CASH FLOWS
           FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995 (CONTINUED)


(In thousands)

 <TABLE>
<CAPTION>
                                                                         1997           1996            1995
                                                                         ----           ----            ----
<S>                                                                  <C>            <C>             <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt issuance. . . . . . . . . . . . . . . . .         $   327,862    $   147,395     $    8,665
Principal payments on long-term debt and obligations under
  capital leases . . . . . . . . . . . . . . . . . . . . . .           (268,081)      (154,945)       (12,255)
Member deposits, net . . . . . . . . . . . . . . . . . . . .               4,608          2,483          4,365
Capital contributions from Parent. . . . . . . . . . . . . .               9,144          5,035         25,795
Capital distributions and dividends to Parent. . . . . . . .            (60,799)              -              -
Debt financing costs . . . . . . . . . . . . . . . . . . . .            (10,835)        (3,214)          (333)
                                                                     -----------    -----------     ----------

Net cash provided by (used in) financing activities. . . . .               1,899        (3,246)         26,237
                                                                     -----------    -----------     ----------

NET INCREASE (DECREASE) IN CASH AND CASH
  EQUIVALENTS. . . . . . . . . . . . . . . . . . . . . . . .              14,727          (783)       (29,284)

CASH AND CASH EQUIVALENTS, beginning of period . . . . . . .               9,329         10,112         39,396
                                                                     -----------    -----------     ----------

CASH AND CASH EQUIVALENTS, end of period . . . . . . . . . .         $    24,056    $     9,329     $   10,112
                                                                     -----------    -----------     ----------
                                                                     -----------    -----------     ----------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION:
  Interest paid (net of amounts capitalized) . . . . . . . .         $    22,555    $    25,774     $   23,449
                                                                     -----------    -----------     ----------
                                                                     -----------    -----------     ----------

  Income taxes paid. . . . . . . . . . . . . . . . . . . . .         $       424    $         9     $        -
                                                                     -----------    -----------     ----------
                                                                     -----------    -----------     ----------

NONCASH INVESTING AND FINANCING ACTIVITIES:
Obligations under capital leases . . . . . . . . . . . . . .         $    35,154       $  4,615     $    3,857
Notes receivable issued for member deposits. . . . . . . . .               5,210          1,892          1,449
Note receivable issued from sale of assets . . . . . . . . .                 412            494          1,933
Dividend to Parent of investments in partnerships. . . . . .               2,155              -              -
Trade-in of equipment under capital lease. . . . . . . . . .                   -            397              -
Development of golf course from undeveloped land . . . . . .                   -          2,720              -
Issuance of long-term debt for acquisition of land . . . . .                   -          1,711              -
</TABLE>
 

             See accompanying notes to consolidated financial statements.


                                          22
<PAGE>

                     KSL RECREATION GROUP, INC. AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
                                (DOLLARS IN THOUSANDS)

1. GENERAL

     KSL Recreation Group, Inc. (Group), is a wholly-owned subsidiary of KSL
Recreation Corporation (the Parent). Group and its subsidiaries (collectively,
the Company) are engaged in the ownership and management of golf courses,
private clubs, resorts and activities related thereto. At the completion of
certain financing transactions (as described in Note 7) on April 30, 1997, KSL
Desert Resorts, Inc. (previously KSL Landmark Corporation), KSL Florida
Holdings, Inc., KSL Georgia Holdings, Inc. and KSL Golf Holdings, Inc. became
wholly-owned subsidiaries of Group in a transaction accounted for in a manner
similar to a pooling of interests.  Prior to April 30, 1997, these subsidiaries
were wholly-owned by the Parent.

     On October 31, 1997, certain wholly-owned subsidiaries of the Parent, KSL
Travel, Inc. (KTI), KSL Vacation Resorts, Inc. (VRI) and Wild West Desert
Properties, Inc. (Wild West), became wholly-owned subsidiaries of Group in a
transaction accounted for in a manner similar to a pooling of interests. The
accompanying consolidated financial statements have been restated to reflect
this transaction. The effects on income (loss) before extraordinary items, net
income (loss) and related per share amounts were not material.

     As of October 31, 1997, the Company has five principal investments:
(1) through KSL Golf Holdings, Inc. (Fairways), a Delaware corporation, the
Company, through an intermediate subsidiary owns an 88.1% majority partnership
interest in The Fairways Group, L.P. (TFG, L.P.) a Delaware limited partnership;
(2) a 100% interest in KSL Florida Holdings, Inc. (Doral), a Delaware
corporation; (3) a 100% interest in KSL Desert Resorts, Inc. (Desert Resorts), a
Delaware corporation, who owns 100% of KTI, VRI and Wild West, (4) a 100%
interest in KSL Georgia Holdings, Inc. (Lake Lanier), a Delaware corporation;
and (5) a 100% interest in KSL Grand Traverse Holdings, Inc. (Grand Traverse), a
Delaware Corporation. TFG L.P. and an affiliate own and operate 22 golf
facilities principally in the mid-Atlantic, southeast and midwestern United
States. Fairways, through a subsidiary, is the managing general partner in TFG
L.P. Doral owns and operates the Doral Golf Resort and Spa in Miami, Florida.
Desert Resorts owns and operates the PGA WEST golf courses, the La Quinta Resort
& Club and related activities in La Quinta, California. Lake Lanier leases and
manages a resort recreation area of approximately 1,041 acres known as Lake
Lanier Islands, outside of Atlanta, Georgia. Grand Traverse owns and operates
the Grand Traverse Resort and related activities outside of Traverse City,
Michigan.

     On May 15, 1996, the Company, through a subsidiary, entered into a
management agreement with Lake Lanier Islands Development Authority (LLIDA), a
State of Georgia agency, to manage the facilities at Lake Lanier Islands (a
golf, hotel and recreation complex) which LLIDA leases from the United States
Army Corps of Engineers (the Corps). LLIDA's intent was to privatize the
management and operation of Lake Lanier Islands through a sublease arrangement.
Due to the need for third party consents and approvals, LLIDA and the Company
entered into the management agreement as an interim step to the sublease. At the
closing of the sublease, which occurred in August 1997, the management agreement
provided that LLIDA and the Company would be placed in the same economic
position as if the sublease transaction had closed on May 15, 1996. Accordingly,
the Company was credited with the net earnings (as defined) of the operations
from May 15, 1996 to the closing date less amounts earned by the Company
pursuant to the management agreement. Such net amount paid by the Company was
recognized as an adjustment to the recorded values of the assets leased pursuant
to the sublease. The sublease is accounted for as a capital lease. Accordingly,
in August, 1997, the Company recorded the net assets acquired pursuant to the
sublease and recognized the net present value of the related minimum lease
payments.


                                          23
<PAGE>

                     KSL RECREATION GROUP, INC. AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
                                (DOLLARS IN THOUSANDS)


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     BASIS OF CONSOLIDATION-The consolidated financial statements include the
accounts of Group and its wholly-owned subsidiaries. Investments in 50%-or-less
owned affiliates in which Company management has significant influence are
accounted for using the equity method of accounting. Under the equity method of
accounting, the investment, is carried at cost, adjusted each year for the
appropriate share of investee income or loss and any cash contributions or
distributions. All significant intercompany transactions and balances have been
eliminated in the accompanying consolidated financial statements.

     CASH EQUIVALENTS-The Company considers all highly-liquid investments with
original maturities of three months or less to be cash equivalents.

     RESTRICTED CASH-Certain cash balances are restricted primarily to uses for
debt service, capital expenditures, real estate taxes, insurance payments and
letters of credit required for construction in progress.

     INVENTORIES-Inventories are stated primarily at the lower of cost,
determined on the first-in, first-out method, or market. Base stock consisting
of china, silver, glassware and linens is recorded using the base stock
inventory method.

     PROPERTY AND EQUIPMENT-Property and equipment is recorded at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets. Generally, the estimated useful lives are 15
to 40 years for buildings and improvements and 3 to 10 years for furniture,
fixtures and equipment. Improvements are capitalized while maintenance and
repairs are charged to expense as incurred. Assets under capital leases are
amortized using the straight-line method over the shorter of the lease term or
estimated useful lives of the assets. Depreciation of assets under capital
leases is included in depreciation and amortization expense in the accompanying
consolidated statements of operations.

     LONG-LIVED ASSETS-Management reviews real estate and other long-lived
assets, including certain identifiable intangibles and goodwill, for possible
impairment whenever events or circumstances indicate the carrying amount of an
asset may not be recoverable. If there is an indication of impairment,
management prepares an estimate of future cash flows (undiscounted and without
interest charges) expected to result from the use of the asset and its eventual
disposition. If these cash flows are less than the carrying amount of the asset,
an impairment loss is recognized to write down the asset to its estimated fair
value. The fair value is estimated at the present value of future cash flows
discounted at a rate commensurate with management's estimate of the business
risks. Real estate assets, if any, for which management has committed to a plan
to dispose of the assets, whether by sale or abandonment, are reported at the
lower of carrying amount or fair value less cost to sell. Preparation of
estimated expected future cash flows is inherently subjective and is based on
management's best estimate of assumptions concerning expected future conditions.

     EXCESS OF COST OVER NET ASSETS OF ACQUIRED ENTITIES-The excess of the cost
over the fair value of acquired entities (goodwill) is capitalized and amortized
on a straight-line basis over 15 to 30 years. Amortization expense related to
goodwill was approximately $3,749, $3,616 and $3,462 for fiscal years 1997, 1996
and 1995, respectively. The Company periodically evaluates the recoverability of
goodwill by comparing the carrying value of goodwill to undiscounted estimated
future cash flows from related operations.

     DEBT ISSUE COSTS-Debt issue costs are amortized over the life of the
related debt and the associated amortization expense is included in interest
expense in the accompanying consolidated financial statements.

     MEMBER DEPOSITS-Member deposits represent the required deposits for certain
membership plans which entitle the member to the usage of various golf, tennis,
and social facilities and services. Member deposits are refundable, without
interest, in thirty years or sooner, under certain criteria and circumstances.



                                          24
<PAGE>

                     KSL RECREATION GROUP, INC. AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
                                (DOLLARS IN THOUSANDS)


          MINORITY INTERESTS IN EQUITY OF SUBSIDIARIES-Minority interests in 
equity of subsidiaries represent minority shareholders' proportionate share 
of the equity in certain subsidiaries of the Company, principally TFG L.P. 
The Company owned approximately 88.1% of TFG L.P. at October 31, 1997 and 
1996.

          A minority interest partner (the Partner) in TFG L.P. had a partner 
deficit balance of approximately $3,322 and $3,065 as of October 31, 1997 and 
1996, respectively. The Company has reduced the minority interest allocation 
of TFG L.P.'s net loss by the Partner's share of  $257, $104 and $361 in 
fiscal years 1997, 1996 and 1995, respectively.

          During 1995, pursuant to a stockholders' agreement between Doral 
and the principals of the predecessor company (the Minority Shareholders), 
the Minority Shareholders exercised their option to sell to Doral, and Doral 
purchased all of the Minority Shareholders' interest in Doral of 
approximately $5,465 for $7,303, resulting in an increase to land and 
improvements of approximately $1,426 and an increase to goodwill of 
approximately $412.

          INCOME TAXES-The Company accounts for income taxes under the 
provisions of Statement of Financial Accounting Standards (SFAS) No. 109, 
"Accounting for Income Taxes", which requires an asset and liability approach 
in accounting for income taxes. Under this method, a deferred tax liability 
or asset is recognized for the estimated future tax effects attributable to 
temporary differences in the recognition of accounting transactions for tax 
and reporting purposes and from carryforwards. Measurement of the deferred 
items is based on enacted tax laws. In the event the future consequence of 
differences result in a deferred tax asset, SFAS No. 109 requires an 
evaluation of the probability of being able to realize the future benefits 
indicated by such asset. A valuation allowance related to a deferred tax 
asset is recorded when it is more likely than not that some portion or all of 
the deferred tax asset will not be realized. The Company is included in the 
consolidated federal and combined state income tax returns filed by the 
Parent. Pursuant to the terms of an agreement between the Company and the 
Parent, current and deferred income tax expenses and benefits are provided to 
the members of the tax sharing group including the Company based on their 
allocable share of the consolidated taxable income or loss. To the extent 
that the Federal tax losses of the Company are utilized by the Parent or 
other of the Parent's subsidiaries, the Company is compensated. The combined 
state tax liabilities will be allocated based on each member's apportioned 
share of the combined state tax liabilities. Had the Company's accounting for 
income taxes been performed utilizing the separate return basis, the 
provision (benefit) for income taxes would have been $149, $260 and $(362) 
for the years ended October 31, 1997, 1996 and 1995, respectively.

          REVENUE RECOGNITION-Revenues related to dues and fees are 
recognized as income in the period in which the service is provided. 
Non-refundable membership initiation fees are recognized as revenue when 
billed. Other revenues are recognized at the time of sale or rendering of 
service.

          FAIR VALUE OF FINANCIAL INSTRUMENTS-The carrying amounts of cash 
and cash equivalents, trade receivables, other receivables, accounts payable 
and accrued liabilities approximate their fair values because of the short 
maturity of these financial instruments. Notes receivable approximate fair 
value as the interest rates charged approximate currently available market 
rates. Based on the borrowing rates currently available to the Company for 
debt with similar terms and maturities, the fair value of notes payable and 
obligations under capital leases approximate the carrying value of these 
liabilities.

          Member deposits approximate fair value due to the agreed-upon terms 
of the financial instrument. The fair value estimates presented herein are 
based on pertinent information available as of the balance sheet dates. The 
Company is not aware of any factors that would significantly affect the 
estimated fair value amounts.

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

                                          25
<PAGE>

                     KSL RECREATION GROUP, INC. AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
                                (DOLLARS IN THOUSANDS)


          ACCOUNTING PRONOUNCEMENTS-During 1997, the Financial Accounting 
Standards Board issued SFAS No. 130, "Reporting Comprehensive Income," which 
established standards for the reporting and displaying of comprehensive 
income. Comprehensive income is defined as all changes in a Company's net 
assets except changes resulting from transactions with shareholders. It 
differs from net income in that certain items currently recorded to equity 
would be a part of comprehensive income. Comprehensive income must be 
reported in a financial statement with the cumulative total presented as a 
component of equity. This statement will be adopted by the Company beginning 
November 1, 1998.

          During 1997, the Financial Accounting Standards Board issued SFAS 
No. 131, "Disclosures about Segments of an Enterprise and Related 
Information," which will be effective for the Company beginning November 1, 
1998. SFAS No. 131 redefines how operating segments are determined and 
requires disclosure of certain financial and descriptive information about a 
company's operating segments. The Company believes the segment information 
required to be disclosed under SFAS No. 131 will be more comprehensive than 
previously provided, including expanded disclosure of income statement and 
balance sheet items. The Company has not yet completed its analysis of the 
operating segments on which it will report.

          RECLASSIFICATION-Certain reclassifications have been made to the 
1996 and 1995 consolidated financial statements to conform to the 1997 
presentation.

3. NOTES RECEIVABLE

          Notes receivable of $2,386 and $2,316 as of October 31, 1997 and 
1996, respectively, represent purchase money mortgage notes received in 
connection with the sale of a golf facility (Note 14) and various land 
parcels. Such notes are due at various dates primarily through 2002.

          Notes receivable of $4,061 and $2,681 at October 31, 1997 and 1996, 
respectively, primarily represent notes from members related to member 
deposits and bear interest primarily at 10%. The majority of these notes are 
due within three years.

          As part of the acquisition of Desert Resorts, the Company acquired 
the rights to certain notes receivable. Notes receivable valued at 
approximately $8,316, including discounts of $1,702, as of October 31, 1994, 
were collected in full in January 1995. The discount is included in interest 
income for the year ended October 31, 1995.

          The Company, through TFG L.P., has a note receivable from a general 
partner of $676 as of October 31, 1997 and 1996. The note accrues interest at 
8% and is due upon the earlier of April 2000 or the partner selling his 
partnership interest. No principal or interest payments are due on the note 
until it matures (Note 12).  In July, 1996, this general partner pledged TFG 
L.P. partnership units as security for repayment of this note.

4. INVENTORIES

   Inventories consist of the following:
                                                               OCTOBER 31,
                                                               -----------
                                                           1997           1996
                                                           ----           ----
      Merchandise . . . . . . . . . . . . . . . . . . .  $  3,791      $  4,213
      Food and beverage . . . . . . . . . . . . . . . .     1,629         1,116
      Base stock (china, silver, glassware, linen). . .     1,182           985
      Supplies and other. . . . . . . . . . . . . . . .       781           952
                                                         --------      --------
                                                         $  7,383      $  7,266
                                                         --------      --------
                                                         --------      --------


                                          26
<PAGE>

                     KSL RECREATION GROUP, INC. AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
                                (DOLLARS IN THOUSANDS)


5.  PROPERTY AND EQUIPMENT

    Property and equipment consist of the following:

                                                              OCTOBER 31,
                                                              -----------
                                                          1997           1996
                                                          ----           ----
      Land and land improvements. . . . . . . . . . .  $  242,815   $  219,014
      Buildings . . . . . . . . . . . . . . . . . . .     171,364      134,767
      Furniture, fixtures and equipment . . . . . . .      79,033       52,438
      Construction in progress. . . . . . . . . . . .       5,071        1,570
                                                       ----------   ----------
                                                          498,283      407,789
      Less accumulated depreciation . . . . . . . . .     (66,847)     (44,922)
                                                       ----------   ----------

        Property and equipment, net . . . . . . . . .  $  431,436   $  362,867
                                                       ----------   ----------
                                                       ----------   ----------

6. OTHER ASSETS

   Other assets consist of the following:


                                                              OCTOBER 31,
                                                              -----------
                                                          1997           1996
                                                          ----           ----
      Undeveloped land. . . . . . . . . . . . . . . .  $   16,376   $   16,376
      Debt issue costs, less accumulated amortization
        of $473 and $3,019, respectively. . . . . . .       9,064        5,028
      Lease agreements, less accumulated amortization
        of $324 and $0, respectively. . . . . . . . .       3,555            -
      Other intangibles, less accumulated amortization
        of $609 and $364, respectively. . . . . . . .       2,666        2,881
      Favorable lease, less accumulated amortization
        $1,694 and $1,303, respectively . . . . . . .       2,019        2,410
      Investment in partnerships. . . . . . . . . . .           -        3,260
      Deposits and other assets . . . . . . . . . . .         426          479
                                                       ----------   ----------
                                                       $   34,106   $   30,434
                                                       ----------   ----------
                                                       ----------   ----------


     Other intangibles primarily represent costs related to the costs of 
certain membership programs which are being amortized over 5 to 30 years 
using the straight-line method. The favorable lease asset represents the 
difference between the stated lease terms and the estimated fair value of a 
golf course lease acquired and is amortized over the lease term. Lease 
agreements represent the estimated fair value of lease contracts with third 
parties related to a condominium leasing program associated with the 
acquisition of Grand Traverse and is amortized generally over three years. 
Amortization expense for these other assets, excluding debt issue costs, 
approximated $960, $573 and $598 for 1997, 1996 and 1995, respectively.

     Investment in partnerships represented the Company's general and limited 
partner interests in five limited partnerships whose principal assets were 
undeveloped commercial and residential real estate parcels. On April 30, 1997 
the Company sold one of these land partnership investments at historical cost 
of $1,621 (which approximated fair value) to an affiliate for use in land 
development. The remaining investments in four land partnerships at 
historical cost of $2,155 were provided as a dividend to the Parent (Note 
10). Accordingly, the Company has no investment in these partnerships as of 
October 31, 1997.

                                          27
<PAGE>

                     KSL RECREATION GROUP, INC. AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
                                (DOLLARS IN THOUSANDS)


7. LONG-TERM DEBT

 <TABLE>
<CAPTION>
          Long-term debt consists of the following:
                                                                                                               OCTOBER 31,
                                                                                                               -----------
                                                                                                           1997           1996
                                                                                                           ----           ----
<S>                                                                                                     <C>            <C>
Senior subordinated redeemable notes payable, with interest payable semi-annually at 10.25%,
  principal due at maturity on May 1, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    $   125,000   $        -
Term notes, payable in annual installments of $1,000 with interest payable ranging at Prime
  plus 1.75% to 2.00% or LIBOR plus 2.75% to 3.00% (8.75% to 9% at October 31, 1997),
  $46,500 maturing April 30, 2005 and $46,000 maturing April 30, 2006. . . . . . . . . . . . . . . .        100,000            -
Revolving note, total available of $175,000, with interest payable at Prime plus 1.25% or LIBOR
  plus 2.25% (7.88% to 8.25% at October 31, 1997), principal due at maturity on April 30, 2004 . . .        102,500            -
Note payable of which approximately 60% is interest only at LIBOR plus 3.5%, (8.9% as of
  October 31, 1996) payable monthly and approximately 40% is interest-only at 14.0%, paid in
  April 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                     131,289
Term notes, payable in installments, with interest payable ranging at LIBOR plus 2.7% to 3.2%
  (8.2% to 8.7% at October 31, 1996), guaranteed by the Parent, due December 31, 1999 through
  2001, paid in April 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                      49,000
Revolving note, total available of $15,000, maturing on December 31, 1999 with interest payable at
  LIBOR plus 2.7% (8.1% at October 31, 1996), paid and terminated in April 1997. . . . . . . . . . .                      15,000
Term loans, interest at either a floating rate or the Eurodollar rate (7.8% to 9.8% at October 31,
  1996) as elected by the Company, principal payable in quarterly installments ending April 30,
  2002, paid in April 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                      63,430
Other notes payable, paid in April 1997. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                       6,333
                                                                                                        -----------   ----------
                                                                                                            327,500      265,052
Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        (1,000)      (4,636)
                                                                                                        -----------   ----------
Long-term portion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    $   326,500   $  260,416
                                                                                                        -----------   ----------
                                                                                                        -----------   ----------
</TABLE>
 
     In April 1997, the Company sold $125,000 of senior subordinated 
redeemable notes (the Notes) and entered into a new credit facility providing 
for term loans of up to $100,000 and a revolving credit line of up to 
$175,000. The Notes are redeemable beginning May 2002 at the Company's option 
at various rates ranging from 105.125% at May 2002, decreasing to 100% at May 
2005 and thereafter. The Company is required to offer to buy the Notes at 
101% upon a change of control, as defined in the Notes agreement. Maximum 
borrowings under the revolving credit line decrease from a maximum of 
$175,000 to $163,750 in May 2000, $152,500 in May 2001, $137,500 in May 2002 
and $118,750 in May 2003.

     The proceeds from the Notes, together with $100,000 of term loans under 
the new credit facility and a $75,000 drawing under the revolving credit 
portion of the new credit facility (collectively, the Refinancings) were used 
on April 30, 1997, (i) to repay approximately $265,000 of outstanding 
indebtedness of the Company, (ii) to make a loan of approximately $20,800 to 
an affiliate, KSL Land Corporation (KSL Land), which was used to repay 
indebtedness of KSL Land with respect to which a subsidiary of the Company 
was a co-obligor, (iii) to pay prepayment penalties and fees and expenses 
incurred in connection with the Refinancings and (iv) for general corporate 
purposes. The stock of certain subsidiaries has been pledged to collateralize 
the new credit facility. Prior to the Refinancings, long-term debt was 
collateralized by substantially all of the assets of the Company.

                                          28
<PAGE>

                     KSL RECREATION GROUP, INC. AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
                                (DOLLARS IN THOUSANDS)

     The terms of the credit facility contain certain financial covenants 
including interest coverage, fixed charges and leverage ratios. Certain of 
the long-term debt agreements provide that any distributions of profits must 
satisfy certain terms and must be approved by the lenders, require the 
Company to maintain specified financial ratios and, in some instances, govern 
investments, capital expenditures, asset dispositions and borrowings. In 
addition, mandatory prepayments are required under certain circumstances, 
including the sale of assets. The Company pays a commitment fee at a rate 
that was initially equal to one-half of 1% per annum on the undrawn portion 
of the commitments in respect of the credit facility, which began to accrue 
on April 23, 1997. Total non-use fees of approximately $437, $262, and $322 
were paid in 1997, 1996, 1995 respectively, on the daily average of the 
unused amount of certain revolving and term loan commitments. The credit 
facility contains provisions under which commitment fees and interest rates 
for the revolving credit facility will be adjusted in increments based on the 
achievement of certain performance goals. The Company was in compliance with 
the financial covenants at October 31, 1997.

     In December 1995, the Company completed a negotiated compromise debt 
settlement (Note 13), and the Company and certain of its affiliates obtained 
debt financing of $153,000. As a result of this transaction, the Company was, 
through a subsidiary, co-obligor on KSL Land's portion of the debt financing 
which had a principal amount outstanding of $20,794, at October 31, 1996. The 
Company was released from its co-obligation as a result of the repayment of 
KSL Land's indebtedness in April 1997, as described above.

     Scheduled principal payments on long-term debt as of October 31, 1997 
are as follows:

        Year ending October 31:
        1998 . . . . . . . . . . . . . . . . . . . . .      $    1,000
        1999 . . . . . . . . . . . . . . . . . . . . .           1,000
        2000 . . . . . . . . . . . . . . . . . . . . .           1,000
        2001 . . . . . . . . . . . . . . . . . . . . .           1,000
        2002 . . . . . . . . . . . . . . . . . . . . .           1,000
        Thereafter . . . . . . . . . . . . . . . . . .         322,500
                                                            ----------

        Total. . . . . . . . . . . . . . . . . . . . .      $  327,500
                                                            ----------
                                                            ----------


     During 1997, 1996 and 1995, the Company capitalized interest of
approximately $0, $577 and $1,043 respectively, related to construction in
progress activities.

8. OBLIGATIONS UNDER CAPITAL LEASES

     During 1997 the Company entered into a fifty year sublease of a resort 
recreation area of approximately 1,041 acres known as Lake Lanier Islands 
(Note 1). Under the terms of the sublease, the Company is required to make 
monthly base lease payments of $250. An additional annual payment equal to 
3.5% of gross revenues in excess of $20,000 is payable pursuant to the 
sublease, with a minimum of $100 in years one through five and $200 in years 
six through fifty. Pursuant to the sublease, the Company is required to spend 
5% of annual gross revenues on capital replacement and improvements, with 
carryover provisions allowing all or some portion of these amounts to be 
deferred to subsequent years. In addition, the Company is committed to expend 
$5,000 over the first five years of the sublease for the development and 
construction of new capital projects. This sublease expires in 2046 and is 
guaranteed by the Parent. Additionally, the Company has entered into certain 
leases for equipment and golf carts that are classified as capital leases.

     Property under the sublease and the other capital leases is summarized 
as follows:

                                                           OCTOBER 31,
                                                           -----------
                                                        1997         1996
                                                        ----         ----
     Buildings and land improvements . . . . .       $  24,715            -
     Equipment . . . . . . . . . . . . . . . .          15,617    $   9,442
     Less accumulated depreciation . . . . . .         (5,606)      (3,176)
                                                     ---------    ---------

                                                     $  34,726     $  6,266
                                                     ---------    ---------
                                                     ---------    ---------


                                          29
<PAGE>

                     KSL RECREATION GROUP, INC. AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
                                (DOLLARS IN THOUSANDS)

     Total minimum payments due under capital leases at October 31,1997 
are summarized as follows:

<TABLE>
<CAPTION>
                                                      LAKE LANIER     OTHER CAPITAL
                                                        SUBLEASE         LEASES          TOTAL
                                                        --------         ------          -----
   <S>                                               <C>             <C>             <C>
   Year ending October 31:
       1998. . . . . . . . . . . . . . . . . . .      $   3,100        $   3,593      $   6,693
       1999. . . . . . . . . . . . . . . . . . .          3,100            2,532          5,632
       2000. . . . . . . . . . . . . . . . . . .          3,100            1,438          4,538
       2001. . . . . . . . . . . . . . . . . . .          3,100              487          3,587
       2002. . . . . . . . . . . . . . . . . . .          3,100              128          3,228
       Thereafter. . . . . . . . . . . . . . . .        143,250                -        143,250
                                                      ---------       ----------       --------
   Total minimum lease payments. . . . . . . . .        158,750            8,178        166,928
   Less amounts representing interest. . . . . .       (127,408)          (1,000)      (128,408)
                                                      ---------       ----------       --------
   Present value of minimum lease payments . . .         31,342            7,178         38,520
   Less current portion. . . . . . . . . . . . .            (25)          (3,019)        (3,044)
                                                      ---------       ----------       --------
   Long-term portion . . . . . . . . . . . . . .      $  31,317        $   4,159      $  35,476
                                                      ---------       ----------       --------
                                                      ---------       ----------       --------
</TABLE>

9. INCOME TAXES

   The components of the Federal and state income tax expense (benefit) are
as follows:

<TABLE>
<CAPTION>
                                                                YEAR ENDED OCTOBER 31,
                                                                ----------------------
                                                         1997            1996            1995
                                                         ----            ----            ----
   <S>                                                <C>            <C>              <C>
   Current:
     Federal . . . . . . . . . . . . . . . . . .      $       -       $    (150)       $      -
     State . . . . . . . . . . . . . . . . . . .            263               65              -
                                                      ---------       ----------       --------
                                                            263             (85)              -
   Deferred:
     Federal . . . . . . . . . . . . . . . . . .          (105)                3              -
     State . . . . . . . . . . . . . . . . . . .           (15)                -              -
                                                      ---------       ----------       --------
                                                          (120)                3              -
                                                      ---------       ----------       --------
   Total . . . . . . . . . . . . . . . . . . . .      $     143       $     (82)       $      -
                                                      ---------       ----------       --------
                                                      ---------       ----------       --------
</TABLE>

   Taxes on income vary from the statutory Federal income tax rate applied to 
earnings before taxes on income and extraordinary items as follows:

<TABLE>
<CAPTION>
                                                                 YEAR ENDED OCTOBER 31,
                                                                 ----------------------
                                                          1997           1996           1995
                                                          ----           ----           ----
   <S>                                                 <C>           <C>            <C>
   Statutory Federal income tax rate (35%)
       applied to earnings before income
       taxes and extraordinary items . . . . . .       $  1,030       $  (4,361)     $  (5,660)
   Increase (decrease) in taxes resulting from:
       State income taxes, net of federal benefits          147            (623)          (485)
       Change in valuation allowance . . . . . .        (1,128)            4,040          5,481
   Benefits of lower federal income tax rate . .             29              125            162
   Reduction in state tax carryforwards. . . . .           (96)              348            306
   Other . . . . . . . . . . . . . . . . . . . .            161              389            196
                                                       --------       ----------     ----------
                                                       $    143       $      (82)    $        -
                                                       --------       ----------     ----------
                                                       --------       ----------     ----------
</TABLE>


                                          30
<PAGE>

                     KSL RECREATION GROUP, INC. AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
                                (DOLLARS IN THOUSANDS)


     Deferred income tax assets and liabilities arising from differences 
between accounting for financial statement purposes and tax purposes, less 
valuation reserves at October 31, are as follows:

                                                             OCTOBER 31,
                                                             -----------
                                                          1997         1996
                                                          ----         ----
     Deferred tax assets:
        Net operating loss carryforwards. . . . . .    $   15,968  $   15,298
        Capitalized lease . . . . . . . . . . . . .         1,574           -
        Deferred income . . . . . . . . . . . . . .           365         431
        Investment in partnership interest. . . . .         2,049       1,728
        Self-insured employee benefit programs. . .           433         879
        Other . . . . . . . . . . . . . . . . . . .           946         973
                                                       ----------  ----------

           Total deferred tax assets. . . . . . . .        21,335      19,309
     Less valuation reserve . . . . . . . . . . . .      (11,071)    (12,199)
                                                       ----------  ----------
           Deferred tax assets, net . . . . . . . .        10,264       7,110
     Deferred tax liabilities:
        Purchase price adjustment (Note 13) . . . .        15,978      16,757
        Fixed assets. . . . . . . . . . . . . . . .         4,494       3,714
        Prepaid real property taxes . . . . . . . .         1,080         493
        Basis difference in partnerships. . . . . .           316         302
        Amortization of intangibles . . . . . . . .         3,192       2,047
        Capitalized assets. . . . . . . . . . . . .            78         282
        Other . . . . . . . . . . . . . . . . . . .           328         275
                                                       ----------  ----------
           Total deferred tax liabilities . . . . .        25,466      23,870
                                                       ----------  ----------
           Net deferred tax liability . . . . . . .    $ (15,202)  $ (16,760)
                                                       ----------  ----------
                                                       ----------  ----------


     The Company has reserved for net deferred tax assets whose realization 
depends on future taxable income. The valuation reserve was decreased by 
$1,128 during 1997 and was increased by $4,041 during 1996.

     At October 31, 1997, the Company has net operating loss carryforwards 
available of approximately $41,397, which will begin to expire in the year 
ending October 31, 2009, to offset future federal taxable income. State net 
operating loss carryforwards total approximately $39,362 which will begin to 
expire in the year ending October 31, 1999.

10. STOCKHOLDER'S EQUITY

     During 1997, 1996 and 1995, the Company received capital contributions 
of approximately $9,005, $5,035 and $25,795 respectively, from the Parent. 
The 1997 contributions were used primarily for equipment and other fixed 
asset purchases at Lake Lanier and the 1995 and 1996 contributions were used 
primarily for property renovations at Doral.

     Concurrent with the Refinancings (Note 7), the Company provided 
dividends to the Parent of $23,321 and a return of capital of $39,033, 
including a transfer of the Company's $2,155 investment in certain limited 
partnerships at historical cost (Note 6). Immediately prior to the 
contribution from the Parent of certain subsidiaries (Note 1), Wild West 
provided a dividend to the Parent of $600 and the Parent contributed 
additional capital of $138 to VRI.

     Earnings per share for the years ended October 31, 1997, 1996 and 1995 
are computed by dividing net income by the weighted average number of 
outstanding common shares and common share equivalents, if any, during the 
respective periods. Common share equivalents include the effect of dilutive 
stock options calculated using the treasury stock method.

                                          31
<PAGE>

                     KSL RECREATION GROUP, INC. AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
                                (DOLLARS IN THOUSANDS)

          In February 1997, the Financial Accounting Standards Board issued 
SFAS No. 128, "Earnings Per Share" (EPS), which will require the Company to 
disclose basic EPS and diluted EPS for all periods for which an income 
statement is presented, and which will replace earnings per share disclosures 
currently being made. The Company is required to adopt this standard 
effective November 1, 1997. For pro forma disclosure purposes, basic EPS and 
diluted EPS for the current and comparable periods in the prior years 
computed in accordance with SFAS No. 128 would be equal to primary and fully 
diluted EPS, respectively, as included in the accompanying consolidated 
statements of operations.

11. COMMITMENTS AND CONTINGENCIES

          The Company is a party to various litigation matters which are 
incidental to its business. Although the results of the litigation cannot be 
predicted with certainty, management believes that the final outcome of such 
matters will not have a material adverse effect on the Company's consolidated 
financial statements.

          Contractual obligations associated with construction in progress 
approximated $2,722 at October 31, 1997, consisting primarily of the Gary 
Player golf course at Grand Traverse. (Notes 6 and 7).

12. RELATED PARTY TRANSACTIONS

          The Company provided financing to an affiliate, KSL Land, of 
approximately $26,000 at October 31, 1995. The notes receivable bear interest 
at rates ranging from 4% to 8.5%. On December 20, 1995, the Company forgave 
$2,930 of the notes receivable (Note 13). The Company recorded interest 
income of $87 and $1,845 in 1996 and 1995, respectively, related to these 
notes receivable. KSL Land retired the remaining notes payable to the Company 
in December 1995, when KSL Land and the Company obtained debt financing of 
$153,000 (Note 7). As a result of the Refinancings (Note 7), the Company 
provided financing to KSL Land of approximately $20,800 at April 30, 1997. 
The Company recorded interest income of $798 in 1997 related to this note 
receivable. This unsecured note receivable bears interest at 8% and is 
payable at maturity in June 1999.

          The receivable from Parent of $43,585 at October 31, 1996 is related 
to loans by the Company to the Parent to fund Parent's operating costs and to 
fund certain of the Parent's long-term investments.

          Receivables of $3,694 from affiliates as of October 31, 1996, are 
for reimbursement of expenses which the Company loaned the affiliates to fund 
certain operating costs. These receivables were settled in April 1977.

          Prior to the Refinancing, management fees of $1,750, $3,199 and 
$750 in 1997, 1996 and 1995, respectively, were payable to the Parent for 
management advisory services. These receivables were settled in April 1997. 
As a result of the Refinancing, the Company entered into an expense 
allocation agreement with the Parent. During 1997 the Company incurred $3,356 
of expenses to be reimbursed to the Parent. Such management fees and 
reimbursed expenses are included in corporate fee expense in the accompanying 
consolidated statements of operations.

          TFG L.P. has a note receivable from a general partner of $676, 
which is included in long-term notes receivable at October 31, 1997 and 1996. 
The note accrues interest at 8% and is due upon the earlier of April 2000 or 
the partner selling his partnership interest. No principal or interest 
payments are due on the note until it matures. TFG L.P. accrued interest 
income of $54 related to the note during both 1997 and 1996. In July 1996, 
the general partner pledged TFG L.P. partnership units as security for 
repayment of this note. In July 1996, the Parent entered into a put/call 
agreement with one of the minority interest partners in TFG L.P. to purchase 
such minority interest at any time through May 1, 2030.

13. EXTRAORDINARY ITEMS

          On April 30, 1997, the Company expensed the net deferred financing 
costs, prepayment fees and other costs, which aggregated approximately 
$5,171, related to the debt that was extinguished as a result of the 
Refinancings (Note 7). Such amount is reflected as an extraordinary loss on 
early extinguishment of debt, net of income tax benefit of $2,007, in the 
accompanying consolidated statements of operations.

                                          32
<PAGE>

                     KSL RECREATION GROUP, INC. AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
                                (DOLLARS IN THOUSANDS)

          On December 20, 1995, the Company completed a negotiated compromise 
debt settlement with the lender which provided financing for the various 
properties acquired by Desert Resorts. As a result of this settlement, the 
Company retired debt totaling $199,687 for a payment of $148,500 which 
resulted in an extraordinary gain of $51,187, which was offset by $2,930 of 
debt forgiveness to KSL Land (Note 12). For financial statement purposes, 
after net interest forgiveness of $953, transaction costs of $333 and 
deferred income taxes of $16,757, the net gain on extinguishment of debt was 
$32,120. For federal income taxes, this gain is treated as an adjustment of 
the original purchase price of the related assets and, therefore, results in 
a deferred long-term income tax liability.

14.  LOSS ON SALE OF GOLF COURSE FACILITY

          During fiscal 1995, the Company sold one of the golf facilities 
included in the Company's original acquisition of TFG L.P. for approximately 
$2,100 resulting in a loss of approximately $2,700. In connection with the 
sale, the Company received a note collateralized by the facility sold for 
approximately $1,900. The note receivable bears interest at prime plus 2% 
(10.5% at October 31, 1997), with an interest rate floor of 9% and a  cap of 
11%. Interest was deferred and added to principal until January 1996, at 
which time monthly interest-only payments began. In October 1996, the note 
was modified by the parties to defer interest payments from November 1996 to 
March 1997 and add accrued interest to principal. Interest-only payments 
resumed in April 1997. Monthly principal and interest payments of $20 
commenced in July 1997 and continue through the maturity date of the note in 
July 2002.

15.  ACQUISITION

          On August 11, 1997 the Company, through a subsidiary, acquired the 
Grand Traverse Resort, a 425 room hotel and related golf and recreational 
facilities, located outside Traverse City, Michigan for approximately $45,000.

          The purchase of Grand Traverse was financed under the revolving 
credit portion of the Company's credit facility (Note 7).  The acquisition 
has been accounted for as a purchase and accordingly, the operating results 
of Grand Traverse have been included in the Company's consolidated financial 
statements since acquisition.  The excess of the aggregate purchase price 
over the fair value of the net assets acquired of approximately $6,000 is 
being amortized over 15 years.

          The following unaudited pro forma consolidated results of 
operations for the years ended October 31, 1997 and 1996 assume the Grand 
Traverse acquisition occurred as of November 1, 1995:

       (In thousands, except share data)
                                                         1997          1996
                                                         ----          ----
       Revenues . . . . . . . . . . . . . . . .      $  247,142    $  212,249
       Income (loss) before income
         taxes and extraordinary item . . . . .           2,824      (10,961)
       Net income (loss). . . . . . . . . . . .           (483)        21,241
       Net Earnings (Loss) Per Share. . . . . .           (483)        21,241

          The unaudited pro forma results do not necessarily represent results
which would have occurred if the acquisition had taken place as of the 
beginning of the fiscal periods presented, nor do they purport to be 
indicative of the results that will be obtained in the future.

                                          33
<PAGE>

                     KSL RECREATION GROUP, INC. AND SUBSIDIARIES

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
                                (DOLLARS IN THOUSANDS)


16.  UNAUDITED QUARTERLY FINANCIAL INFORMATION

<TABLE>
<CAPTION>
(In thousands, except per share data)
                                                        FIRST           SECOND            THIRD        FOURTH
                                                       QUARTER          QUARTER          QUARTER       QUARTER           TOTAL
                                                       -------          -------          -------       -------           -----
<S>                                                  <C>          <C>  <C>        <C>  <C>           <C>        <C>  <C>
For the year ended October 31, 1997:
Revenues . . . . . . . . . . . . . . . . . .         $  54,549         $  70,565       $  43,531     $  57,425       $  226,070
Income (loss) from operations. . . . . . . .            10,046            21,278            (54)         1,568  (c)      32,838
Net income (loss). . . . . . . . . . . . . .             1,812             8,756  (a)    (6,803)       (4,128)            (363)

Earnings (Loss) Per Share. . . . . . . . . .             1,812             8,756         (6,803)       (4,128)            (363)

For the year ended October 31, 1996:
Revenues . . . . . . . . . . . . . . . . . .            46,008            61,696          36,561        37,984          182,249
Income (loss) from operations. . . . . . . .             5,238            16,733         (2,878)       (3,901)           15,192
Net income (loss). . . . . . . . . . . . . .            31,481    (b)     10,161        (10,578)      (11,323)           19,741

Earnings (Loss) Per Share. . . . . . . . . .            31,481            10,161        (10,578)      (11,323)           19,741
</TABLE>
 
(a)  Includes extraordinary loss on early extinguishment of debt of $3,164.
(b)  Includes extraordinary gain on early extinguishment of debt of $32,120.
(c)  Includes a decrease in workers compensation expense due to a change in
     California's experience rating ($840) and a decrease in workers
     compensation claims ($920). Also, income from operations includes $4,374
     from the Lake Lanier sublease and the Grand Traverse acquisition which 
     were consummated in August 1997.

17.  SUBSEQUENT EVENTS

     On December 1, 1997 the Company, through a subsidiary, entered into an 
agreement to purchase the assets of Silver Spring Country Club (Silver 
Spring), a 36-hole golf facility in Menomonee Falls, Wisconsin for 
approximately $9,000. This acquisition is scheduled to close in the second 
quarter of fiscal 1998. The acquisition will be accounted for using the 
purchase method of accounting. The purchase price will be financed under the 
revolving credit portion of the Company's credit facility (Note 7).

                                          34
<PAGE>

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

     None.






                                          35
<PAGE>

                                      PART III.

ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS

          Set forth below are the names, ages and positions of the directors 
and executive officers of the Company, together with other key executive 
officers of the Company's subsidiaries and Parent. The terms of each of the 
directors will expire annually upon the election and qualification at the 
annual meeting of shareholders.

<TABLE>
<CAPTION>
                   NAME                                    AGE                       POSITION
                   ----                                    ---                       --------
<S>                                                        <C>    <C>
DIRECTORS AND EXECUTIVE OFFICERS:
Michael S. Shannon . . . . . . . . . . . . . . . . . .      39    President, Chief Executive Officer and Director
Larry E. Lichliter . . . . . . . . . . . . . . . . . .      54    Executive Vice President and Director
John K. Saer, Jr.. . . . . . . . . . . . . . . . . . .      41    Vice President, Chief Financial Officer and Treasurer
Nola S. Dyal . . . . . . . . . . . . . . . . . . . . .      48    Vice President, General Counsel and Secretary
Bradley T. Quayle. . . . . . . . . . . . . . . . . . .      45    Vice President of Marketing and Corporate Development
Steven F. Elliott. . . . . . . . . . . . . . . . . . .      34    Vice President of Corporate Finance
E. D. Bryant . . . . . . . . . . . . . . . . . . . . .      51    Vice President of Direct Marketing and Sales
Richard L. DesVaux . . . . . . . . . . . . . . . . . .      42    Vice President of Finance Administration
Doris Allen-Kirchner . . . . . . . . . . . . . . . . .      45    Vice President of Human Resources
James E. Wanless . . . . . . . . . . . . . . . . . . .      44    Vice President of Club and Membership Development
Thomas McGrath . . . . . . . . . . . . . . . . . . . .      47    Vice President of Merchandising and Events
Emily-May Richards . . . . . . . . . . . . . . . . . .      49    Corporate Controller
Henry R. Kravis. . . . . . . . . . . . . . . . . . . .      53    Director
George R. Roberts. . . . . . . . . . . . . . . . . . .      54    Director
Paul E. Raether. . . . . . . . . . . . . . . . . . . .      51    Director
Michael T. Tokarz. . . . . . . . . . . . . . . . . . .      48    Director
Scott M. Stuart. . . . . . . . . . . . . . . . . . . .      38    Director
Alexander Navab, Jr. . . . . . . . . . . . . . . . . .      32    Director

OTHER KEY EXECUTIVE OFFICERS:
Eric L. Affeldt. . . . . . . . . . . . . . . . . . . .      40    President, KSL Hotel Corp. and KSL Silver Properties, Inc.
Mark A. Burnett. . . . . . . . . . . . . . . . . . . .      33    President, KSL Fairways Golf Corporation
Scott M. Dalecio . . . . . . . . . . . . . . . . . . .      35    President, KSL Desert Resorts, Inc.
Joel B. Paige. . . . . . . . . . . . . . . . . . . . .      38    President, KSL Florida Holdings, Inc. and KSL Grand Traverse
                                                                  Holdings, Inc.
Raymond C. Williams. . . . . . . . . . . . . . . . . .      51    President, KSL Lake Lanier, Inc.
Gary M. Beasley. . . . . . . . . . . . . . . . . . . .      32    Vice President of Acquisitions, KSL Recreation Corporation
</TABLE>
 

  MICHAEL S. SHANNON.  Mr. Shannon has been a Director and the President and 
Chief Executive Officer of the Company since its formation. Mr. Shannon was a 
founding stockholder of Parent and has served as a Director and President and 
Chief Executive Officer of Parent since its inception. Mr. Shannon is also a 
Director of each of the Company's subsidiaries and serves as either President 
or Executive Vice President of each subsidiary.  Prior to forming Parent, Mr. 
Shannon was President and Chief Executive Officer of Vail Associates in Vail, 
Colorado. Mr. Shannon is a director of ING America Life Insurance Company and 
TCA Cable TV, Inc.

  LARRY E. LICHLITER.  Mr. Lichliter has been a Director and Executive Vice 
President of the Company since its formation. Mr. Lichliter was a founding 
stockholder of Parent and has served as a Director and its Executive Vice 
President since its inception. He served as Chief Operating Officer of Parent 
from its inception through December 1996. Mr. Lichliter is also a Director 
and serves as either President or Executive Vice President of each of the 
Company's subsidiaries.  Mr. Lichliter began his career as the Controller for 
Vail Associates in 1977 before becoming Director of Finance for Beaver Creek 
Resort, and later serving as Senior Vice President of Operations for Vail 
Associates.

  JOHN K. SAER, JR.  Mr. Saer has been Vice President, Chief Financial 
Officer and Treasurer of the Company since its formation. Mr. Saer joined 
Parent in July 1993 as Director of Finance and Acquisitions. He was later 
elected to the office of Vice President of Business Development and 
Acquisitions in 1994 and now serves as Vice President, Chief Financial 
Officer and Treasurer of Parent. Mr. Saer is also Vice President, Chief 
Financial Officer and/or Treasurer for each of the Company's subsidiaries.  
From 1990 until joining Parent, Mr. Saer served as a principal of Windermere 
Management, Inc. and its affiliate, Jonison Partners, Ltd.

                                          36
<PAGE>

  NOLA S. DYAL.  Ms. Dyal has been Vice President, General Counsel and 
Secretary of the Company since its formation. Ms. Dyal joined Parent in 
November 1993 as Vice President, General Counsel and Secretary. Ms. Dyal also 
serves as Vice President, General Counsel and Secretary for each of the 
Company's subsidiaries, with one exception. From 1986 to 1993, Ms. Dyal was 
Vice President, General Counsel and Secretary of Vail Associates.

  BRADLEY T. QUAYLE.  Mr. Quayle has been Vice President of Marketing and 
Corporate Development of the Company since its formation. Mr. Quayle joined 
Parent in September 1993 as Vice President, Business Development and 
Corporate Communications. He now also serves as Vice President, Marketing and 
Corporate Development of Parent. From 1989 to 1993, Mr. Quayle was employed 
by Vail Associates as Vice President of Business Development. From 1982 to 
1993, Mr. Quayle was President of Resort Communications Management in Vail, 
Colorado and President of Eagle Valley Investments.

  STEVEN F. ELLIOTT.  Mr. Elliott has been Vice President of Corporate 
Finance of the Company since its formation. Mr. Elliott joined Parent in 1995 
as Director of Finance and Analysis. In 1996, he was elected Vice President 
of Corporate Finance. In April 1997, Mr. Elliott was elected Vice President 
of each of the Company's then existing subsidiaries.  Additionally, in 
October 1997, Mr. Elliott was elected Vice President of KSL Silver 
Properties, Inc., a new subsidiary of the Company. Prior to joining Parent, 
Mr. Elliott was Vice President of Corporate Finance in the Capital Markets 
Group of Security Capital Group from 1994 to 1995. Prior to that, Mr. Elliott 
was a Vice President at Dillon, Read & Co. Inc.

  E. D. BRYANT.  Mr. Bryant became Vice President of Direct Sales and 
Marketing of the Company and the Parent in September 1997.  At that time, Mr. 
Bryant was also elected Vice President of Direct Marketing and Sales for 
certain of the Company's subsidiaries.  From January 1991 to September 1997, 
Mr. Bryant was employed by Marriott Vacation Club International, most 
recently as Vice President, Western Region Sales and Marketing.

  RICHARD L. DESVAUX.  Mr. DesVaux joined the Company and Parent as Vice 
President of Finance Administration in August 1997.  From October 1990 to 
July 1997, Mr. DesVaux served as Vice President of Internal Audit and Vice 
President and Administrative Officer for Hilton Hotels Corporation.

  DORIS ALLEN-KIRCHNER.  Ms. Allen-Kirchner joined the Company and Parent in 
October 1997 as Vice President of Human Resources.  From November 1994 to 
September 1997, Ms. Allen-Kirchner  served as a Management Consultant to 
Quorum Health Resources, Inc.  Prior to that, Ms. Allen-Kirchner was Chief 
Operations Officer for Vail Valley Medical Center in Vail, Colorado since 
1985.

  JAMES E. WANLESS.  Mr. Wanless has been Vice President of Club and 
Membership Development of the Company since its formation. Mr. Wanless joined 
Parent in September 1996 as Vice President of Club and Membership 
Development. From 1995 to 1996, Mr. Wanless was a Director and Senior Vice 
President of Membership Marketing International. For more than five years 
prior to joining Parent, Mr. Wanless was a senior partner of the law firm 
Hillier and Wanless.

  THOMAS MCGRATH.  Mr. McGrath has been Vice President of Merchandising and 
Events of the Company since its formation. Mr. McGrath joined Parent in June 
1996 as Vice President of Merchandising and Events. From 1988 until joining 
Parent, Mr. McGrath was Vice President of Merchandising for eight years with 
Silver Dollar City, Inc. in Branson, Missouri.

  EMILY-MAY RICHARDS.  Ms. Richards has been Corporate Controller of the 
Company since its formation. Ms. Richards joined Parent in October 1994 as 
Corporate Controller after serving as a private consultant for Parent and its 
subsidiaries with Richards Group, P.C., a certified public accounting firm 
founded by Ms. Richards in 1986. Ms. Richards is also the Corporate 
Controller or Assistant Controller of all of the Company's subsidiaries.  Ms. 
Richards owned and operated the Richards Group, P.C. from 1986 to 1994.

  HENRY R. KRAVIS.  Mr. Kravis, Founding Partner of KKR, is a Director of 
Parent and the Company and a managing member of the Executive Committee of 
the limited liability company which serves as the general partner of KKR.   
In addition, Mr. Kravis is a Director of KSL Golf Holdings, Inc., a 
subsidiary of the Company. He is also a Director of Accuride Corporation, 
Amphenol Corporation, Borden, Inc., Bruno's, Inc., Evenflo & Spalding 
Holdings Corporation, The Gillette Company, IDEX Corporation, KinderCare 
Learning Centers, Inc., Merit Behavioral Care Corporation, Newsquest Capital 
PLC, Owens-Illinois Group, Inc., Owens-Illinois, Inc., PRIMEDIA, Inc., 
Randall's Food Markets, Inc., Safeway, Inc., Sotheby's Holdings, Inc., Union 
Texas Petroleum Holdings, Inc. and World Color Press, Inc.

  GEORGE R. ROBERTS.  Mr. Roberts, Founding Partner of KKR, is a Director of 
Parent and the Company and a managing member of the Executive Committee of the 
limited liability company which serves as the general partner of KKR. He is 
also a Director of Accuride Corporation, Amphenol Corporation, Borden, Inc., 
Bruno's, Inc., Evenflo & Spalding Holdings Corporation, IDEX Corporation, 
KinderCare Learning Centers, Inc., Merit Behavioral Care Corporation, 
Owens-Illinois Group, Inc., Owens-Illinois, Inc., PRIMEDIA, Inc., Randall's 
Food Markets, Inc., Safeway, Inc., Union Texas Petroleum Holdings, Inc. and 
World Color Press, Inc.

                                          37
<PAGE>

  PAUL E. RAETHER.  Mr. Raether is a Director of Parent and the Company and 
is a member of the limited liability company which serves as the general 
partner of KKR. He is also a Director of Bruno's, Inc., IDEX Corporation and 
Randall's Food Markets, Inc. Mr. Raether joined KKR in 1980.

  MICHAEL T. TOKARZ.  Mr. Tokarz is a Director of Parent and the Company and 
is a member of the limited liability company which serves as the general 
partner of KKR. Prior to 1993, Mr. Tokarz was an Executive at KKR. In 
addition, Mr. Tokarz is a Director of KSL Golf Holdings, Inc., a subsidiary 
of the Company. Mr. Tokarz joined KKR in 1985. He is also a Director of 
Evenflo & Spalding Holdings Corporation, IDEX Corporation, PRIMEDIA, Inc., 
Safeway, Inc. and Walter Industries, Inc.

  SCOTT M. STUART.  Mr. Stuart is a Director of Parent and the Company and is 
a member of the limited liability company which serves as the general partner 
of KKR. Prior to 1995, Mr. Stuart was an Executive at KKR. In addition, Mr. 
Stuart is a Director of KSL Golf Holdings, Inc., a subsidiary of the Company. 
He is also a Director of Borden, Inc., Newsquest Capital PLC and World Color 
Press, Inc. Mr. Stuart joined KKR in 1986.

  ALEXANDER NAVAB, JR.  Mr. Navab is a Director of Parent and the Company and 
has been an Executive at KKR since 1993. Prior to joining KKR, Mr. Navab was 
employed by James D. Wolfensohn Incorporated. He is also a Director of 
Borden, Inc., Newsquest Capital PLC, Reltec Corporation and World Color 
Press, Inc.

  ERIC L. AFFELDT.  Mr. Affeldt became President of KSL Hotel Corp., the 
operating subsidiary which owns Doral, and KSL Silver Properties, Inc., the 
operating subsidiary which owns the Silver Course for use in connection with 
the Doral, on December 29, 1997.  Prior to that, Mr. Affeldt was President of 
KSL Fairways Golf Corporation, a subsidiary of the Company and the managing 
general partner of The Fairways Group, L.P., a limited partnership through 
which Fairways operations are conducted.  Mr. Affeldt joined Parent in July 
1992 as Director of Finance. After serving as Vice President of Acquisitions 
of The Fairways Group, he became its President in July 1995. Prior to joining 
the Company, Mr. Affeldt owned and operated Vail Financial Planning, a 
financial advisory firm in Vail, Colorado.

  MARK A. BURNETT.  On December 29, 1997, Mr. Burnett became President of KSL 
Fairways Golf Corporation, a subsidiary of the Company and the managing 
general partner of The Fairways Group, L.P., a limited partnership through 
which Fairways operations are conducted.  He had served as its Vice President 
since May 1997.  Prior to that, Mr. Burnett was the southern regional manager 
for KSL Fairways since August 1996.  From August 1991 to July 1996, Mr. 
Burnett was employed by Golf Enterprises, Inc. in Dallas, Texas in various 
capacities, most recently as Vice President of Western Operations from March
1994 through July 1996.

  SCOTT M. DALECIO.  Mr. Dalecio has been President of KSL Desert Resorts, 
Inc., the operating subsidiary which operates both the La Quinta Resort & 
Club and PGA WEST in La Quinta, California since March 1996. Prior thereto, 
Mr. Dalecio held several management positions with the La Quinta Resort & 
Club since joining La Quinta Resort & Club in 1986, including President and 
General Manager.  Mr. Dalecio is also the President or Vice President of each 
of the four operating subsidiaries of KSL Desert Resorts, Inc.

  JOEL B. PAIGE.  Mr. Paige has been the President of KSL Florida Holdings, 
Inc., a subsidiary of the Company which owns KSL Hotel Corp. and KSL Silver 
Properties, Inc., since December 1996.  Mr. Paige is also the President of 
KSL Grand Traverse Holdings, Inc., and its four wholly-owned operating 
subsidiaries, which own and operate the Grand Traverse Resort and its related 
assets acquired in August 1997.  From April 1995 through December 1997, Mr. 
Paige had also been the President of KSL Hotel Corp.  From November 1994 
through April 1995, Mr. Paige was General Manager at the Scottsdale Hilton in 
Scottsdale, Arizona. From September 1990 until joining the Scottsdale Hilton, 
Mr. Paige was employed as General Manager of Doral.

  RAYMOND C. WILLIAMS.  Mr. Williams has been President of KSL Lake Lanier, 
Inc., the operating subsidiary which leases and operates Lake Lanier Islands 
since July 1996. Prior to July 1996, Mr. Williams was Vice President and 
Chief Operating Officer of Arrow Dynamics in Salt Lake City, Utah. From 1973 
to 1995, Mr. Williams was an executive for Six Flags Theme Parks, Inc., 
holding several positions, including Senior Vice President, Operational 
Planning & Strategy.

  GARY M. BEASLEY.  Mr. Beasley became Vice President of Acquisitions for the 
Parent in November 1997.  He joined the Parent in June 1995 as Associate, 
Business Development and became Director of Acquisitions in December 1996. 
Prior to joining Parent, Mr. Beasley was an Associate at Security Capital 
Group, Inc. from September 1993 to June 1995.  From September 1991 to June 
1993, Mr. Beasley attended Stanford Business School where he received his 
Masters in Business Administration.

     Messrs. Kravis and Roberts are first cousins.

     The business address of Messrs. Kravis, Raether, Tokarz, Stuart and 
Navab is 9 West 57th Street, Suite 200, New York, New York 10019 and the 
business address of Mr. Roberts is 2800 Sand Hill Road, Suite 200, Menlo 
Park, California 94025.

                                          38
<PAGE>

     The following directors have been appointed to serve on the Company's 
Executive Committee during fiscal 1998: Messrs. Kravis, Raether, Tokarz and 
Shannon. The following directors have been appointed to serve on the 
Company's Audit Committee during fiscal 1998: Messrs. Stuart, Navab and 
Lichliter.

                                          39
<PAGE>

ITEM 11.  EXECUTIVE COMPENSATION

     Prior to the formation of the Company in March 1997, executive officers 
of the Company were employed by Parent and all compensation for such officers 
was paid by Parent. The following table presents certain summary information 
concerning compensation paid or accrued by Parent for services rendered in 
all capacities for the fiscal years ended October 31, 1997 and 1996 for 
(i) the chief executive officer of the Company and (ii) each of the four 
other most highly compensated executive officers of the Company, determined 
as of October 31, 1997 (collectively, the "Named Executive Officers").

<TABLE>
<CAPTION>
                                       SUMMARY COMPENSATION TABLE (1) (2)
                                                                                       LONG TERM COMPENSATION
                                        ANNUAL COMPENSATION                          AWARDS                PAYOUTS
                                   ----------------------------------------------------------------------------------
                                                                OTHER                       SECURITIES
NAME AND                                                        ANNUAL      RESTRICTED      UNDERLYING                   ALL OTHER
PRINCIPAL                                                       COMPEN        STOCK          OPTION/         LTIP         COMPEN-
POSITION                  YEAR        SALARY       BONUS       -SATION        AWARD(S)        SARS          PAYOUTS      SATION (3)
--------                  ----        ------       -----       -------        --------        ----          -------      ----------
<S>                       <C>        <C>         <C>           <C>          <C>             <C>             <C>          <C>
Michael S. Shannon
President and Chief
Executive Officer         1997       $475,000    $650,000            -              -              -            -          $27,864
                          1996        450,000     615,000            -              -              -            -           27,864

Larry E. Lichliter
Executive Vice President  1997        275,000     175,000            -              -              -            -          $29,962
                          1996        250,000     175,000            -              -              -            -           29,962

John K. Saer, Jr.
Vice President, Chief
Financial Officer and
Treasurer                 1997        244,000     250,000            -              -            707            -                -
                          1996        190,000     150,000            -              -              -            -                -

Nola S. Dyal
Vice President, General
Counsel and Secretary     1997        200,000     200,000            -              -            477            -                -
                          1996        195,000     105,000            -              -              -            -                -

Bradley T. Quayle
Vice President of
Marketing and Corporate
Development               1997        175,000      60,000            -              -              -            -                -
                          1996        158,000      60,000            -              -              -            -                -
</TABLE>
 
-----------

(1)       After formation of the Company, the Parent has and will continue to 
pay all compensation for the Named Executive Officers; however, the Company 
will reimburse Parent for the amount of all such compensation that is 
directly attributable to the operations of the Company. See "Certain 
Relationships and Related Transactions."

(2)       The Named Executive Officers spend between 90% to 98% of their time 
on Company matters, with the exception of Mr. Lichliter who spends 
approximately 5% of his time on work related to the Company.

(3)       Represents cost of premiums for long-term disability insurance and 
directors compensation.

                                          40
<PAGE>

STOCK OPTIONS OF PARENT

STOCK OPTION PLAN

          Parent adopted the KSL Recreation Corporation 1995 Stock Purchase 
and Option Plan (the "Plan"), providing for the issuance to certain officers 
and key employees (the "Optionees") of up to 77,225 shares of common stock of 
Parent ("Stock"). Unless sooner terminated by Parent's Board of Directors, 
the Plan will expire on June 30, 2005.

          The Compensation Committee of Parent's Board of Directors, 
consisting of Messrs. Kravis and Tokarz (the "Committee"), administers the 
Plan. The Committee has the authority to determine the forms and amounts of 
awards made to Optionees (each, a "Grant"). Such Grants may take a variety of 
forms in the Committee's sole discretion including "incentive stock options" 
under Section 422 of the Code, other Stock options, stock appreciation 
rights, restricted Stock, purchase Stock, dividend equivalent rights, 
performance rights, performance shares or other stock-based grants.

NON-QUALIFIED STOCK OPTION AGREEMENTS

          All options granted under the Plan to date have been non-qualified 
stock options granted pursuant to Non-Qualified Stock Option Agreements (the 
"Stock Option Agreements"). Under the terms of Stock Option Agreements, the 
exercise price of the options granted is $500 per share which approximates 
fair value, and options may be exercised based upon a schedule which refers 
to a date set forth in each Optionee's Stock Option Agreement (the "Option 
Trigger Date"). Generally, an Optionee's options will vest over periods 
ranging from one to five years from such Optionee's Option Trigger Date. Each 
Stock Option Agreement provides for acceleration of exercisability of some or 
all of an Optionee's options immediately prior to a change of control and 
immediately upon termination of employment because of death, permanent 
disability or retirement (at age 65 or over after three years of employment) 
of the Optionee.

          Options granted under the Plan pursuant to a Stock Option Agreement 
expire upon the earliest of (i) June 30, 2005, (ii) the date the option is 
terminated under the circumstances set forth in the Common Stock Purchase 
Agreement (as defined below), (iii) the termination of the Optionee's 
employment because of criminal conduct (other than traffic violations), (iv) 
if prior to vesting 100% of Optionee's Options, the termination of 
employment for any reason other than involuntary termination of employment 
without cause, death, disability or retirement after the age of 65 and (v) if 
the Committee so determines, the merger or consolidation of Parent into 
another corporation or the exchange or acquisition by another corporation of 
all or substantially all of Parent's assets or 80% of Parent's then 
outstanding voting stock, or the reorganization, recapitalization, 
liquidation or dissolution of Parent.

MANAGEMENT COMMON STOCK PURCHASE AGREEMENTS

          If an Optionee exercises options under his or her Stock Option 
Agreement, he or she is required to enter into a Common Stock Purchase 
Agreement with Parent. None of these employees (the "Management 
Stockholders") has exercised any options to date. Pursuant to each Common 
Stock Purchase Agreement, the Management Stockholder may not transfer any 
shares of Stock acquired thereby or upon exercise of vested options granted 
under the Plan (collectively, the "Plan Shares") within five years (although 
certain Management Stockholders may transfer their Plan Shares after they 
have been fully vested) after the date set forth in his or her Common Stock 
Purchase Agreement (the "Purchase Trigger Date").

          Each Common Stock Purchase Agreement provides the Management 
Stockholder with the right to require Parent to repurchase all of Management 
Stockholder's Plan Shares and pay Management Stockholder (or his or her 
estate or Management Stockholder Trust) a stated price for cancellation of 
options if (a) the Management Stockholder's employment is terminated as a 
result of his or her death or permanent disability, (b) the Management 
Stockholder dies or becomes permanently disabled after having retired from 
Parent at or after age 65 after having been employed by Parent for at least 
three years after the Purchase Trigger Date or (c) with the prior consent of 
Parent's Board of Directors (which consent will not be withheld unless the 
Board reasonably determines that Parent would be financially impaired if it 
made such a purchase), the Management Stockholder retires from Parent on or 
after age 65 after having been employed by Parent for at least three years 
after the Purchase Trigger Date. The Management Stockholder also has the 
right, until the later of five years after the Purchase Trigger Date or the 
first public offering in which the Partnerships (as defined in "Security 
Ownership of Certain Beneficial Owners and Management") participate, to have 
Parent register a stated percentage of his Plan Shares under the Securities 
Act in connection with certain public offerings.

          Each Common Stock Purchase Agreement also provides Parent with (a) 
prior to a public offering, the right of first refusal to buy Plan Shares 
owned by each Management Stockholder on essentially the same terms and 
conditions as such Management Stockholder proposes in a sale of his Plan 
Shares to another bona fide third party purchaser and (b) the right to 
repurchase all of the Management Stockholder's Plan Shares and pay him a 
stated price for cancellation of his Options if (i) the Management 
Stockholder's employment is involuntarily terminated with cause, (ii) the 
Management Stockholder terminates his or her employment other than by reason 
of death, disability or retirement on or after the age of 65 or (iii) the 
Management Stockholder effects an unpermitted transfer of Plan Shares.

                                          41
<PAGE>

          Upon a change of control of Parent, the transfer restrictions, 
right of first refusal, and certain other rights with respect to sale and 
repurchase of the Plan Shares and cancellation of Options as described above 
will lapse.

          The repurchase price of the Plan Shares under the Common Stock 
Purchase Agreements depends upon the nature of the event that triggers the 
repurchase and whether such repurchase occurs at the election of the 
Management Stockholder or Parent. Generally, if the repurchase is at the 
Management Stockholder's election, the repurchase price per share will be the 
book value per share (as defined in the Common Stock Purchase Agreement) of 
Stock or, if the Stock is publicly traded, the market value per share of 
Stock. Generally, if the repurchase is at Parent's election, the repurchase 
price per share will be the lesser of (a) the book value per share (as 
defined in the Common Stock Purchase Agreement) of Stock (or if the Stock is 
publicly traded, the market value per share) and (b) $500.

OPTION GRANTS IN PARENT FOR FISCAL YEAR 1997 AND POTENTIAL REALIZABLE VALUES

          The following table sets forth as to each of the Named Executive 
Officers information with respect to option grants by Parent during fiscal 
year 1997 and the potential realizable value of such option grants: (i) the 
number of shares of Common Stock underlying options granted during fiscal 
year 1997, (ii) the percentage that such options represent of all options 
granted to employees during that year, (iii) the exercise price, (iv) the 
expiration date and (v) the potential realizable value, assuming a 5% and 10% 
annual rate of appreciation in the Common Stock during the option terms.

<TABLE>
<CAPTION>
                                                        OPTION GRANTS IN FISCAL YEAR 1997
                                                        ---------------------------------

                                                INDIVIDUAL GRANTS
         ---------------------------------------------------------------------------------------
                                                         PERCENT OF                               POTENTIAL REALIZABLE VALUE AT
                                                           TOTAL                                  ASSUMED ANNUAL RATES OF STOCK
                                                          OPTIONS                                 PRICE APPRECIATION FOR OPTION
                                                         GRANTED TO                                           TERM (1)
                                           OPTIONS       EMPLOYEE IN     EXERCISE    EXPIRATION  ---------------------------------
                  NAME                     GRANTED       FISCAL YEAR      PRICE         DATE             5%            10%
         -------------------------------------------------------------------------------------------------------------------------
         <S>                               <C>           <C>             <C>         <C>         <C>                 <C>
           Michael S. Shannon                    -              -              -              -              -              -
           Larry E. Lichliter                    -              -              -              -              -              -
           John K. Saer, Jr.                707(2)           9.6%        $500.00      6/30/2005       $168,800       $404,300
           Nola S. Dyal                     477(3)           6.5%         500.00      6/30/2005        113,900        272,700
           Bradley T. Quayle                     -              -              -              -              -              -
</TABLE>
 -------------------

(1)  Amounts for the Named Executive Officers shown under the "Potential 
Realizable Value" columns above have been calculated by multiplying the 
exercise price by the annual appreciation rate shown (compounded for the term 
of the options), subtracting the exercise price per share and multiplying the 
gain per share by the number of shares covered by the options.

(2)  Mr. Saer's options vest 20% each year over a five year term with an Option
Trigger Date of July 15, 1993.

(3)  Ms. Dyal's options vest 25% each year over a four year term with an Option
Trigger Date of November 1, 1993.


                                          42
<PAGE>

     The following table sets forth as to each of the Named Executive Officers
information with respect to option exercises during fiscal year 1997 and the
status of their options on October 31, 1997: (i) the number of shares of common
stock underlying options exercised during fiscal year 1997, (ii) the aggregate
dollar value realized upon the exercise of such options, (iii) the total number
of exercisable and unexercisable stock options held on October 31, 1997 and (iv)
the aggregate dollar value of in-the-money exercisable and unexercisable options
on October 31, 1997.

<TABLE>
<CAPTION>

                                AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1997
                                     AND OPTION VALUES AT OCTOBER 31, 1997
                                     -------------------------------------

                                                                       NUMBER OF SECURITIES
                                NUMBER OF                             UNDERLYING UNEXERCISED              VALUE OF UNEXERCISED
                                 SHARES                                      OPTIONS                    IN-THE-MONEY OPTIONS AT
                               ACQUIRED ON         VALUE               AT OCTOBER 31, 1997                 OCTOBER 31, 1997
     NAME                       EXERCISE          REALIZED         (EXERCISABLE/UNEXERCISABLE)       (EXERCISABLE/UNEXERCISABLE) (1)
     ----                       --------          --------         ---------------------------       -------------------------------
     <S>                       <C>                <C>              <C>                               <C>
     Michael S. Shannon            _                 _                    22,744/  0                      $6,566,800/   0
     Larry E. Lichliter            _                 _                    12,646/  0                       3,650,200/   0
     John K. Saer, Jr.             _                 _                     3,565/  891                     1,001,600/   250,300
     Nola S. Dyal                  _                 _                     2,101/  701                       589,100/   196,300
     Bradley T. Quayle             _                 _                     2,651/  0                         765,400/   0

-----------
</TABLE>
 
(1)  The Common Stock is not publicly traded and the value of the options
represents management's best judgment of value at October 31, 1997 as calculated
using the "Black-Scholes" model of option valuation.

MANAGEMENT INCENTIVE BONUSES

     Certain members of management of Parent and the Company, including Named 
Executive Officers, departmental managers and executive officers, are 
eligible to receive cash bonuses in addition to their annual salary 
compensation. Such awards are based on the performance of such individuals as 
determined by their direct supervisors and other senior management and the 
financial performance of Parent and the Company.

STOCK PURCHASED BY MANAGEMENT

     In October 1995, Messrs. Shannon, Lichliter, Saer and Affeldt purchased 
2,053, 1,141, 301 and 53 shares of Stock, respectively, at a purchase price 
of $500 per share. In connection with these purchases, Parent loaned 
$1,026,260, $570,640, $150,720 and $26,715 to Messrs. Shannon, Lichliter, 
Saer and Affeldt, respectively. Each loan is evidenced by a promissory note 
which (i) is due and payable on June 9, 2005, but may be prepaid at any time, 
without penalty, (ii) bears an annual interest rate of 5% and (iii) is 
secured by the Stock purchased by each such individual.

STOCK RECEIVED IN LIEU OF FEES

     In October 1995, Parent entered into Stock Purchase Agreements with 
Messrs. Shannon, Lichliter, Saer and Affeldt, pursuant to which Messrs. 
Shannon, Lichliter, Saer and Affeldt were issued 6,881, 3,826, 1,011 and 179 
shares of Stock, respectively, in lieu of receiving certain fees otherwise 
owed to them by Parent. Such Stock Purchase Agreements are substantially 
similar to the Common Stock Purchase Agreements described above except that 
restrictions on transfer are in effect for three years (compared with five 
years, in general, under the Common Stock Purchase Agreements). Since such 
Management Stockholders incurred certain income tax liabilities in connection 
with the receipt of such Stock, Parent loaned $1,322,815, $735,529, $194,271 
and $31,523 to Messrs. Shannon, Lichliter, Saer and Affeldt, respectively. 
Each loan is evidenced by a promissory note which (i) is due and payable on 
October 30, 2005, but may be prepaid at any time, without penalty, (ii) bears 
an annual interest rate of 5% and (iii) is secured by the Stock granted to 
each such individual.

OPTIONS AND PARTNERSHIP INTERESTS IN AFFILIATES

     Certain executive officers and key employees received options and 
partnership interests in KSL Land and partnerships affiliated therewith prior 
to and during fiscal year 1997, but such options are "out-of-the-money" and 
no allocation has been made for distribution of partnership profits with 
respect to such partnership interests.

                                          43
<PAGE>

BOARD COMPENSATION

     All directors are reimbursed for their usual and customary expenses
incurred in attending all Board and committee meetings. Each director receives
an aggregate annual fee of $25,000 for serving on Parent's and the Company's
boards of directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     The following directors participated in deliberations of Parent's board of
directors concerning executive officer compensation during fiscal year 1997 and
have been appointed to serve on Parent's Compensation Committee during fiscal
year 1998: Messrs. Kravis and Tokarz. During fiscal year 1997, no executive
officer of Parent served as a member of the compensation committee of another
entity or as a director of another entity, one of whose executive officers
served on the compensation committee or board of directors of Parent.





                                          44
<PAGE>

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth as of January 15, 1998 certain information
concerning the ownership of shares of Common Stock of Parent by (i) persons who
own beneficially more than 5% of the outstanding shares of Common Stock; (ii)
each person who is a director of the Company; (iii) each person who is a Named
Executive Officer; and (iv) all directors and executive officers of the Company
as a group.  Parent owns 100% of the common stock of the Company.  As of January
15, 1998, there are 469,854 shares of Common Stock of Parent outstanding.



 <TABLE>
<CAPTION>
                                                            AMOUNT AND
                                                            NATURE OF          PERCENT
              NAME OF                                       BENEFICIAL           OF
              BENEFICIAL OWNER                             OWNERSHIP (8)        CLASS
            -----------------------------------------------------------------------------
            <S>                                            <C>                 <C>
             KKR Associates, L.P.                          454,409 (1)          96.71
              c/o Kohlberg Kravis Roberts & Co.
              9 West 57th Street
              New York, New York  10019
             Michael S. Shannon                             31,677 (2)           6.43
             Larry E. Lichliter                             17,613 (3)           3.65
             John K. Saer, Jr.                               4,876 (4)           1.03
             Nola S. Dyal                                    2,802 (5)              *
             Bradley T. Quayle                               2,651 (6)              *
             All Executive Officers and Directors as
               a Group (24 persons)                         63,953 (7)          12.34
            -----------------------------------------------------------------------------
</TABLE>
 
*    Denotes less than one percent.

(1)  Shares of Common Stock shown as beneficially owned by KKR Associates, L.P.
     are held as follows: approximately 83.7% by Resort Associates, L.P.,
     approximately 11.9% by Golf Associates, L.P. and approximately 1.1% by KKR
     Partners II, L.P. (collectively, the "Partnerships").  KKR Associates,
     L.P., a limited partnership, is the sole general partner of each of the
     Partnerships and possesses sole voting and investment power with respect to
     such shares.  The general partners of KKR Associates, L.P. are Henry R.
     Kravis, George R. Roberts, Robert I. MacDonnell, Paul E. Raether, Michael
     W. Michelson, James H. Greene, Jr., Michael T. Tokarz, Perry Golkin,
     Clifton S. Robbins, Scott M. Stuart and Edward A. Gilhuly.  Messrs. Kravis,
     Roberts, Raether, Tokarz and Stuart are also directors of the Company.
     Alexander Navab, Jr. is a limited partner of KKR Associates, L.P. and is
     also a director of the Company.  Each of such individuals may be deemed to
     share beneficial ownership of the shares shown as beneficially owned by KKR
     Associates, L.P.  Each of such individuals disclaims beneficial ownership
     of such shares.

(2)  Includes options to purchase 22,744 shares exercisable within 60 days.

(3)  Includes options to purchase 12,646 shares exercisable within 60 days.

(4)  Includes options to purchase 3,565 shares exercisable within 60 days.

(5)  Represents options to purchase 2,802 shares exercisable within 60 days.

(6)  Represents options to purchase 2,651 shares exercisable within 60 days.

(7)  Includes options to purchase 48,508 shares exercisable within 60 days.

(8)  The nature of beneficial ownership for all of the shares listed is sole
     voting and investment power.


                                          45
<PAGE>

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

TRANSACTIONS WITH KKR

     KKR Associates, L.P. ("KKR") beneficially owns approximately 96.7% (84.5%
on a fully diluted basis) of Parent's outstanding shares of Common Stock. The
general partners of KKR are Messrs. Henry R. Kravis, George R. Roberts, Robert
I. MacDonnell, Paul E. Raether, Michael W. Michelson, Michael T. Tokarz, James
H. Greene, Jr., Perry Golkin, Clifton S. Robbins, Scott M. Stuart and Edward A.
Gilhuly. Messrs. Kravis, Roberts, Raether, Tokarz and Stuart are also directors
of the Company, as is Alexander Navab, Jr. who is a limited partner of KKR. Each
of the general partners of KKR is also a member of the limited liability company
which serves as the general partner of KKR and Mr. Navab is an executive of KKR.
KKR receives an annual fee of $500,000 in connection with providing financial
advisory services to Parent and may receive customary investment banking fees
for services rendered to Parent and/or the Company in connection with
divestitures, acquisitions and certain other transactions. See "Directors and
Executive Officers" and "Security Ownership of Certain Beneficial Owners and
Management."

     The limited partners of KKR are certain past and present employees of 
KKR and partnerships and trusts for the benefit of the families of the 
general partners and past and present employees and a former partner of KKR.

     Each of the Partnerships has the right to require Parent to register under
the Securities Act shares of Common Stock held by it pursuant to several
registration rights agreements. Such registration rights will generally be
available to each of the Partnerships until registration under the Securities
Act is no longer required to enable it to resell the Common Stock owned by it.
Such registration rights agreements provide, among other things, that Parent
will pay all expenses in connection with the first six registrations requested
by each such Partnership and in connection with any registration commenced by
Parent as a primary offering.

TRANSACTIONS WITH PARENT AND AFFILIATES OF PARENT

     In connection with the Refinancings, the Company and Parent entered into an
Expense Allocation Agreement pursuant to which Parent performs management
services requested by the Company and the Company reimburses Parent for all
expenses incurred by Parent and directly attributable to the Company and its
subsidiaries.

     The Company's liability for taxes is determined based upon a Tax Sharing
Agreement entered into by the members of the affiliated group of corporations
(within the meaning of Section 1504 of the Internal Revenue Code of 1986, as
amended (the "Code")) of which Parent is the common parent (the "Parent
Affiliated Group"). Under the Tax Sharing Agreement, the Company and its
subsidiaries are generally responsible for Federal taxes based upon the amount
that would be due if the Company and its subsidiaries filed Federal tax returns
as a separate affiliated group of corporations rather than as part of Parent's
consolidated Federal tax returns. The allocation of tax liability pursuant to
the Tax Sharing Agreement may not reflect the Company's actual tax liability
that would be imposed on the Company had it not filed tax returns as part of the
Parent Affiliated Group. The combined state tax liabilities are allocated to the
Company and its subsidiaries based on similar principles.

     Parent and the Company entered into the following transactions 
concurrently with or prior to the consummation of the Refinancings: (i) 
Parent contributed the outstanding capital stock of each of the parents of 
the subsidiaries that own Desert Resorts, Doral and Fairways, and the parent 
of the subsidiary that leases Lake Lanier Islands to the Company resulting in 
such parents becoming wholly-owned subsidiaries of the Company; (ii) KSL 
Landmark Corporation (which owned Desert Resorts and into which KSL Desert 
Resorts, Inc. was merged effective May 16, 1997) paid a dividend to Parent 
(through the Company) of all of the general partnership interests and Class A 
limited partnership interests owned by KSL Landmark Corporation in four 
affiliated limited partnerships whose principal assets are beneficial 
interests in undeveloped commercial and residential real estate parcels in 
the vicinity of Desert Resorts, thereby removing ongoing funding obligations 
of the Company for holding costs relating to undeveloped land; (iii) the 
Company sold to KSL Land at historical cost (which approximated fair market 
value) the general partnership interest and Class A limited partnership 
interest owned by KSL Landmark Corporation in an additional limited 
partnership whose principal assets are residential real estate parcels in the 
vicinity of Desert Resorts; (iv) Parent, the Company and affiliates settled 
intercompany balances, resulting in an increase in cash to the Company of 
$46.3 million; (v) the Company distributed to Parent in cash excess equity 
funding of $46.3 million contributed by Parent to KSL Landmark Corporation at 
the time of acquisition; (vi) the Company distributed $13.9 million in cash 
to Parent, which was recorded as a return of capital to Parent; (vii) the 
Company provided financing to KSL Land of $20.8 million and (viii) certain 
management, lending and other agreements used to allocate corporate general 
and administrative expenses between Parent and its subsidiaries prior to the 
Refinancings were canceled and the Company and Parent entered into the 
Expense Allocation Agreement which has resulted in an increase in corporate 
general and administrative expenses of the Company following the 
Refinancings. The Company paid management fees and fees pursuant to the 
Expense Allocation Agreement (reflected collectively as the "Corporate Fee" 
in the accompanying consolidated statements of operations) in the amount of 
$5.1 million to Parent in fiscal year 1997.

                                          46
<PAGE>

     On October 31, 1997, Parent contributed all of the capital stock of KSL 
Travel, Inc. ("Travel"), Wild West Desert Properties, Inc. whose name was 
subsequently changed to KSL Real Estate Company ("Real Estate") and KSL 
Vacation Resorts, Inc., whose name was subsequently changed to Las Casitas 
Corporation ("Las Casitas") to the Company and the Company contributed all 
such stock to KSL Desert Resorts, Inc., the result of which was that Travel, 
Real Estate and Las Casitas became wholly-owned subsidiaries of KSL Desert 
Resorts, Inc.  In connection with the contribution of capital stock of Las 
Casitas to the Company, Parent contributed capital in the amount of $138,000 
to the Company. Prior to the contribution of the capital stock of Real Estate 
to the Company, Real Estate paid a dividend of $600,000 to Parent.

TRANSACTIONS WITH MANAGEMENT

     Parent has made loans to Messrs. Shannon, Lichliter, Saer and Affeldt
(i) in connection with their purchase of common stock of Parent and (ii) to fund
the tax liability incurred as a result of their receipt of common stock of
Parent. Each of Messrs. Shannon, Lichliter, Saer and Affeldt has delivered
promissory notes to Parent as evidence of such indebtedness. See "Executive
Compensation--Stock Purchased by Management" and "--Stock Received in Lieu of
Fees."

     In addition, Parent has made loans to Messrs. Shannon, Lichliter, Saer and
Affeldt to fund tax liability incurred as a result of their receipt of common
stock of KSL Land and certain partnership interests in partnerships affiliated
with Parent. In connection with such loans, each of Messrs. Shannon, Lichliter,
Saer and Affeldt have delivered promissory notes in aggregate amounts of
$212,461, $122,832, $32,952 and $5,303, respectively.




                                          47
<PAGE>

                                       PART IV.

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

(a)  Documents filed as part of this report:

     (1)  Financial Statements

          The following Consolidated Financial Statements of KSL Recreation
          Group, Inc. and subsidiaries are included in Part II, Item 8:

               Independent Auditors' Report
               Consolidated Statements of Operations for the Years Ended
                 October  31, 1997, 1996 and 1995
               Consolidated Balance Sheets as of October 31, 1997 and 1996
               Consolidated Statements of Stockholder's Equity for the years
                 ended October 31, 1997, 1996 and 1995
               Consolidated Statements of Cash Flows for the fiscal years ended
                 October 31, 1997, 1996 and 1995
               Notes to Consolidated Financial Statements

     (2)  Financial Schedule

                          VALUATION AND QUALIFYING ACCOUNTS
                 FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995

     (In thousands)

<TABLE>
<CAPTION>
                                                            BALANCE AT     CHARGED TO   DEDUCTIONS -    BALANCE AT
                                                           BEGINNING OF     COST AND     NET CREDIT       END OF
                                                              PERIOD        EXPENSES        LOSS          PERIOD
                                                              ------        --------        ----          ------
      <S>                                                 <C>            <C>            <C>             <C>
      Allowance for doubtful accounts:
        Accounts Receivable . . . . . . . . . . . . .
      Fiscal year ended October 31, 1995. . . . . . .     $        569   $        425   $      (425)    $       569
      Fiscal year ended October 31, 1996. . . . . . .              569           1433          (429)          1,573
      Fiscal year ended October 31, 1997. . . . . . .            1,573          1,193        (2,044)            722
</TABLE>

Financial statements and schedules not listed are omitted because of the 
absence of the conditions under which they are required or because all 
material information is included in the consolidated financial statements or 
notes thereto.

     (3)  Exhibits

          3.1       Certificate of Incorporation of the Company, filed as
                    Exhibit 3.1 to the Company's Registration Statement on Form
                    S-4, File No. 333-31025, is hereby incorporated by
                    reference.

          *3.2      Certificate of Amendment of Certificate of Incorporation of
                    the Company (changing name to KSL Recreation Group, Inc.)

          3.3       By-laws of the Company, filed as Exhibit 3.2 to the
                    Company's Registration Statement on Form S-4, File No.
                    333-31025, is hereby incorporated by reference.

          4.1       Senior Subordinated Notes Indenture, dated as of April 30,
                    1997, among KSL Recreation Group, Inc. and First Trust of
                    New York National Association, Trustee, filed as Exhibit 4.1
                    to the Company's Registration Statement on Form S-4, File
                    No. 333-31025, is hereby incorporated by reference.

          4.2       Form of 10 1/4% Senior Subordinated Note due 2007, filed as
                    Exhibit 4.2 to the Company's Registration Statement on Form
                    S-4, File No. 333-31025, is hereby incorporated by
                    reference.  (Included as part of Senior Subordinated Notes
                    Indenture filed as Exhibit 4.1 to the Company's Registration
                    Statement on Form S-4, File No. 333-31025, and hereby
                    incorporated by reference.)


                                          48
<PAGE>

          4.3       Form of 10 1/4% Series B Senior Subordinated Note due 2007,
                    filed as Exhibit 4.3 to the Company's Registration Statement
                    on Form S-4, File No. 333-31025, is hereby incorporated by
                    reference.  (Included as part of Senior Subordinated Notes
                    Indenture filed as Exhibit 4.1 to the Company's Registration
                    Statement on Form S-4, File No. 333-31025, and hereby
                    incorporated by reference.)

          4.4       Senior Subordinated Notes Registration Rights Agreement,
                    dated April 30, 1997, by and among KSL Recreation Group,
                    Inc. and Donaldson, Lufkin & Jenrette Securities
                    Corporation, Salomon Brothers Inc, Credit Suisse First
                    Boston Corporation, BancAmerica Securities, Inc., Montgomery
                    Securities and Scotia Capital Markets, filed as Exhibit 4.4
                    to the Company's Registration Statement on Form S-4, File
                    No. 333-31025, is hereby incorporated by reference.

          10.1      Credit Agreement, dated as of April 30, 1997, among KSL
                    Recreation Group, Inc. and Donaldson, Lufkin & Jenrette
                    Securities Corporation, as a co-syndication agent and
                    documentation agent, The Bank of Nova Scotia, as a
                    co-syndication agent and administrative agent, and
                    BancAmerica Securities, Inc., as syndication agent, filed as
                    Exhibit 10.1 to the Company's Registration Statement on Form
                    S-4, File No. 333-31025, is hereby incorporated by
                    reference.

          10.2      Sublease, executed between Lake Lanier Islands Development
                    Authority and KSL Lake Lanier, Inc., filed as Exhibit 10.2
                    to the Company's Registration Statement on Form S-4, File
                    No. 333-31025, is hereby incorporated by reference.

          10.3      Management Agreement effective as of May 16, 1996, by and
                    between Lake Lanier Islands Development Authority and KSL
                    Lake Lanier, Inc., filed as Exhibit 10.3 to the Company's
                    Registration Statement on Form S-4, File No. 333-31025, is
                    hereby incorporated by reference.

          10.4      License Agreement, dated March 5, 1994, between The
                    Professional Golfer's Association and LML Development Corp.
                    of California as assigned by the Assignment and Assumption
                    Agreement, dated December 24, 1993, by and between Landmark
                    Land Company of California, Inc. and KSL Landmark
                    Corporation, filed as Exhibit 10.4 to the Company's
                    Registration Statement on Form S-4, File No. 333-31025, is
                    hereby incorporated by reference.

          10.5      Trademark Agreement, dated January 10, 1985, between PGA
                    Tour, Inc. and Landmark Land Company of California, Inc. as
                    assigned by the Assignment and Assumption Agreement, dated
                    December 24, 1993, by and between Landmark Land Company of
                    California, Inc. and KSL Landmark Corporation, filed as
                    Exhibit 10.5 to the Company's Registration Statement on Form
                    S-4, File No. 333-31025, is hereby incorporated by
                    reference.

          10.6      Assignment and Assumption Agreement, dated December 24,
                    1993, by and between Landmark Land Company of California,
                    Inc. and KSL Landmark Corporation, filed as Exhibit 10.6 to
                    the Company's Registration Statement on Form S-4, File No.
                    333-31025, is hereby incorporated by reference.

          10.7      License Agreement, dated December 30, 1993, among Carol
                    Management Corporation, C.A.H. Spa of Florida Corp., KSL
                    Hotel Corp., and KSL Spa Corp. (subsequently merged into KSL
                    Hotel Corp.), filed as Exhibit 10.7 to the Company's
                    Registration Statement on Form S-4, File No. 333-31025, is
                    hereby incorporated by reference.

          10.8      KSL Recreation Corporation 1995 Stock Purchase and Option
                    Plan, filed as Exhibit 10.8 to the Company's Registration
                    Statement on Form S-4, File No. 333-31025, is hereby
                    incorporated by reference.

          10.9      Form of KSL Recreation Corporation Common Stock Purchase
                    Agreement, filed as Exhibit 10.9 to the Company's
                    Registration Statement on Form S-4, File No. 333-31025, is
                    hereby incorporated by reference.

          10.10     From of KSL Recreation Corporation Non-Qualified Stock
                    Option Agreement, filed as Exhibit 10.10 to the Company's
                    Registration Statement on Form S-4, File No. 333-31025, is
                    hereby incorporated by reference.

          10.11     Expense Allocation Agreement, dated April 30, 1997, between
                    KSL Recreation Corporation and KSL Recreation Group, Inc.,
                    filed as Exhibit 10.11 to the Company's Registration
                    Statement on Form S-4, File No. 333-31025, is hereby
                    incorporated by reference.


                                          49
<PAGE>

          10.12     Tax Sharing Agreement and Amendment to Tax Sharing
                    Agreement, dated April 30, 1997, by and between KSL
                    Recreation Corporation, KSL Recreation Group, Inc., KSL
                    Landmark Corporation, KSL Desert Resorts, Inc., KSL Vacation
                    Resorts, Inc., Xochimilco Properties, Inc., Wild West Desert
                    Properties, Inc., KSL Travel, Inc., KSL Golf Holdings, Inc.,
                    KSL Fairways Golf Corporation, KSL Florida Holdings, Inc.,
                    KSL Hotel Corp., KSL Georgia Holdings, Inc., KSL Lake
                    Lanier, Inc., KSL Land Corporation and KSL Land II
                    Corporation, filed as Exhibit 10.12 to the Company's
                    Registration Statement on Form S-4, File No. 333-31025, is
                    hereby incorporated by reference.

          *10.13    Second Amendment to the Tax Sharing Agreement, dated 
                    November 1, 1997, by and among KSL Recreation 
                    Corporation, KSL Recreation Group, Inc., KSL Land 
                    Holdings, Inc., KSL Landmark Corporation, KSL Desert 
                    Resorts, Inc., Las Casitas Corporation, KSL Real Estate 
                    Company, KSL Travel, Inc., Casitas Plaza Corporation, KSL 
                    Golf Holdings, Inc., KSL Fairways Golf Corporation, KSL 
                    Florida Holdings, Inc., KSL Hotel Corp., KSL Silver 
                    Properties, Inc., KSL Georgia Holdings, Inc., KSL Lake 
                    Lanier, Inc., KSL Grand Traverse Holdings, Inc., KSL 
                    Grand Traverse Land, Inc., KSL Grand Traverse Realty, 
                    Inc., KSL Grand Traverse Resort, Inc., KSL Water Works, 
                    Inc., KSL Land Corporation, KSL Citrus Properties, Inc., 
                    KSL Development Corporation, KSL Land II Corporation, KSL 
                    Land III Corporation, KSL Land IV Corporation and Landaq, 
                    Inc.

          *10.14    Contract for Purchase and Sale of Grand Traverse Resort,
                    dated August 1, 1997, by and between Grand Traverse Holding
                    Company, GRS Grand Hotel Corporation, General Realty
                    Services, Inc., GTR Resort Development, Inc. and Grand
                    Personalty, Inc., TICOR Title Insurance Corporation and KSL
                    Recreation Corporation as assigned by the Assignment of
                    Purchase Contract from KSL Recreation Corporation to KSL
                    Grand Traverse Holdings, Inc., KSL Grand Traverse Resort,
                    Inc., KSL Grand Traverse Land, Inc., KSL Grand Traverse
                    Realty, Inc., and KSL Water Works, Inc. dated August 1,
                    1997.

          *10.15    Assignment of Purchase Contract from KSL Recreation
                    Corporation to KSL Grand Traverse Holdings, Inc., KSL Grand
                    Traverse Resort, Inc., KSL Grand Traverse Land, Inc., KSL
                    Grand Traverse Realty, Inc., and KSL Water Works, Inc. dated
                    August 1, 1997.

          *11       Computation of Earnings (Loss) Per Share

           13       Quarterly Report on Form 10-Q for the period ended July 31,
                    1997 filed on October 24, 1997 is hereby incorporated by
                    reference.

          *21       List of Subsidiaries of the Company

          ---------------------------------
          * Filed herewith.


                                          50
<PAGE>

                                      SIGNATURES

          Pursuant to the requirements of the Securities and Exchange Act of 
1934, the registrant has duly caused this Annual Report on Form 10-K to be 
signed on its behalf by the undersigned, thereunto duly authorized, on 
January 28, 1998.

                                            KSL RECREATION GROUP, INC.


                                            By:    /s/ John K. Saer, Jr.
                                                 ----------------------------
                                                 John K. Saer, Jr.
                                                 Vice President, Chief Financial
                                                 Officer and Treasurer

          Pursuant to the requirements of the Securities and Exchange Act of 
1934, this Annual Report on Form 10-K has been signed below by the following 
persons in the capacities indicated on January 28, 1998.

           Signatures                                 Title
---------------------------------  --------------------------------------------

     /s/ Michael S. Shannon          President, Chief Executive Officer and
--------------------------------     Director (Principal Executive Officer)
      (Michael S. Shannon)


     /s/ Larry E. Lichliter          Executive Vice President and Director
--------------------------------
      (Larry E. Lichliter)


        /s/ Henry R. Kravis          Director
--------------------------------
         (Henry R. Kravis)


                                     Director
--------------------------------
        (George R. Roberts)


        /s/ Paul E. Raether          Director
--------------------------------
         (Paul E. Raether)


       /s/ Michael T. Tokarz         Director
--------------------------------
        (Michael T. Tokarz)


                                     Director
--------------------------------
         (Scott M. Stuart)


                                     Director
--------------------------------
     (Alexander Navab, Jr.)


       /s/ John K. Saer, Jr.         Vice President, Chief Financial Officer
--------------------------------     and Treasurer  (Principal Financial
        (John K. Saer, Jr.)          Officer)

     /s/ Emily-May Richards          Controller  (Principal Accounting Officer)
--------------------------------
      (Emily-May Richards)



                                          51
<PAGE>


                                    EXHIBIT INDEX

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

     3.1       Certificate of Incorporation of the Company, filed as Exhibit 3.1
               to the Company's Registration Statement on Form S-4, File No.
               333-31025, is hereby incorporated by reference.

  *  3.2       Certificate of Amendment of Certificate of Incorporation of the
               Company (changing name to KSL Recreation Group, Inc.)

     3.3       By-laws of the Company, filed as Exhibit 3.2 to the Company's
               Registration Statement on Form S-4, File No. 333-31025, is hereby
               incorporated by reference.

     4.1       Senior Subordinated Notes Indenture, dated as of April 30, 1997,
               among KSL Recreation Group, Inc. and First Trust of New York
               National Association, Trustee, filed as Exhibit 4.1 to the
               Company's Registration Statement on Form S-4, File No. 333-31025,
               is hereby incorporated by reference.

     4.2       Form of 10 1/4% Senior Subordinated Note due 2007, filed as
               Exhibit 4.2 to the Company's Registration Statement on Form S-4,
               File No. 333-31025, is hereby incorporated by reference.
               (Included as part of Senior Subordinated Notes Indenture filed as
               Exhibit 4.1 to the Company's Registration Statement on Form S-4,
               File No. 333-31025, and hereby incorporated by reference.)

     4.3       Form of 10 1/4% Series B Senior Subordinated Note due 2007, filed
               as Exhibit 4.3 to the Company's Registration Statement on Form
               S-4, File No. 333-31025, is hereby incorporated by reference.
               (Included as part of Senior Subordinated Notes Indenture filed as
               Exhibit 4.1 to the Company's Registration Statement on Form S-4,
               File No. 333-31025, and hereby incorporated by reference.)

     4.4       Senior Subordinated Notes Registration Rights Agreement, dated
               April 30, 1997, by and among KSL Recreation Group, Inc. and
               Donaldson, Lufkin & Jenrette Securities Corporation, Salomon
               Brothers Inc, Credit Suisse First Boston Corporation, BancAmerica
               Securities, Inc., Montgomery Securities and Scotia Capital
               Markets, filed as Exhibit 4.4 to the Company's Registration
               Statement on Form S-4, File No. 333-31025, is hereby incorporated
               by reference.

     10.1      Credit Agreement, dated as of April 30, 1997, among KSL
               Recreation Group, Inc. and Donaldson, Lufkin & Jenrette
               Securities Corporation, as a co-syndication agent and
               documentation agent, The Bank of Nova Scotia, as a co-syndication
               agent and administrative agent, and BancAmerica Securities, Inc.,
               as syndication agent, filed as Exhibit 10.1 to the Company's
               Registration Statement on Form S-4, File No. 333-31025, is hereby
               incorporated by reference.

     10.2      Sublease, executed between Lake Lanier Islands Development
               Authority and KSL Lake Lanier, Inc., filed as Exhibit 10.2 to the
               Company's Registration Statement on Form S-4, File No. 333-31025,
               is hereby incorporated by reference.

     10.3      Management Agreement effective as of May 16, 1996, by and between
               Lake Lanier Islands Development Authority and KSL Lake Lanier,
               Inc., filed as Exhibit 10.3 to the Company's Registration
               Statement on Form S-4, File No. 333-31025, is hereby incorporated
               by reference.

     10.4      License Agreement, dated March 5, 1994, between The Professional
               Golfer's Association and LML Development Corp. of California as
               assigned by the Assignment and Assumption Agreement, dated
               December 24, 1993, by and between Landmark Land Company of
               California, Inc. and KSL Landmark Corporation, filed as Exhibit
               10.4 to the Company's Registration Statement on Form S-4, File
               No. 333-31025, is hereby incorporated by reference.

<PAGE>

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

     10.5      Trademark Agreement, dated January 10, 1985, between PGA Tour,
               Inc. and Landmark Land Company of California, Inc. as assigned by
               the Assignment and Assumption Agreement, dated December 24, 1993,
               by and between Landmark Land Company of California, Inc. and KSL
               Landmark Corporation, filed as Exhibit 10.5 to the Company's
               Registration Statement on Form S-4, File No. 333-31025, is hereby
               incorporated by reference.

     10.6      Assignment and Assumption Agreement, dated December 24, 1993, by
               and between Landmark Land Company of California, Inc. and KSL
               Landmark Corporation, filed as Exhibit 10.6 to the Company's
               Registration Statement on Form S-4, File No. 333-31025, is hereby
               incorporated by reference.

     10.7      License Agreement, dated December 30, 1993, among Carol
               Management Corporation, C.A.H. Spa of Florida Corp., KSL Hotel
               Corp., and KSL Spa Corp. (subsequently merged into KSL Hotel
               Corp.), filed as Exhibit 10.7 to the Company's Registration
               Statement on Form S-4, File No. 333-31025, is hereby incorporated
               by reference.

     10.8      KSL Recreation Corporation 1995 Stock Purchase and Option Plan,
               filed as Exhibit 10.8 to the Company's Registration Statement on
               Form S-4, File No. 333-31025, is hereby incorporated by
               reference.

     10.9      Form of KSL Recreation Corporation Common Stock Purchase
               Agreement, filed as Exhibit 10.9 to the Company's Registration
               Statement on Form S-4, File No. 333-31025, is hereby incorporated
               by reference.

     10.10     Form of KSL Recreation Corporation Non-Qualified Stock Option
               Agreement, filed as Exhibit 10.10 to the Company's Registration
               Statement on Form S-4, File No. 333-31025, is hereby incorporated
               by reference.

     10.11     Expense Allocation Agreement, dated April 30, 1997, between KSL
               Recreation Corporation and KSL Recreation Group, Inc., filed as
               Exhibit 10.11 to the Company's Registration Statement on Form
               S-4, File No. 333-31025, is hereby incorporated by reference.

     10.12     Tax Sharing Agreement and Amendment to Tax Sharing Agreement,
               dated April 30, 1997, by and between KSL Recreation Corporation,
               KSL Recreation Group, Inc., KSL Landmark Corporation, KSL Desert
               Resorts, Inc., KSL Vacation Resorts, Inc., Xochimilco Properties,
               Inc., Wild West Desert Properties, Inc., KSL Travel, Inc., KSL
               Golf Holdings, Inc., KSL Fairways Golf Corporation, KSL Florida
               Holdings, Inc., KSL Hotel Corp., KSL Georgia Holdings, Inc., KSL
               Lake Lanier, Inc., KSL Land Corporation and KSL Land II
               Corporation, filed as Exhibit 10.12 to the Company's Registration
               Statement on Form S-4, File No. 333-31025, is hereby incorporated
               by reference.

  *  10.13     Second Amendment to the Tax Sharing Agreement, dated October 31,
               1997, by and among KSL Recreation Corporation, KSL Recreation
               Group, Inc., KSL Land Holdings, Inc., KSL Landmark Corporation,
               KSL Desert Resorts, Inc., Las Casitas Corporation, KSL Real
               Estate Company, KSL Travel, Inc., Casitas Plaza Corporation, KSL
               Golf Holdings, Inc., KSL Fairways Golf Corporation, KSL Florida
               Holdings, Inc., KSL Hotel Corp., KSL Silver Properties, Inc., KSL
               Georgia Holdings, Inc., KSL Lake Lanier, Inc., KSL Grand Traverse
               Holdings, Inc., KSL Grand Traverse Land, Inc., KSL Grand Traverse
               Realty, Inc., KSL Grand Traverse Resort, Inc., KSL Water Works,
               Inc., KSL Land Corporation, KSL Citrus Properties, Inc., KSL
               Development Corporation, KSL Land II Corporation, KSL Land III
               Corporation, KSL Land IV Corporation, and Landaq, Inc.

<PAGE>

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

  *  10.14     Contract for Purchase and Sale of Grand Traverse Resort, dated
               August 1, 1997, by and between Grand Traverse Holding Company,
               GRS Grand Hotel Corporation, General Realty Services, Inc., GTR
               Resort Development, Inc. and Grand Personalty, Inc., TICOR Title
               Insurance Corporation and KSL Recreation Corporation as assigned
               by the Assignment of Purchase Contract from KSL Recreation
               Corporation to KSL Grand Traverse Holdings, Inc., KSL Grand
               Traverse Resort, Inc., KSL Grand Traverse Land, Inc., KSL Grand
               Traverse Realty, Inc., and KSL Water Works, Inc. dated August 1,
               1997.

  *  10.15     Assignment of Purchase Contract from KSL Recreation Corporation
               to KSL Grand Traverse Holdings, Inc., KSL Grand Traverse Resort,
               Inc., KSL Grand Traverse Land, Inc., KSL Grand Traverse Realty,
               Inc., and KSL Water Works, Inc. dated August 1, 1997.

  *  11        Computation of Earnings (Loss) Per Share

     13        Quarterly Report on Form 10-Q for the period ended July 31, 1997
               filed on October 24, 1997 is hereby incorporated by reference.

  *  21        List of Subsidiaries of the Company


--------------
  * Filed herewith.