UNITED STATES ~~SECURITIES AND EXCHANGE COMMISSION~~

Washington,SECURITIES D.C. 20549AND EXCHANGE COMMISSION

~~FORM~~Washington, ~~10 - Q~~D.C. 20549

ýFORM ~~QUARTERLY~~10 ~~REPORT~~- ~~PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~Q

~~For the~~ý ~~quarterly~~QUARTERLY ~~period~~REPORT ~~ended~~PURSUANT ~~June~~TO ~~30,~~SECTION ~~2003~~13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

orFor the quarterly period ended September 30, 2003

~~o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~or

~~For the~~o ~~transition~~TRANSITION ~~period~~REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE ~~from to~~ SECURITIES EXCHANGE ACT OF 1934

~~Commission file~~For ~~number~~the ~~1-8885~~transition period from to

~~THE NEWHALL~~Commission ~~LAND~~file ~~AND~~number ~~FARMING COMPANY (a California Limited Partnership)~~1-8885

~~(Exact~~THE ~~name~~NEWHALL ~~of Registrant~~LAND asAND ~~specified in its charter)~~FARMING COMPANY

California		95-3931727
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
23823 Valencia Boulevard, Valencia, CA		91355
(Address of principal executive offices)		(Zip Code)
(661) 255-4000
(Registrant’s telephone number, including area code)

(a California Limited Partnership)

~~Indicate by check mark whether the Registrant~~ (1)Exact ~~has~~name ~~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~~as ~~required~~specified toin ~~file such~~its ~~reports~~charter)~~, and (2) has been subject to such filing requirements for the past 90 days.~~

YES ý NO o

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

23823 Valencia Boulevard, Valencia, CA		91355
(Address of principal executive offices)		(Zip Code)

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

Indicate by check ~~mark~~ mark whether the ~~registrant~~Registrant is(1) anhas ~~accelerated~~filed ~~filer~~all reports required to be filed by Section 13 or 15(asd) ~~defined~~of inthe ~~Rule~~Securities ~~12b-2~~Exchange Act of 1934 during the preceding ~~Act~~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 ý NO o

~~23,552,578~~Indicate by check mark whether the registrant is an accelerated filer ~~partnership~~(as ~~units~~defined ~~outstanding~~in atRule ~~July~~12b-2 ~~31,~~of ~~2003~~the Act).

~~Part I. Financial Information~~YES ý NO o

~~Item~~23,913,801 1.partnership ~~Financial Statements~~units outstanding at October 31, 2003

~~Consolidated~~Part ~~Statements~~I. ofFinancial ~~Income~~Information

~~(Unaudited)~~Item 1. Financial Statements

In thousands except per unit	Three Months Ended June 30,						Six Months Ended June 30,
	2003			2002			2003			2002
Revenues
Real estate
Residential land sales	$	5,458		$	27,878		$	50,757		$	44,775
Industrial and commercial sales	1,056			9,802			10,006			31,563
Commercial operations
Income-producing properties	9,473			9,742			19,374			19,471
Valencia Water Company	3,203			3,480			5,945			6,279
	19,190			50,902			86,082			102,088
Agriculture operations	1,258			1,308			1,910			1,931
Total revenues	$	20,448		$	52,210		$	87,992		$	104,019
Contribution to income
Real estate
Residential land sales	$	5,992		$	9,532		$	22,072		$	14,065
Industrial and commercial sales	(830		)	5,049			(204		)	14,736
Community development	(3,772		)	(4,829		)	(6,459		)	(7,719		)
Commercial operations
Income-producing properties	2,375			3,139			4,734			6,179
Valencia Water Company	436			734			633			1,176
	4,201			13,625			20,776			28,437
Agriculture operations	290			(7		)	594			267
General and administrative expense	(2,534		)	(3,529		)	(7,037		)	(6,349		)
Operating income	1,957			10,089			14,333			22,355
Interest and other, net	(610		)	(714		)	(1,209		)	(1,857		)
Net income	$	1,347		$	9,375		$	13,124		$	20,498
Net income per unit	$	0.06		$	0.39		$	0.56		$	0.85
Net income per unit - diluted	$	0.06		$	0.38		$	0.56		$	0.83
Weighted average number of units used in computing per unit amounts:
Net income per unit	23,357			24,064			23,280			24,144
Net income per unit - diluted	23,665			24,560			23,583			24,589
Cash distributions per unit:
Regular	$	0.10		$	0.10		$	0.20		$	0.20
Special	—			—			—			0.13

Consolidated Statements of Income

~~See notes to consolidated financial statements~~(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
In thousands except per unit	2003			2002			2003			2002
Revenues

Real estate
Residential land sales	$	9,344		$	37,761		$	60,101		$	82,536
Industrial and commercial sales	13,241			3,331			23,247			34,894
Commercial operations
Income-producing properties	10,940			9,700			30,314			29,171
Valencia Water Company	4,736			4,427			10,681			10,706
	38,261			55,219			124,343			157,307

Agriculture operations	1,244			2,971			3,154			4,902

Total revenues	$	39,505		$	58,190		$	127,497		$	162,209

Contribution to Income

Real estate
Residential land sales	$	6,722		$	12,338		$	28,794		$	26,403
Industrial and commercial sales	6,841			121			6,637			14,857
Community development	(3,581		)	(5,933		)	(10,040		)	(13,652		)
Commercial operations
Income-producing properties	1,715			3,121			6,449			9,300
Valencia Water Company	1,048			981			1,681			2,157
	12,745			10,628			33,521			39,065

Agriculture operations	399			(296		)	993			(29		)

General and administrative expense	(5,262		)	(2,980		)	(12,299		)	(9,329		)

Operating income	7,882			7,352			22,215			29,707

Interest and other, net	(948		)	(685		)	(2,157		)	(2,542		)

Net Income	$	6,934		$	6,667		$	20,058		$	27,165

Net income per unit	$	0.29		$	0.28		$	0.86		$	1.13

Net income per unit - diluted	$	0.29		$	0.27		$	0.84		$	1.11

Weighted average number of units used in computing per unit amounts:
Net income per unit	23,600			24,013			23,388			24,100
Net income per unit - diluted	24,131			24,286			23,766			24,486

Cash distributions per unit:
Regular	$	0.10		$	0.10		$	0.30		$	0.30
Special	—			—			—			0.13

~~Consolidated~~See notes ~~Balance~~to ~~Sheets~~consolidated financial statements

In thousands	June 30, 2003			December 31, 2002
	(Unaudited)
ASSETS
Cash and cash equivalents	$	48,210		$	25,403
Accounts and notes receivable	8,766			6,131
Land under development	34,059			47,428
Land held for future development	19,053			19,154
Income-producing properties, net	168,561			159,971
Property and equipment, net	78,114			76,449
Investment in joint venture	1,372			1,199
Other assets and deferred charges	27,169			23,890
	$	385,304		$	359,625
LIABILITIES AND PARTNERS’ CAPITAL
Accounts payable	$	33,755		$	35,948
Accrued expenses	54,305			43,119
Deferred revenues	31,670			22,696
Mortgage and other debt	65,233			60,037
Advances and contributions from developers for utility construction	38,705			38,490
Other liabilities	24,012			23,639
Total liabilities	247,680			223,929
Partners’ capital
23,304 units outstanding, excluding 13,468 units in treasury (cost-$336,860), at June 30, 2003 and 23,518 units outstanding, excluding 13,254 units in treasury (cost-$330,358), at December 31, 2002	138,902			136,974
Accumulated other comprehensive income	(1,278		)	(1,278		)
	137,624			135,696
	$	385,304		$	359,625

~~See~~Consolidated Balance ~~notes to consolidated financial statements~~Sheets

In thousands	September 30, 2003			December 31, 2002
	(Unaudited)
ASSETS

Cash and cash equivalents	$	68,793		$	25,403

Accounts and notes receivable	8,356			6,131

Land under development	38,537			47,428

Land held for future development	19,053			19,154

Income-producing properties, net	170,550			159,971

Property and equipment, net	78,503			76,449

Investment in joint venture	1,366			1,199

Other assets and deferred charges	28,648			23,890

	$	413,806		$	359,625

LIABILITIES AND PARTNERS’ CAPITAL

Accounts payable	$	42,642		$	35,948

Accrued expenses	57,830			43,119

Deferred revenues	29,818			22,696

Mortgage and other debt	65,118			60,037

Advances and contributions from developers for utility construction	40,131			38,490

Other liabilities	24,417			23,639

Total liabilities	259,956			223,929

Partners’ capital

23,913 units outstanding, excluding 12,859 units in treasury (cost-$325,157), at September 30, 2003 and 23,518 units outstanding, excluding 13,254 units in treasury (cost-$330,358), at December 31, 2002	155,128			136,974

Accumulated other comprehensive income	(1,278		)	(1,278		)

	153,850			135,696

	$	413,806		$	359,625

~~Consolidated~~See notes ~~Statements~~to ofconsolidated ~~Cash Flow~~financial statements

~~(Unaudited)~~3

	Six Months Ended June 30,
In thousands	2003			2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	13,124		$	20,498
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	5,870			5,689
Increase in land under development	(18,672		)	(47,104		)
Cost of sales and other inventory changes	32,141			44,376
Decrease in accounts and notes receivable	(2,635		)	(10,530		)
Increase in accounts payable, accrued expenses and deferred revenues	17,695			16,138
Cost of property sold	1,738			124
Other adjustments, net	(2,958		)	(1,482		)
Net cash provided by operating activities	46,303			27,709
CASH FLOWS FROM INVESTING ACTIVITIES:
Development of income-producing properties	(14,379		)	(5,798		)
Purchase of property and equipment	(3,430		)	(4,131		)
Investment in joint venture	(173		)	(315		)
Net cash used in investing activities	(17,982		)	(10,244		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions paid	(4,695		)	(7,999		)
Increase (decrease) in mortgage and other debt, net	5,196			(3,223		)
Increase in advances and contributions from developers for utility construction	215			3,353
Purchase of partnership units	(8,514		)	(12,703		)
Issuance of partnership units	2,284			2,122
Net cash used in financing activities	(5,514		)	(18,450		)
Net increase (decrease) in cash and cash equivalents	22,807			(985		)
Cash and cash equivalents, beginning of period	25,403			3,050
Cash and cash equivalents, end of period	$	48,210		$	2,065
Supplemental schedule of non-cash investing and financing activites:
Payable for unit repurchases	$	(273	)	$	—

Consolidated Statements of Cash Flow

~~See notes to consolidated financial statements~~(Unaudited)

	Nine Months Ended September 30,
In thousands	2003			2002

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income	$	20,058		$	27,165

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization	9,763			8,561
Increase in land under development	(31,830		)	(68,412		)
Cost of sales and other inventory changes	40,823			72,477
(Increase) decrease in accounts and notes receivable	(2,225		)	3,106
Increase in accounts payable, accrued expenses and deferred revenues	28,528			30,985
Cost of property sold	1,537			127
Other adjustments, net	(4,051		)	(1,065		)

Net cash provided by operating activities	62,603			72,944

CASH FLOWS FROM INVESTING ACTIVITIES:

Development of income-producing properties	(19,015		)	(11,968		)
Purchase of property and equipment	(4,906		)	(6,802		)
Investment in joint venture	(167		)	(509		)

Net cash used in investing activities	(24,088		)	(19,279		)

CASH FLOWS FROM FINANCING ACTIVITIES:

Distributions paid	(7,048		)	(10,398		)
Increase (decrease) in mortgage and other debt, net	5,081			(26,630		)
Increase in advances and contributions from developers for utility construction	1,641			4,185
Purchase of partnership units	(8,787		)	(14,959		)
Issuance of partnership units	13,988			2,406

Net cash provided by (used in) financing activities	4,875			(45,396		)

Net increase in cash and cash equivalents	43,390			8,269

Cash and cash equivalents, beginning of period	25,403			3,050

Cash and cash equivalents, end of period	$	68,793		$	11,319

Supplemental Disclosure of Cash Flow Information:

Interest paid (net of amount capitalized of $1,736 as of September 30, 2003 and $1,053 as of September 30, 2002)	$	1,293		$	2,538

~~Notes~~See notes to ~~Consolidated~~consolidated ~~Financial Statements~~financial statements

~~Note 1. Accounting Policies~~4

~~The~~Notes Newhall Land and Farming Company’s (“the Company”) unaudited interim financial statements have been prepared in conformity with generally accepted accounting principles used in the preparation of the Company’s annual financial statements. In the opinion of the Company, all adjustments, consisting of normal and recurring items, necessary for a fair presentation of the results of operations for the three and six months ended June 30, 2003 and 2002 have been made. The interim statements are condensed and do not include some of the information necessary for a more complete understanding of the financial data. Accordingly, your attention is directed to ~~the~~Consolidated footnote disclosures found on pages 32 through 45 of the Company’s 2002 Annual Report on Form 10-K. In addition, a summary of the accounting policies that management considers significant in the preparation of the Company’s consolidated financial statements is included below and in Item 2: Management’s Discussion and Analysis of Financial ~~Condition~~Statements ~~and Results of Operations.~~(unaudited)

~~Interim~~Note ~~financial~~1. ~~information~~Accounting ~~for the Company has substantial limitations as an indicator for the calendar year because:~~Policies

• The Newhall Land and ~~sales~~Farming ~~occur~~Company’s ~~irregularly~~(“the Company”) unaudited interim financial statements have been prepared pursuant to the rules and ~~are~~regulations ~~recognized~~promulgated atby the Securities ~~close~~and ofExchange ~~escrow~~Commission. Certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, ~~provided~~although ~~profit~~the ~~recognition~~Company ~~criteria~~believes that the disclosures are ~~met~~adequate to make the information presented not misleading. In the opinion of the Company, orall adjustments, consisting ifof normal and recurring items, necessary for a fair presentation of the ~~Company~~results ~~has~~of anoperations ~~obligation~~for tothe three and nine months ended September 30, ~~complete~~2003 ~~certain~~and ~~future~~2002 ~~improvements~~have been made. For additional information, your attention is directed to the footnote disclosures found on pages 36 through 51 of the ~~percentage~~Company’s 2002 Annual Report on Form 10-K. In addition, a summary of ~~completion~~the ~~basis~~accounting policies that management considers significant in the preparation of the Company’s consolidated financial statements is included below and in Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations.

~~• Sales of~~Interim ~~income~~financial ~~properties~~information ~~and~~for ~~non-developable~~the ~~farmland~~Company ~~occur irregularly and are~~has ~~recognized~~substantial ~~upon~~limitations ~~close~~as ofan ~~escrow~~indicator ~~provided~~for ~~profit~~the ~~recognition~~calendar ~~criteria~~year ~~are met.~~because:

• ~~Agricultural~~Land sales ~~crops~~occur ~~are~~irregularly onand anare ~~annual~~recognized ~~cycle~~at ~~and~~the ~~income~~close isof ~~recognized~~escrow, ~~upon~~provided ~~harvest.~~profit recognition ~~Most~~criteria ~~major crops~~are ~~grown~~met, byor, if the Company orhas ~~its~~an ~~contractors~~obligation ~~are~~to ~~harvested~~complete certain ~~during~~future improvements, on the ~~fall~~percentage ~~and winter~~of completion basis.

~~Basis~~• Sales of ~~Consolidation: The~~income ~~consolidated~~properties ~~financial~~and ~~statements~~non-developable ~~include~~farmland ~~the~~occur ~~accounts~~irregularly ~~of The Newhall Land~~ and ~~Farming~~ ~~Company and its subsidiaries, which~~ are ~~wholly-owned or controlled by~~recognized ~~the~~upon ~~Company~~close ~~(collectively,~~of ~~“the~~escrow ~~Company”).~~provided ~~All~~profit ~~significant~~recognition ~~intercompany balances~~criteria ~~and transactions~~ are ~~eliminated~~met.

~~Reclassifications: Certain~~• Agricultural crops ~~reclassifications~~are on an annual cycle and income is recognized upon harvest. Most major ~~have~~crops ~~been~~grown ~~made~~by tothe ~~prior~~Company ~~years’~~or ~~amounts~~its tocontractors ~~conform~~are toharvested during the ~~current~~fall ~~year~~and ~~presentation~~winter.

~~Joint~~Basis of ~~Ventures~~Consolidation: The ~~equity~~consolidated ~~method~~financial isstatements include ~~used~~the toaccounts ~~account~~of ~~for~~The ~~an investment~~Newhall inLand aand ~~joint~~Farming ~~venture~~Company ~~with~~and ~~Hilton Inns~~its subsidiaries, ~~Inc.,~~ which isare ~~not~~wholly-owned or controlled by the Company. All significant intercompany balances and transactions are eliminated.

~~Cash and Cash Equivalents~~Reclassifications: ~~The Company considers all~~Certain ~~highly~~reclassifications ~~liquid~~have ~~investments~~been ~~with~~made ~~original~~to ~~maturity~~prior ~~dates~~years’ ofamounts 90to ~~days~~conform ~~or less~~ to bethe ~~cash~~current ~~equivalents~~year presentation.

~~Income-Producing Properties;~~Joint ~~Property and Equipment~~Venture: ~~Property~~The equity ismethod ~~stated at cost. Depreciation~~ is ~~provided~~ onused ~~the straight-line basis over the estimated useful lives of the various assets without regard~~ to ~~salvage~~account ~~value. Lives used~~ for ~~calculating depreciation~~an ~~are~~investment asin ~~follows:~~a ~~buildings~~joint –venture 25with ~~to 40 years; equipment – 3 to 10~~Hilton ~~years;~~Inns, ~~water supply systems~~Inc., ~~orchards~~which ~~and~~is ~~other~~not –controlled 5by tothe ~~75 years~~Company.

~~Stock-based employee~~Cash ~~compensation: Stock-based employee~~and ~~compensation~~Cash ~~is accounted for using the intrinsic value method allowed under APB Opinion No. 25, Accounting for Stock Issued to Employees.~~Equivalents: NoThe ~~stock-based employee compensation expense is reflected in net income, as options granted under the~~ Company~~’s plans have~~ anconsiders ~~exercise~~all ~~price~~highly ~~equal~~liquid toinvestments ~~the~~with ~~market~~original ~~value~~maturity ofdates ~~the Company’s partnership units on the date~~ of ~~grant. The~~90 ~~following~~days ~~table~~or ~~illustrates~~less ~~the effect on net income and net income per unit if the Company had applied the fair value provisions of SFAS No. 123, Accounting for Stock-Based Compensation~~ to ~~stock-based~~be ~~employee~~cash ~~compensation~~equivalents.

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

	Three Months Ended June 30,						Six Months Ended June 30,
In thousands, except per unit	2003			2002			2003			2002
Net Income, as reported	$	1,347		$	9,375		$	13,124		$	20,498
Total stock-based employee compensation expense	(912		)	(640		)	(1,823		)	(1,280		)
Pro forma net income	$	435		$	8,735		$	11,301		$	19,218
Net income per unit
Basic - as reported	$	0.06		$	0.39		$	0.56		$	0.85
Basic - pro forma	0.02			0.36			0.49			0.80
Diluted - as reported	0.06			0.38			0.56			0.83
Diluted - pro forma	0.02			0.36			0.48			0.78

Stock-Based Employee Compensation: Stock-based employee compensation is accounted for using the intrinsic value method allowed under APB Opinion No. 25, Accounting for Stock Issued to Employees. No stock-based employee compensation expense is reflected in net income, as options granted under the Company’s plans have an exercise price equal to the market value of the Company’s partnership units on the date of grant. The following table illustrates the effect on net income and net income per unit if the Company had applied the fair value provisions of SFAS No. 123, Accounting for Stock-Based Compensation to stock-based employee compensation.

Management’s Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions. These affect the reported amounts of assets and liabilities, the disclosure of any contingent assets or liabilities and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from the estimates made.5

Income Taxes: The partnership is not a taxable entity; accordingly, no provision for income taxes has been made in the consolidated financial statements. Partners are taxed on their allocable share of the Partnership’s earnings, which is reportable on their income tax returns.

	Three Months Ended September 30,						Nine Months Ended September 30,
In thousands, except per unit	2003			2002			2003			2002

Net Income, as reported	$	6,934		$	6,667		$	20,058		$	27,165
Total stock-based employee compensation expense	(1,033		)	(932		)	(2,856		)	(2,212		)
Pro forma net income	$	5,901		$	5,735		$	17,202		$	24,953

Net income per unit

Basic - as reported	$	0.29		$	0.28		$	0.86		$	1.13
Basic - pro forma	0.25			0.24			0.74			1.04

Diluted - as reported	0.29			0.27			0.84			1.11
Diluted - pro forma	0.24			0.24			0.72			1.02

~~Note~~Management’s 2Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions. ~~Details~~These affect the reported amounts of ~~Land~~assets ~~Under~~and liabilities, ~~Development~~the disclosure of any contingent assets or liabilities and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from the estimates made.

(In $000)	June 30, 2003		December 31, 2002
Residential development	$	28,117	$	27,706
Industrial and commercial land development	5,942		19,722
Total land under development	$	34,059	$	47,428

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

Note 3 2. Details ~~for~~of ~~Earnings~~Land ~~per~~Under ~~Unit Calculation~~Development

(In 000’s except per unit)	Income (numerator)		Units (denominator)		Per Unit
(In $000)	September 30, 2003		December 31, 2002
For three months ended June 30, 2003
Residential land development	$	32,804	$	27,706
Net income per unit
Industrial and commercial land development	5,733		19,722
Net income available to unitholders	$	1,347	23,357		$	.06
Total land under development	$	38,537	$	47,428
Effect of dilutive securities
Unit options	—		308		—
Net income per unit - diluted	$	1,347	23,665		$	.06
For three months ended June 30, 2002
Net income per unit
Net income available to unitholders	$	9,375	24,064		$	.39
Effect of dilutive securities
Unit options	—		496		(.01		)
Net income per unit - diluted	$	9,375	24,560		$	.38

(In 000’s except per unit)	Income (numerator)		Units (denominator)	Per Unit
For six months ended June 30, 2003
Net income per unit
Net income available to unitholders	$	13,124	23,280	$	.56
Effect of dilutive securities
Unit options	—		303	—
Net income per unit - diluted	$	13,124	23,583	$	.56
For six months ended June 30, 2002
Net income per unit
Net income available to unitholders	$	20,498	24,144	$	.85
Effect of dilutive securities
Unit options	—		445	(.02		)
Net income per unit - diluted	$	20,498	24,589	$	.83

Note 3. Details for Earnings per Unit Calculation

Note 4. Details of Income-Producing Properties, Income-Producing Properties Held for Sale and Property and Equipment

(in 000’s except per unit)	Income (numerator)		Units (denominator)	Per Unit
For three months ended September 30, 2003
Net income per unit
Net income available to unitholders	$	6,934	23,600	$	.29
Effect of dilutive securities
Unit options	—		531	—
Net income per unit - diluted	$	6,934	24,131	$	.29

For three months ended September 30, 2002
Net income per unit
Net income available to unitholders	$	6,667	24,013	$	.28
Effect of dilutive securities
Unit options	—		273	(.01		)
Net income per unit - diluted	$	6,667	24,286	$	.27

For nine months ended September 30, 2003
Net income per unit
Net income available to unitholders	$	20,058	23,388	$	.86
Effect of dilutive securities
Unit options	—		378	(.02		)
Net income per unit - diluted	$	20,058	23,766	$	.84

For nine months ended September 30, 2002
Net income per unit
Net income available to unitholders	$	27,165	24,100	$	1.13
Effect of dilutive securities
Unit options	—		386	(.02		)
Net income per unit - diluted	$	27,165	24,486	$	1.11

(In $000s)	June 30, 2003			December 31, 2002
Income-producing properties
Land	$	36,612		$	36,600
Buildings	142,563			134,002
Other	11,647			9,655
Properties under development	24,078			23,741
	214,899			203,998
Accumulated depreciation	(46,338		)	(44,027		)
	$	168,561		$	159,971

Note 4. Details of Income-Producing Properties and Property and Equipment

(In $000s)	~~June~~September 30, 2003			December 31, 2002
Property and equipment
Income-producing properties
Land	$	336,~~760~~612		$	336,~~760~~600
Buildings	6143,~~403~~231			6134,~~034~~002
Equipment	8,929			8,957
Other	11,674			9,655
Water supply systems, orchards and other	95,764			91,465
Properties under development	27,514			23,741
Construction in progress	5,909			7,188
	219,031			203,998
	120,765			117,404
Accumulated depreciation	(48,481		)	(44,027		)
Accumulated depreciation	(42,651		)	(40,955		)
	$	170,550		$	159,971
	$	78,114		$	76,449

Note 5. Disclosure about Certain Financial Statement Captions

(In $000s)	September 30, 2003			December 31, 2002
Property and equipment
Land	$	3,760		$	3,760
Buildings	6,403			6,034
Equipment	8,789			8,957
Water supply systems, orchards and other	96,383			91,465
Construction in progress	6,086			7,188
	121,421			117,404
Accumulated depreciation	(42,918		)	(40,955		)
	$	78,503		$	76,449

~~Cash~~Note ~~and cash equivalents - The Company had $48~~5.2 million in cash and short-term investments at June 30, 2003, representing a $22.8 million increase in cash and cash equivalents for the first half of 2003 compared to the Company’s ending balance of cash and equivalents at December 31, 2002. ~~Cash~~Disclosure ~~generated~~about ~~from~~Certain residential, commercial and industrial land sales totaled $67.0 million for the six months ended June 30, 2003. In June 2003, the Company refinanced a mortgage secured by the New Columbia Ranch. The existing mortgage of $9.6 million was repaid and a new $15 million mortgage was executed. (See additional discussion below on the Mortgage and other debt financial statement caption.) At June 30, 2003, with the exception of $20.0 million outstanding letters of credit, the Company had no outstanding balances on its available lines of credit. Due to prepayment penalties, the Company invests its excess cash in short-term investments rather than pay down its fixed rate debt. (See the Consolidated Statements of Cash Flows and further discussion in Item 2: Management’s Discussion and Analysis of Financial ~~Condition and Results of Operations.)~~Statement Captions

~~Land~~Cash and ~~under~~cash ~~development~~equivalents - The Company had $1368.48 million ~~decrease~~ in ~~land~~cash and ~~under~~short-term ~~development~~investments at ~~June~~September 30, 2003, ~~compared~~representing toa $43.4 million increase in cash and cash equivalents for the ~~prior~~first ~~year end~~nine ~~was~~months ~~primarily~~of ~~due~~2003 compared to ~~$32.0~~the ~~million~~Company’s inending ~~cost~~balance ~~allocations~~of tocash and equivalents at December 31, 2002. Cash generated from residential lot sales and commercial and industrial land sales ~~reported~~combined intotaled approximately ~~the~~$86 ~~financial results~~million for the ~~first~~nine ~~half~~months ofended September 30, 2003. Included in the cash balance at September ~~This~~30, 2003 was ~~partially~~a ~~offset~~$5 million deposit received by ~~$18.7~~the ~~million~~Company in ~~project~~July ~~costs~~2003 ~~capitalized~~related ~~during~~to the ~~2003~~pending ~~first~~merger transaction with Lennar Corporation and ~~second~~LNR ~~quarters~~Property Corporation. Upon the closing of the merger transaction, the $5 million deposit becomes part of the purchase price from the Lennar/LNR venture. (See further ~~definitions~~discussion of ~~project~~the ~~costs~~merger ~~and~~below ~~cost~~in ~~allocations~~Note 8: Merger.) Additionally, in June 2003, the ~~“Critical~~Company refinanced a mortgage secured by ~~Accounting~~the ~~Policies~~New Columbia Ranch. The existing mortgage of $9.6 million was repaid and ~~Estimates”~~a ~~section~~new $15 million mortgage was executed. (See additional discussion below on the Mortgage and other debt financial statement caption.) At September 30, 2003, with the exception of $19.3 million in outstanding letters of credit, the Company had no outstanding balances on its available lines of credit. Due to prepayment penalties, the Company invests its excess cash in short-term investments rather than pay down its fixed rate debt. (See the Consolidated Statements of Cash Flows and further discussion in Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations.)

~~Accrued~~Land ~~expenses~~under development - The $118.29 million ~~increase~~ decrease in ~~accrued~~land ~~expenses~~under development at ~~June~~September 30, 2003 compared to ~~December~~the ~~31,~~prior ~~2002~~year end was primarily ~~related~~due to ~~the~~$41 ~~collection~~million ofin ~~school~~cost ~~fees~~allocations ~~from~~to residential lot sales ~~merchant~~and ~~builders~~commercial and industrial land sales reported in the financial results for the ~~residential~~first ~~lots~~nine ~~sold~~months of 2003. This was Aspartially ~~monies~~offset ~~are~~by ~~collected~~$32 ~~from~~million ~~merchant~~in ~~builders~~capitalized toproject ~~fund~~costs, ~~the~~net ~~Company’s~~of ~~portion~~approximately of$8 ~~future~~million ~~schools~~in tofee bereimbursements ~~built~~received infrom the Valencia Bridge and Major Thoroughfare District, during the ~~accrual~~nine ~~account~~months isended September ~~increased~~30, 2003. ~~The~~(See ~~Company~~definitions ~~reduces~~of project costs and cost allocations in the “Critical Accounting Policies and Estimates” ~~accrual~~section asof ~~funding~~Item ~~requests~~2: Management’s Discussion ~~are~~and ~~paid~~Analysis byof ~~the~~Financial ~~Company~~Condition toand ~~the~~Results ~~school~~of ~~districts~~Operations.)

~~Deferred~~Accrued expenses ~~revenues~~ - The $914.07 million ~~net~~ increase in ~~deferred revenues~~accrued ~~for~~expenses ~~the~~at September ~~six months ended June~~ 30, 2003 ~~was~~compared ~~primarily attributable~~ to ~~$16.7~~ ~~million~~December in31, ~~deferred~~2002 ~~revenues~~primarily ~~for~~related ~~certain~~to ~~commercial~~the ~~land~~collection ~~and residential lot sales recorded under percentage~~ of ~~completion~~school ~~accounting~~fees ~~in 2003, including~~from ~~$435,000~~merchant ~~recorded~~builders infor ~~the~~residential ~~2003~~lots ~~second quarter~~sold. ~~(See~~As ~~definition~~monies ofare ~~percentage~~collected offrom ~~completion~~merchant inbuilders ~~the~~to ~~“Significant Accounting~~fund ~~Policies~~the ~~and~~Company’s ~~Estimates” section~~ portion of ~~Item~~future ~~2: Management’s~~schools ~~Discussion~~to ~~and~~be ~~Analysis~~built ~~of Financial~~in ~~Condition~~Valencia, ~~and~~the ~~Results~~accrual ofaccount ~~Operations~~is increased.) ~~This~~The ~~increase~~Company ~~was~~reduces ~~partially~~the accrual ~~offset~~as byfunding ~~recognizing~~requests ~~$8.1~~are ~~million~~paid ~~of deferred~~by ~~revenues~~the ~~earned~~Company ~~in 2003~~ to ~~date, including $919,000 of deferred revenues recognized in~~ the ~~2003~~school ~~second quarter~~districts.

~~Mortgage~~Deferred revenues ~~and other debt~~ - The $57.21 million net increase in ~~mortgage~~deferred ~~and~~revenues ~~other debt~~ for the ~~six~~nine months ended ~~June~~September 30, 2003 was primarily ~~due~~attributable to ~~the refinancing~~approximately of$18 ~~the~~million ~~New~~in ~~Columbia~~deferred revenues ~~Ranch~~for ~~mortgage~~certain inresidential ~~June~~lots ~~2003. The~~and ~~existing~~commercial ~~mortgage~~land ofsold ~~$9.6~~under ~~million was~~percentage ~~repaid~~of ~~and~~completion aaccounting ~~new~~in 2003, including $15536,000 ~~million~~recorded ~~mortgage~~in ~~was~~the 2003 ~~executed~~third quarter. ~~The~~(See ~~existing~~definition ~~mortgage~~of percentage ~~had~~of ancompletion ~~8.45%~~in ~~interest~~the ~~rate~~“Critical ~~and~~Accounting ~~was~~Policies toand Estimates” ~~mature~~section inof ~~November~~Item ~~2003.~~2: ~~The new~~Management’s ~~mortgage~~Discussion ~~has~~and aAnalysis ~~term~~ of 15Financial ~~years~~Condition and ~~bears~~Results ~~interest~~of ~~at 3~~Operations.~~07% per annum for the~~) This ~~first~~increase ~~three~~was ~~years~~partially ~~and~~offset ~~converts~~by torecognizing aabout ~~variable~~$11 ~~rate,~~million ~~reset~~of ~~quarterly,~~deferred ~~thereafter. (See~~revenues ~~further~~earned ~~discussion~~ in ~~the~~ ~~“Financial~~2003 ~~Condition”~~to ~~section~~date, ofincluding ~~Item~~ $2~~: Management’s~~.3 ~~Discussion~~million ~~and~~of ~~Analysis~~deferred revenues ofrecognized ~~Financial~~in ~~Condition~~the ~~and Results~~2003 ofthird ~~Operations~~quarter.)

~~Note~~Mortgage and other debt – The $5.1 million increase in mortgage and other debt for the nine months ended September 30, 2003 was primarily due to the refinancing of the New Columbia Ranch mortgage in June 2003. The existing mortgage of $9.6 million was repaid and a new $15 million mortgage was executed. The existing mortgage had an 8.45% interest rate and was to ~~Business~~mature ~~Segment~~in ~~Reporting~~November 2003. The new mortgage has a term of 15 years and bears interest at 3.07% per annum for the first three years and converts to a variable rate, reset quarterly, thereafter. This increase was partially offset by principal payments on other of the Company’s outstanding fixed rate debt based on contractual terms. (See further discussion in the “Financial Condition” section of Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations.)

~~The~~Note ~~following~~6. Business ~~table provides~~Segment financial information regarding revenues from external customers, income and total assets for the Company’s business segments and also provides a reconciliation to the Company’s consolidated totals:Reporting

	Three months ended June 30, 2003
(In $000s)	Revenues		Contribution to Income			Assets
Real Estate
Residential	$	5,458	$	6,028		$	34,075
Industrial and commercial	1,056		(727		)	23,854
Community development	—		(3,657		)	34,499
Income-producing properties	9,473		2,391			157,076
Valencia Water Company	3,203		453			79,266
Agriculture	1,258		294			5,330
Central administration	—		(2,325		)	51,204
All other	—		(500		)	—
	20,448		1,957			385,304
Interest and other, net	—		(610		)	—
	$	20,448	$	1,347		$	385,304

The following table provides financial information regarding revenues from external customers, income and total assets for the Company’s business segments and also provides a reconciliation to the Company’s consolidated totals:

	Three months ended June 30, 2002
	Three months ended September 30, 2003
(In $000s)	Revenues		Contribution to Income			Assets
Real Estate
Residential	$	279,~~878~~344	$	96,~~634~~841		$	4441,~~194~~597
Industrial and commercial	913,~~802~~241		57,~~237~~050			5524,~~978~~361
Community development	—		(43,~~612~~339		)	3433,~~726~~244
Income-producing properties	910,~~742~~940		31,~~171~~752			~~150~~156,~~354~~792
Valencia Water Company	34,~~480~~736		~~781~~1,103			7584,~~706~~698
Agriculture	1,~~308~~244		15425			75,~~218~~790
Central administration	—		(34,~~037~~700		)	867,~~340~~324
All other	—		(1,~~100~~250		)	—
	52,210		10,089			376,516
	39,505		7,882			413,806
Interest and other, net	—		(~~714~~948		)	—
	$	5239,~~210~~505	$	96,~~375~~934		$	~~376~~413,~~516~~806

	Six months ended June 30, 2003
	Three months ended September 30, 2002
(In $000s)	Revenues		Contribution to Income			Assets
Real Estate
Residential	$	5037,~~757~~761	$	2212,~~227~~410		$	3432,~~075~~018
Industrial and commercial	103,~~006~~331		~~108~~270			2353,~~854~~932
Community development	—		(65,~~102~~763		)	3435,~~499~~069
Income-producing properties	199,~~374~~700		43,~~787~~146			~~157~~149,~~076~~101
Valencia Water Company	54,~~945~~427		~~706~~1,015			7977,~~266~~967
Agriculture	12,~~910~~971		~~624~~(282		)	56,~~330~~025
Central administration	—		(62,~~267~~619		)	5116,~~204~~433
All other	—		(~~1,750~~825		)	—
	87,992		14,333			385,304
	58,190		7,352			370,545
Interest and other, net	—		(~~1,209~~685		)	—
	$	8758,~~992~~190	$	136,~~124~~667		$	~~385~~370,~~304~~545

	Six months ended June 30, 2002
	Nine months ended September 30, 2003
(In $000s)	Revenues		Contribution to Income			Assets
Real Estate
Residential	$	4460,~~775~~101	$	1429,~~286~~068		$	4441,~~194~~597
Industrial and commercial	3123,~~563~~247		157,~~133~~158			5524,~~978~~361
Community development	—		(79,~~259~~441		)	3433,~~726~~244
Income-producing properties	1930,~~471~~314		6,~~249~~539			~~150~~156,~~354~~792
Valencia Water Company	610,~~279~~681		1,~~278~~809			7584,~~706~~698
Agriculture	13,~~931~~154		~~315~~1,049			75,~~218~~790
Central administration	—		(510,~~297~~967		)	867,~~340~~324
All other	—		(23,~~350~~000		)	—
	104,019		22,355			376,516
	127,497		22,215			413,806
Interest and other, net	—		(12,~~857~~157		)	—
	$	~~104~~127,~~019~~497	$	20,~~498~~058		$	~~376~~413,~~516~~806

Note 7. New Accounting Pronouncements

	Nine months ended September 30, 2002
(In $000s)	Revenues		Contribution to Income			Assets
Real Estate
Residential	$	82,536	$	26,696		$	32,018
Industrial and commercial	34,894		15,403			53,932
Community development	—		(13,022		)	35,069
Income-producing properties	29,171		9,395			149,101
Valencia Water Company	10,706		2,293			77,967
Agriculture	4,902		33			6,025
Central administration	—		(7,916		)	16,433
All other	—		(3,175		)	—
	162,209		29,707			370,545
Interest and other, net	—		(2,542		)	—
	$	162,209	$	27,165		$	370,545

~~In April~~Note ~~2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No~~7. New 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments imbedded in other contracts and for hedging activites under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. The statement is generally effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. It is not anticipated that the adoption of this statement will have a material effect on the Company’s results of operations and financial condition for the year ending December 31, 2003.Pronouncement

In ~~May~~April 2003, the Financial Accounting Standards Board (FASB ) issued Statement of Financial Accounting Standards (SFAS) No. ~~150~~149, ~~Accounting~~Amendment ~~for~~of ~~Certain~~Statement ~~Financial~~133 ~~Instruments with~~on ~~Characteristics~~Derivative ofInstruments ~~both Liabilities~~ and ~~Equity~~Hedging Activities. SFAS No. ~~150~~149 ~~established~~amends and ~~standards~~clarifies ~~for~~financial ~~how an~~accounting ~~issuer~~and ~~classifies~~reporting ~~and~~for ~~measures~~derivative instruments, including certain ~~financial~~derivative instruments ~~with~~imbedded in other contracts and for ~~characteristics~~hedging ofactivites ~~both~~under ~~liabilities~~SFAS No. 133, Accounting for Derivative Instruments and ~~equity~~Hedging Activities. The statement is generally effective for contracts ~~financial instruments~~ entered into or modified after ~~May~~June 3130, 2003, and ~~otherwise~~for ~~is effective at the beginning of~~hedging ~~the~~relationships ~~first~~designated ~~interim period beginning~~ after June 1530, 2003. It is not anticipated that the adoption of this statement will have a material effect on the Company’s results of operations and financial condition for the year ending December 31, 2003.

~~Note~~In 8May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with ~~Subsequent~~Characteristics ~~Event~~of both Liabilities and Equity. SFAS No. 150 established standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. In addition, the statement requires the presentation of the minority interest in certain consolidated entities at fair market value. The statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. However, on October 29, 2003, the FASB decided to defer indefinitely the implementation date for reporting at fair value minority interests in certain consolidated entities, which previously was effective beginning in the third quarter of 2003. As a result of this deferral, it is not anticipated that the adoption of this statement will have a material effect on the Company’s results of operations and financial condition for the year ending December 31, 2003.

On July 21, 2003, the Company entered into a merger agreement with Lennar Corporation (“Lennar”), a Delaware corporation, LNR Property Corporation (“LNR”), a Delaware corporation, NWHL Investment LLC, a Delaware limited liability company and NWHL Acquisition, L.P., a California limited partnership (“the Merger Agreement”). Under the terms of the Merger Agreement, the Company’s unitholders will receive $40.50 per partnership unit in cash, which will increase at a rate of 5% per annum commencing 270 days from the date of the Merger Agreement. The total purchase consideration, after giving effect to the payment of employee options, will be approximately $990 million plus liabilities. The transaction is subject to the approval of the California Public Utilities Commission, due to the change in control of Valencia Water Company that will result from the purchase, and customary closing conditions. The parties expect the transaction to close by the middle of 2004.10

~~From the~~Note effective date of the Merger Agreement, Lennar and LNR have 45 days to perform due diligence regarding the Company and its properties, and during this period will have the right to terminate the Merger Agreement and forfeit a $5 million deposit8. ~~After the 45 day due diligence period, Lennar and LNR will deposit in total an additional $25 million into escrow to secure their obligations under the~~ Merger ~~Agreement.~~

AOn ~~Current~~July ~~Report~~21, on2003, ~~Form~~the ~~8-K~~Company ~~has~~entered ~~been~~into ~~filed~~a merger agreement with ~~the~~Lennar Corporation, ~~Securities~~a Delaware corporation, LNR Property Corporation, a Delaware corporation, NWHL Investment LLC, a Delaware limited liability company and ~~Exchange~~NWHL Acquisition, L.P., a California limited partnership. On September 4, 2003, the Company announced the completion of due diligence by the Lennar/LNR interests. The transaction remains subject to the approval by the California Public Utilities Commission on(CPUC) ~~this~~of ~~merger~~the change of control of the Company’s wholly-owned subsidiary, ~~which~~Valencia ~~includes~~Water Company, as ~~exhibits~~well ~~the~~as ~~Merger~~customary ~~Agreement~~closing conditions. The ~~and~~Hart-Scott-Rodino Act waiting period has been terminated by the ~~press~~Department ~~release~~of ~~announcing~~Justice and the ~~transaction~~Federal Trade Commission.

10The Proxy Statement for the Special Meeting of Untiholders was mailed on September 25, 2003 to unitholders of record on September 22, 2003. The Special Meeting of Unitholders was held on November 6, 2003 at The Crowne Plaza Hotel - Los Angeles International Airport, 5985 West Century Boulevard, Los Angeles, California. At the meeting, unitholders approved the principal terms of a merger pursuant to the Agreement and Plan of Merger, dated July 21, 2003, by and among the Company, on the one hand, and Lennar Corporation, LNR Property Corporation, NWHL Investment LLC, and NWHL Acquisition, L.P., on the other hand.

~~Part~~The application for change of control of Valencia Water Company was filed with the CPUC on August 18, 2003. Three Iprotests requesting evidentiary and public hearings were received by the CPUC in connection with the application. On October ~~Financial~~3, 2003, the Administrative Law Judge and the Assigned Commissioner ~~Information~~issued a ruling confirming the determination that hearings are not necessary. On October 23, 2003, the Administrative Law Judge and the Assigned Commissioner issued a ruling modifying the schedule and seeking comments on proposed conditions the Commission might impose, should it approve the change in control of Valencia Water Company. Under the new schedule, parties were given to October 27, 2003 to file and serve briefs and proposed conditions. Reply briefs were to be filed no later than October 31, 2003. Applicants for the change in control, which includes the Company, Lennar and LNR Property, filed timely their brief and their reply brief with the CPUC which included comments on the proposed conditions. Subsequent scheduling and action is subject to the Administrative Law Judge’s and CPUC’s discretion. The Company had previously stated it expected the transaction to close by the middle of 2004. However, based on the progress to date, it now appears that the closing may take place substantially earlier than originally anticipated.

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.~~11

Part I. Financial Information

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company’s ~~consolidated~~ unaudited interim financial statements have been prepared inpursuant ~~accordance~~to the ~~with~~rules ~~accounting principles~~and ~~generally~~regulations ~~accepted~~promulgated inby the ~~United~~Securities ~~States~~and Exchange Commission. ~~Inherent~~Certain ininformation ~~the~~and footnote ~~preparation~~disclosure ofnormally ~~these~~included in financial statements ~~are~~prepared in ~~certain~~accordance ~~estimates~~with ~~and~~generally ~~assumptions~~accepted ~~that~~accounting ~~affect~~principles ~~the~~have ~~reported~~been ~~amounts~~condensed ~~of assets,~~or ~~liabilities,~~omitted ~~revenues~~pursuant ~~and~~to ~~expenses,~~such rules and ~~related~~regulations, ~~disclosure~~although ofthe ~~contingent~~Company ~~assets~~believes ~~and~~that ~~liabilities. The~~the ~~Company~~disclosures ~~evaluates these~~are ~~estimates~~adequate ~~and~~to ~~assumptions~~make onthe ainformation ~~regular~~presented ~~basis~~not misleading. For ~~taking~~further ~~into account~~information, ~~historical~~your ~~experience~~attention ~~and~~is ~~other~~directed ~~relevant~~to ~~current~~the ~~factors. Therefore,~~footnote ~~actual~~disclosures ~~results~~found ~~may~~on ~~differ~~pages ~~from~~36 ~~reported~~through ~~amounts~~51 ~~under~~of ~~different~~the ~~assumptions~~Company’s or2002 ~~conditions~~Annual Report on Form 10-K.

~~The interim statements~~Inherent ~~are~~in ~~condensed~~the ~~and~~preparation ~~do not include some~~ of ~~the~~these ~~information~~financial ~~necessary~~statements ~~for~~are acertain ~~more~~estimates and ~~complete~~assumptions ~~understanding~~that ofaffect the ~~financial~~reported ~~data. Accordingly,~~amounts ~~your~~of ~~attention~~assets, isliabilities, ~~directed to the footnote disclosures~~revenues ~~found~~and onexpenses, ~~pages~~and 32related ~~through~~disclosure 45 of ~~the~~contingent ~~Company’s~~assets ~~2002~~and ~~Annual Report on Form 10-K~~liabilities. The ~~accounting policies used by the~~ Company inevaluates ~~the~~these ~~preparation~~estimates ~~of its consolidated financial statements as they~~and ~~relate~~assumptions toon ~~its~~a ~~business~~regular ~~segments~~basis ~~are~~taking ~~presented~~into ~~above~~account inhistorical ~~Note~~experience ~~1 to the~~and ~~consolidated~~other ~~financial~~relevant ~~statements~~current factors. A ~~summary~~Therefore, ofactual ~~the~~results ~~accounting~~may ~~policies~~differ ~~management~~from ~~considers~~reported ~~significant~~amounts ~~in the~~under ~~preparation~~different ofassumptions ~~the~~or ~~Company’s consolidated financial statements follows~~conditions. ~~The Company’s audit committee has reviewed the selection, application and disclosure of the Company’s critical accounting policies.~~

The accounting policies used by the Company in the preparation of its consolidated financial statements as they relate to its business segments are presented above in Note 1 to the consolidated financial statements. A summary of the accounting policies management considers significant in the preparation of the Company’s consolidated financial statements follows. The Company’s audit committee has reviewed the selection, application and disclosure of the Company’s critical accounting policies.

Revenue recognition – The majority of revenues for the Company result from land sales. The Company follows the provisions in Statement of Financial Accounting Standards (SFAS) No. 66, Accounting for Sales of Real Estate, to record these sales. SFAS No. 66 provides specific sales recognition criteria to determine when land sales revenues can be recorded. For example, SFAS No. 66 requires a land sale must be consummated with a sufficient down payment of the sales price depending upon the type and timeframe for development of the property sold, and that any receivable from the sale cannot be subject to future subordination. The seller cannot retain any material continuing involvement in the property sold.

Percentage of completion – When the Company has an obligation to complete development on sold property it utilizes the percentage of completion method of accounting to record revenues and income. Under percentage of completion accounting, the Company recognizes revenues and income based upon the ratio of development cost completed to the estimated total cost of the property sold, provided required sales recognition criteria have been met. Unearned revenues resulting from applying percentage of completion accounting are reported as deferred revenues in the liabilities section of the balance sheet. The Company estimates total project costs associated with the parcel sold. Revisions in profit estimates and changes in percentages complete are recorded in the consolidated statement of income in subsequent periods, as they become known and the development progresses toward completion.

Project costs – Costs incurred by the Company to record maps and develop specific real estate projects are capitalized as a cost of that project and included as an asset in land under development on the balance sheet. Project litigation costs are charged to expense when incurred. Indirect costs that do not clearly relate to projects under development, including general and administrative expenses, are charged to expense when incurred.

Cost allocations – The Company generally allocates onsite costs to individual parcels within a project on a square foot basis if the parcels in the project are of similar value. In mixed-use projects, where there may be both a residential and a commercial component with varying fair values, onsite costs are allocated to the respective parcels using the relative sales value method. Under the relative sales value method, each parcel in the project under development is allocated onsite costs in proportion to the estimated overall sales prices of the project such that each parcel to be sold reflects the same gross profit margin. Since this method requires the Company to estimate the expected sales prices for the entire project, the profit margin on subsequent parcels sold will be impacted by both changes in the estimated total revenues as well as any changes in the estimated total costs of the project.

Offsite improvements with regional benefit, such as freeway on-ramps and off-ramps and water storage tanks, are referred to as infrastructure costs. The Company estimates the total cost to develop the infrastructure within a defined major development area and allocates this cost to the land within the area. Changes in the estimated remaining infrastructure costs or changes in the remaining developable acreage will impact the infrastructure cost allocation and corresponding profit margin for unsold land within a major development area.

Stock-based employee compensation – The Company accounts for stock-based employee compensation using the intrinsic value method allowed under APB Opinion No. 25, Accounting for Stock Issued to Employees. No stock-based employee compensation expense is reflected in net income, as options granted under the Company’s plans have an exercise price equal to the market value of the Company’s partnership units on the date of grant. Refer to Note 1 to the consolidated financial statements for additional disclosures, including the pro forma effect for the fair value method of accounting (expensing) for stock-based employee compensation.

remaining infrastructure costs or changes in the remaining developable acreage will impact the infrastructure cost allocation and corresponding profit margin for unsold land within a major development area.

Stock-based employee compensation – The Company accounts for stock-based employee compensation using the intrinsic value method allowed under APB Opinion No. 25, Accounting for Stock Issued to Employees. No stock-based employee compensation expense is reflected in net income, as options granted under the Company’s plans have an exercise price equal to the market value of the Company’s partnership units on the date of grant. Refer to Note 1 to the consolidated financial statements for additional disclosures, including the pro forma effect for the fair value method of accounting (expensing) for stock-based employee compensation.

RESULTS OF OPERATIONS

Comparison of ~~Second~~Third Quarter and ~~Six~~Nine Months of 2003 to ~~Second~~Third Quarter and ~~Six~~Nine Months of 2002

Unaudited

The amounts of increase or decrease in revenues and income from the prior year ~~second~~third quarter and ~~six~~nine months are as follows (in 000s, except per unit):

	Second Quarter					Six Months
	Third Quarter					Nine Months
	Increase (Decrease)					Increase (Decrease)
	Amount			%		Amount			%
Revenues
Real estate
Residential land sales	$	(2228,~~420~~417	)	-8075	%	$	5(22,~~982~~435	)	13-27	%
Industrial and commercial sales	(89,~~746~~910		)	~~-89~~298	%	(2111,~~557~~647		)	-6833	%
Commercial operations
Income-producing properties	~~(269~~1,240		)	-313	%	~~(97~~1,143		)	04	%
Valencia Water Company	~~(277~~309		)	-87	%	(~~334~~25		)	-50	%
	(31,712		)	-62	%	(16,006		)	-16	%
	(16,958		)	-31	%	(32,964		)	-21	%
Agriculture Operations	(501,727		)	-458	%	(211,748		)	-136	%
Total revenues	$	(3118,~~762~~685	)	-6132	%	$	(1634,~~027~~712	)	-1521	%
Contribution to Income
Real estate
Residential land sales	$	(35,~~540~~616	)	-3746	%	$	82,~~007~~391		579	%
Industrial and commercial sales	(56,~~879~~720		)	~~-116~~5554	%	(148,~~940~~220		)	-~~101~~55	%
Community development	12,~~057~~352			2240	%	13,~~260~~612			1626	%
Commercial operations
Income-producing properties	(~~764~~1,406		)	-2445	%	(12,~~445~~851		)	-2331	%
Valencia Water Company	~~(298~~67		)	~~-41~~7	%	(~~543~~476		)	-4622	%
	(9,424		)	-69	%	(7,661		)	-27	%
	2,117			20	%	(5,544		)	-14	%
Agriculture Operations	297			4243	%	327			122	%
Agriculture operations	695			235	%	1,022			3524	%
General and administrative expense	~~995~~(2,282		)	28-77	%	(~~688~~2,970		)	-1132	%
Operating income	~~(8,132~~530		)	~~-81~~7	%	(87,~~022~~492		)	-3625	%
Interest and other, net	~~104~~(263		)	15-38	%	~~648~~385			3515	%
Net income	$	~~(8,028~~267	)	~~-86~~4	%	$	(7,~~374~~107	)	-3626	%
Net income per unit	$	(0.3301	)	~~-85~~4	%	$	(0.2927	)	-3424	%
Net income per unit - diluted	$	(0.3202	)	~~-85~~7	%	$	(0.2827	)	-3324	%
Weighted average number of units used in computing per unit amounts:
Net income per unit	(~~707~~413		)	-32	%	(~~864~~712		)	-43	%
Net income per unit - diluted	(~~895~~155		)	-41	%	(~~1,006~~720		)	-43	%

The increases and decreases in revenues and income for the three and six months are attributable to the following:

For the three months ended June 30, 2003, the Company reported revenues of $20.4 million compared to $52.2 million for the three months ended June 30, 2002. Net income of $1.3 million, or $.06 per unit, was reported for the 2003 second quarter compared to net income of $9.4 million, or $.38 per unit, for the 2002 second quarter.

The primary contributors to the 2003 second quarter results were the sale of 10 custom home sites in the Westridge golf course community, operations from the Company’s income-producing portfolio and the continued recognition of revenues and income under percentage of completion accounting from residential land sales closed in previous periods. Combined, these activities contributed $13.9 million to revenues and $8.1 million to income in the second quarter 2003.

Major contributors to second quarter 2002 results were the sales of the entire 326 entitled, unimproved residential lots in the community of Alta Vista, 95 entitled, improved lots in Westridge and 16.7 acres of commercial land planned for an 185,000 square foot specialty retail center across from Valencia Town Center regional shopping mall. Combined, these sales added $33.0 million to revenues and $14.3 million to income in the 2002 second quarter.

For the three- and six-month periods ended June 30, 2003, the sale of residential lots continued to be a major contributor to the Company’s results from operations. For the 2003 second quarter, 10 custom home sites in the Westridge golf course community closed escrow. During the six months ended June 30, 2003, escrows closed on the entire 759 residential lots in the Company’s Creekside community, which completes the residential lots being marketed for sale to merchant builders in 2003. Additionally, escrows closed on 14 custom estate lots in the Westridge community during this same six month period. Home sales by merchant builders on lots previously purchased from the Company continue to be strong with 505 homes sold during the first six months of 2003 compared to 696 new homes sold during the same period last year. At June 30, 2003, merchant builders had 553 homes in escrow and unsold inventory of 1,836 lots previously purchased from the Company, compared to 457 homes in escrow and unsold inventory of 1,275 lots at the end of the 2002 second quarter. While the Company does not participate directly in profits generated from escrow closings by merchant builders, indirectly the Company generally shares with the merchant builders in the overall revenues and profits of home building projects above agreed upon thresholds. The sale of previously sold lots to homebuyers is also key to the Company’s future success in selling additional lots.

Revenues for the six months ended June 30, 2003 and 2002 totaled $88.0 million and $104.0 million, respectively. The Company reported net income of $13.1 million and $20.5 million, respectively, for the six-month periods ended June 30, 2003 and 2002.

The sales of all 759 residential lots in the Company’s Creekside community, the sales of fourteen custom home sites in the Westridge golf course community, and continuing operations from the Company’s income-producing portfolio were the primary contributors to the Company’s results for the six months ended June 30, 2003. Combined, these contributed $61.9 million to revenues and $22.5 million to net income. In addition, the sale of 18.3 acres of industrial and commercial land contributed $8.0 million to revenues and $1.7 million to net income for the six months ended June 30, 2003.

For the six-months ended June 30, 2002, escrows closed on 407 lots in the Westridge community in addition to the entire 326 lots in the community of Alta Vista. The Company also closed escrow on 55 acres of commercial land. Combined, these sales contributed $71.8 million to revenues and $31.0 million to income for the period.

The Company’s 2003 business plan anticipates that the majority of the Company’s revenues will be generated from residential, commercial and industrial land sales and its portfolio of income-producing properties. The entire community of Creekside, consisting of 759 entitled, improved residential lots, was sold to merchant builders during the first quarter of 2003. These 759 lots complete the Company’s residential lot sale offerings to merchant builders in 2003. The Company’s residential focus for the balance of 2003 is on selling custom, residential lots in Westridge. As of June 30, 2003, fourteen of these custom home sites had closed escrow. As of July 28, 2003, escrows closed on an additional four custom estate lots, which will be reflected in the results for the 2003 third quarter. Combined, the sales price of these 785 residential lots is expected to total approximately $64 million. The business plan for 2003 also includes the sale of 55 acres of industrial and commercial land with a combined expected sales price of $44 million. As of June 30, 2003, escrows had closed on 18.3 acres of commercial and

~~industrial~~The ~~land,~~increases and 35 ~~acres~~decreases ~~of commercial land were~~ in ~~escrow~~revenues for closings later this year. As of July 28, 2003, escrows closed on two of these commercial parcels in escrow at the end of the 2003 second quarter, totaling approximately 10 acres, for a combined sales value of approximately $12 million, which will be reflected in the 2003 third quarter results. The Company’s portfolio of income-producing properties is expected to contribute approximately $9 million to income and ~~generate~~ ~~net operating~~ income ~~of approximately $20 million, after accounting~~ for ~~approximately $700,000 in projected start-up expenses for~~ the ~~Tournament Players~~three ClubÒ at Valencia championship golf course, which commenced operations June 26, 2003 in the Company’s Westridge community. Net operating income represents earnings from the income portfolio before deductions of $2 million for administrative expenses and $9nine ~~million~~months ~~for depreciation,~~are ~~and is the industry-accepted performance measure for such~~attributable ~~assets. Based upon these assumptions for the current year, the Company expects income for 2003~~ to ~~range from $1.15 to $1.25 per unit. These results do not include possible expense reimbursements resulting from~~ the ~~tentative settlement agreement in the Company initiated litigation against a gas and oil-field operator. (See the “Community Development” section of Item 2~~following: ~~Management’s Discussion and Analysis of Financial Condition and Results of Operations below.)~~

Revenues totaled $39.5 million for the three months ended September 30, 2003 compared to revenues of $58.2 million for the three months ended September 30, 2002. The company reported income of $6.9 million, or $.29 per partnership unit, for the 2003 third quarter compared to $6.7 million, or $.27 per partnership unit, for the same period in 2002.

Although revenues for the 2003 third quarter were 32% lower than the same period in 2002, income was 4% higher for the three month period ended September 30, 2003 compared to the 2002 third quarter. This relationship was primarily due to a high-margin apartment land sale and $2.2 million in revenues received under residential price and profit participation agreements in the current quarter. No significant price and profit participation revenues were reported in the 2002 third quarter.

The primary contributors to the 2003 third quarter results were the sales of 10 custom home sites in the Westridge golf course community, the sales of 12 acres of commercial and industrial land, including a 7.8 acre apartment land sale, operations from the Company’s income-producing portfolio and revenues received by the Company under price and profit participation agreements. Combined, these activities contributed $31.2 million to revenues and $15.3 million to income in the third quarter of 2003.

Residential land sales were the major contributor to 2002 third quarter results with 217 residential lots in the Westridge community closing escrow, contributing $34.8 million to revenues and $13.0 million to income.

Home sales by merchant builders on lots previously purchased from the Company continue to be strong with 657 homes sold during the first nine months of 2003 compared to 849 new homes sold during the same period last year. At September 30, 2003, merchant builders had 512 homes in escrow and unsold inventory of 1,684 lots previously purchased from the Company, compared to 406 homes in escrow and unsold inventory of 1,339 lots at the end of the 2002 third quarter. While the Company does not participate directly in profits generated from escrow closings by merchant builders, indirectly the Company generally shares with the merchant builders in the overall revenues and profits of home building projects above agreed upon thresholds. The sale of previously sold lots to homebuyers is also key to the Company’s future success in selling additional lots.

Revenues for the nine months ended September 30, 2003 totaled $127.5 million and income totaled $20.1million, or $.84 per partnership unit, compared to revenues of $162.2 million and income of $27.2 million, or $1.11 per partnership unit, for the same period in 2002.

The sales of all 759 residential lots in the Company’s Creekside community, the sales of 24 custom home sites in the Westridge golf course community, the sales of approximately 30 acres of commercial and industrial land, and operations from the Company’s income-producing portfolio were the primary contributors to the Company’s results for the nine months ended September 30, 2003. Combined, these contributed $100.8 million to revenues and $38.1 million to income for the nine-month period. In addition, revenues and income recorded by the Company under price and profit participation agreements for the first nine months of 2003 totaled $4.4 million.

Major contributors to 2002 nine-month results were the sales of 620 residential lots in the Westridge community, the sale of the entire 329 entitled, unimproved lots in the Alta Vista community and the sales of approximately 57 acres of commercial land. Combined, these sales contributed $110.5 million to revenues and $45.7 million to income for the 2002 nine month period.

On July 21, 2003, the Company entered into a merger agreement with Lennar Corporation, a Delaware corporation, LNR Property Corporation, a Delaware corporation, NWHL Investment LLC, a Delaware limited liability company and NWHL Acquisition, L.P., a California limited partnership. On September 4, 2003, the Company announced the completion of due diligence by the Lennar/LNR interests. The transaction remains subject to the approval by the California Public Utilities Commission (CPUC) of the change of control of the Company’s wholly-owned subsidiary, Valencia Water Company, as well as customary closing conditions. The Hart-Scott-Rodino Act waiting period has been terminated by the Department of Justice and the Federal Trade Commission.

The Proxy Statement for the Special Meeting of Untiholders was mailed on September 25, 2003 to unitholders of record on September 22, 2003. The Special Meeting of Unitholders was held on November 6, 2003 at The Crowne Plaza Hotel - Los Angeles International Airport, 5985 West Century Boulevard, Los Angeles, California. At the meeting, unitholders approved the principal terms of a merger pursuant to the Agreement and Plan of Merger, dated July 21, 2003, by and among the Company, on the one hand, and Lennar Corporation, LNR Property Corporation, NWHL Investment LLC, and NWHL Acquisition, L.P., on the other hand.

The application for change of control of Valencia Water Company was filed with the CPUC on August 18, 2003. Three protests requesting evidentiary and public hearings were received by the CPUC in connection with the application. On October 3, 2003, the Administrative Law Judge and the Assigned Commissioner issued a ruling confirming the determination that hearings are not necessary. On October 23, 2003, the Administrative Law Judge and the Assigned Commissioner issued a ruling modifying the schedule and seeking comments on proposed conditions the Commission might impose, should it approve the change in control of Valencia Water Company. Under the new schedule, parties were given to October 27, 2003 to file and serve briefs and proposed conditions. Reply briefs were to be filed no later than October 31, 2003. Applicants for the change in control, which includes the Company, Lennar and LNR Property, filed timely their brief and their reply brief with the CPUC which included comments on the proposed conditions. Subsequent scheduling and action is subject to the Administrative Law Judge’s and CPUC’s discretion. The Company had previously stated it expected the transaction to close by the middle of 2004. However, based on the progress to date, it now appears that the closing may take place substantially earlier than originally anticipated.

As a result of a cash payment received on October 17, 2003 under the terms of a settlement agreement related to Company-initiated litigation (see Part II, Item 1. Legal Proceedings), and projected results for the 2003 fourth quarter, the Company expects net income for the full year ending December 31, 2003 to range from approximately $1.50 to $1.60 per unit. This is an increase over the previously reported range for 2003’s earnings of $1.15 to $1.25 per unit. This estimate reflects the forecasted sale of about 793 residential lots with a combined sales price of approximately $67 million and up to 56 acres of commercial and industrial land with a combined expected sales value of $44 million for 2003. As of September 30, 2003, 783 residential lots and 30 acres of commercial and industrial land had closed escrow. As of October 31, 2003, escrows closed on an additional two custom estate lots, which will be reflected in the results for the 2003 fourth quarter. The Company’s portfolio of income-producing properties is expected to contribute approximately $8 million to income in 2003, after deductions for administrative expenses and depreciation. Net operating income from the income-producing portfolio, which is the industry-accepted performance measure for such assets, is expected to be approximately $20 - $21 million for 2003. Net operating income represents earnings from the income portfolio before deductions for administrative expenses and depreciation, but after accounting for approximately $700,000 in projected start-up expenses for the Tournament Players Club at Valencia golf course, in 2003.

The ability of the Company to complete sales projected in 2003 will be dependent upon a variety of factors including, but not limited to, identification of suitable buyers for its land, reaching agreement with the buyers on definitive terms, the successful completion of the due diligence work by buyers, the availability of financing to suitable buyers, satisfactory resolution of regulatory and legal issues, and market and general economic and other conditions, the timing and outcome of which may be beyond the control of the Company. Generally, revenues and income from land sales are recorded under the percentage of completion method of accounting. Accordingly, certain revenues and income from land sales in the current year may be deferred to future periods when the Company has an obligation to complete development on a property sold.

Residential Land Sales

The Company primarily sells lots to merchant builders who, in turn, build homes for sale. Revenues and income are recorded when title is transferred to the merchant builder. Generally, residential lot sale agreements contain a provision whereby the Company will receive from the merchant builder a portion of the home sales prices above an agreed upon base price (price participation) and/or in the overall profitability of the home building project after the merchant builder has received an agreed upon return (profit participation). If home prices and/or project profitability fall short of the participation thresholds, the Company receives no additional revenues or income and has no financial obligation to the builder.

In the 2003 ~~second~~third quarter, 10 custom home sites closed escrow in the Company’s Westridge golf course community, contributing $34.58 million to revenues and $23.2 3 million to income under the percentage of completion accounting method. Additionally, revenues of $~~852,000~~2.3 ~~were~~million ~~recognized~~and income ~~under percentage~~ of ~~completion accounting on lots previously sold by the Company~~$944,000 ~~which,~~were ~~when~~recognized ~~combined with revised estimates to complete the land development on the sold lots, generated $3.5 million~~ in ~~income for~~ the 2003 ~~quarter.~~

Results for the six month period ended June 30, 2003 included the sale of the entire 759 lots in the Creekside community to merchant builders and the sale of 14 custom home sites in the Westridge community. The sale of these 773 lots contributed a combined total of $42.5 million to revenues and $17.8 million to income under the percentage of completion method of accounting through June 30, 2003. In addition, results for the six-month period ended June 30, 2003 included $6.1 million in revenues recognized under percentage of completion accounting on lots previously sold by the Company, which, when combined with revised estimates to complete the land development on the sold lots, generated $4.7 million in income for the six month period. Also, $2.2 million in revenues and income were recognized in the six month period ended June 30, 2003 from cash payments received by the Company under price and profit participation agreements related to prior year lot sales.16

Inthird ~~the 2002 second~~ quarter~~, 421~~ ~~residential~~under ~~lots~~percentage ~~closed escrow. The sale~~ of ~~the~~completion ~~entire~~accounting ~~inventory~~on ~~of 326 entitled, unimproved residential~~ lots in ~~the~~previously ~~community~~sold ofby ~~Alta Vista and of 95 entitled, improved lots in~~ the ~~Westridge golf course community contributed a total of $25~~Company.~~5 million to revenues and $9.4~~ Also, ~~million~~during ~~to income under percentage of completion accounting. For~~ the ~~six~~three-month ~~months~~period ended ~~June~~September 30, ~~2002~~2003, ~~the Company~~revenues ~~closed~~and ~~escrows~~income onof $2.2 ~~407~~million ~~residential~~were ~~lots~~recognized inunder ~~the~~price ~~Westridge community~~ and ~~the~~ ~~326~~profit ~~lots~~participation ~~in Alta Vista, for a total of 733 residential lots sold, which combined~~agreements ~~contributed~~related ~~$41.4 million~~ to ~~revenues~~prior ~~and~~year ~~$13.9~~lot ~~million to income~~sales.

15Results for the nine months ended September 30, 2003 included the sale of the entire 759 lots in the Creekside community to merchant builders and the closing of escrows on 24 custom home sites in the Westridge community. The sale of these 783 lots contributed a combined total of $49.2 million to revenues and $21.9 million to income under the percentage of completion method of accounting through September 30, 2003. In addition, results for the nine-month period ended September 30, 2003 included $6.4 million in revenues recognized under percentage of completion accounting on lots previously sold by the Company, which, when combined with revised estimates to complete the land development on the sold lots, generated $4.8 million in income for the first nine months of 2003. Also, $4.4 million in revenues and income were recognized in the nine-month period ended September 30, 2003 from cash payments received by the Company under price and profit participation agreements related to prior year lot sales.

NoA total of 217 residential lots ~~were~~in Valencia Westridge closed escrow in the 2002 ~~escrow~~third quarter, contributing $34.8 million to ~~merchant~~revenues ~~builders~~and at$13.0 ~~the~~million ~~end~~to income ofunder ~~the~~percentage ~~2003~~of ~~second~~completion ~~quarter~~accounting. As For ofthe ~~July~~nine 28months ended September 30, ~~2003~~2002, ~~escrows~~a ~~closed on~~total ~~four~~of ~~additional~~949 residential ~~custom~~ lots ~~for~~closed aescrow, ~~combined~~contributing ~~sales~~$77.9 ~~price~~million ofto revenues and $227.4 million~~, which~~ ~~will~~to beincome ~~reflected~~under inpercentage ~~the~~of ~~results~~completion ~~for~~accounting. Included in the ~~third~~949 ~~quarter~~lots ~~2003. At~~sold ~~June~~were ~~30, 2002,~~ the entire inventory ~~275~~of 329 entitled, unimproved residential lots in the community of Alta ~~Hidden~~Vista, ~~Creek~~contributing $15.8 million to revenue and ~~278~~$6.2 ~~residential~~million to income, and 620 entitled, improved lots in ~~Valencia~~the Westridge ~~were~~golf incourse ~~escrow~~community, ~~with~~contributing ~~closings~~$62.1 ~~recorded~~million into ~~the~~revenues ~~second~~and ~~half~~$21.2 ofmillion ~~2002~~to income.

No residential lots were in escrow to merchant builders at the end of the 2003 third quarter. As of October 31, 2003, escrows closed on two additional custom lots for a combined sales price of $950,000, which will be reflected in the results for the fourth quarter 2003. At September 30, 2002, the entire 275 residential lots in the community of Hidden Creek and 106 residential lots in Westridge were in escrow for closings in the 2002 fourth quarter. In addition, the entire 759 residential lots in the Creekside community were in escrow for closings reported in the results for the 2003 first quarter.

Industrial and Commercial Sales

Industrial and commercial land sales have been minimal for the Company for the first six months of 2003, resulting in a $204,000 loss for the division for the six months ended June 30, 2003. For the six month period ended June 30, 2003, escrows closed on 5 parcels totaling approximately 18 acres.

Industrial Land Sales

~~Industrial~~While demand ~~land~~for ~~sales~~industrial ~~activity~~land ~~remained~~in ~~slow~~Valencia’s ~~during the~~business ~~2003~~parks ~~second~~remains ~~quarter~~at aslow levels, the industrial market ~~continued~~continues to ~~absorb~~show ~~space~~signs onof ~~the~~improvement ~~market as~~with a ~~result~~combined vacancy ofrate ~~significant land sales~~ in ~~previous~~both ~~years. At~~Valencia ~~June~~Industrial ~~30,~~Center ~~2003,~~and ~~the~~Valencia ~~Company~~Commerce ~~had~~Center below ~~365~~10% ~~net acres~~as of ~~entitled~~September ~~industrial~~30, ~~land~~2003 ~~remaining~~compared into ~~Valencia. There~~11% ~~are~~at ~~indications~~ the ~~local~~end ~~market~~of ~~for~~the 2003 ~~industrial~~second ~~property~~quarter isand ~~strengthening~~12% asat ~~the~~September ~~industrial~~30, ~~vacancy rate in Valencia~~2002. ~~was~~At ~~less~~September ~~than~~30, ~~11%~~2003, atthe ~~June~~Company ~~30,~~had ~~2003~~approximately ~~compared~~360 tonet ~~12%~~acres atof industrial ~~December~~land ~~31,~~remaining ~~2002~~in Valencia.

NoA 2.1-acre industrial ~~land~~parcel ~~was~~closed ~~sold~~escrow during the ~~quarters~~2003 ~~ended June~~third 30quarter, contributing ~~2003~~$1.0 ormillion ~~2002~~to revenues and $137,000 to income. Results for the ~~six~~ nine months ended ~~June~~ September 30, 2003 included ~~one~~the 5.sales of a total of 7~~-acre~~.8 acres of industrial ~~parcel~~land, which, ~~contributing~~combined, contributed $23.8 million to revenues and $~~409~~546,000 to income. No industrial land ~~sales~~was ~~closed~~sold ~~escrow~~or in escrow during the ~~six-month~~three ~~period~~or nine months ended ~~June~~September 30, 2002.

The Company expects to market for sale approximately 14 acres of industrial land in 2003, including the 5.7~~-acre~~.8 ~~parcel~~acres which closed in during the ~~2003~~nine ~~first~~months ~~quarter~~ended September 30, 2003. NoAt September 30, 2003, approximately 2 acres of industrial land ~~was~~were in escrow atfor ~~June 30~~$889,000, with closing expected in the 2003 fourth quarter. The ability of the Company to complete sales projected in 2003 ~~will be~~ is dependent upon a variety of factors including, but not limited to, identification of suitable buyers for its land, reaching agreement with the buyers on definitive terms, the successful completion of the due diligence work by buyers, the availability of financing to suitable buyers, satisfactory resolution of regulatory and legal issues, and market and general economic and other conditions, the timing and outcome of which may be beyond the control of the Company. All escrow closings are subject to market and other conditions that may be beyond the control of the Company.

Commercial Land Sales

NoTwo commercial ~~land was~~parcels ~~sold~~totaling 10.0 acres closed escrow during the 2003 ~~second~~third quarter. , contributing ~~Results~~$12.2 ~~for~~million ~~the~~to ~~quarter~~revenues ~~included~~and ~~the~~$7.9 ~~recognition~~million ~~under~~to ~~percentage~~income. The ~~of completion~~parcels ~~accounting~~that ofclosed ~~$975,000~~escrow in ~~revenues~~the ~~and~~2003 ~~$318,000~~third inquarter ~~income~~included a ~~from~~188-unit ~~prior year~~apartment ~~sales~~complex site on 7.8 net acres. For the ~~six-month~~nine ~~period~~ months ended ~~June~~September 30, 2003, ~~escrows~~six ~~closed on four~~ commercial parcels totaling 1222.6 5 acres~~. These~~ ~~sales,~~closed ~~combined~~escrow, ~~contributed~~ ~~$5.2~~contributing ~~million~~a tototal ~~revenues~~of ~~and~~ $117.3 4 million to ~~income under percentage of completion accounting. In addition,~~ revenues ofand $1.9.2 million ~~and~~to income ~~of $1.0 million were recognized~~ under percentage of completion accounting ~~from prior year land sales~~.

InDuring the 2002 ~~second~~ third quarter, ~~escrow~~ ~~closed~~two ~~on a 16.7-acre~~ commercial ~~parcel~~parcels ~~located~~totaling ~~across~~1.6 ~~from~~acres ~~Valencia~~closed ~~Town~~escrow and ~~Center~~contributed ~~regional~~$1.1 ~~mall~~million onto ~~which~~revenues anand ~~185~~$522,000 ~~square~~to ~~foot retail center anchored by Kohl’s department store has been constructed~~income. In ~~This~~addition, ~~sale contributed~~ $71.4 0 million toin revenues and $~~5.0~~613,000 ~~million~~in to income were recognized under the percentage of completion method of ~~accounting. The~~ ~~results~~accounting ~~for~~on ~~the~~sales ~~quarter~~closed ~~also~~earlier ~~included~~in 2002, and $21.32 million in revenues and $~~1.6~~629,000 ~~million~~ in income ~~recorded~~were ~~under~~recognized ~~percentage~~from ofprior ~~completion~~year ~~accounting~~sales. For the ~~six-~~nine months ended ~~June~~September 30, 2002, ~~the Company~~nine ~~closed~~commercial ~~escrows~~parcels ontotaling 5557.51 acres ofclosed ~~commercial land~~escrow, contributing $3032.5 7 million to revenues and $1718.23 million to income~~. In~~ ~~addition~~under topercentage ~~the 16.7 acres sold in the 2002 second quarter,~~of ~~the~~completion 55accounting.~~5 acres included 22.3 acres in the Westridge golf course community for two commercial sites and an apartment site, which contributed $17.3 million to revenues and $9.3 million to income.~~

At ~~June~~September 30, 2003, ~~five~~a ~~commercial~~total ~~parcels~~of ~~totaling~~ approximately 3559 acres were in escrow for about $32 43 million, with closings expected beginning later in 2003. ~~Subsequent~~At toSeptember ~~the~~30, ~~end of the 2003 second quarter~~2002, ~~two of these escrows closed on~~ a total of 108.6 acres, ~~including~~of ~~one~~commercial ~~parcel~~land ~~planned~~was ~~for 188 apartment~~in ~~units,~~escrow for aclosings ~~combined sales price of approximately $12 million, which will be reflected~~ in the ~~results~~2002 ~~for~~fourth ~~the 2003 third~~ quarter. AtAll ~~June 30,~~escrow ~~2002,~~closings ~~one~~are ~~commercial~~subject ~~parcel~~to ~~totaling~~market ~~4.6~~and ~~acres~~other ~~was~~conditions that inmay ~~escrow. This~~be ~~escrow~~beyond ~~closed during~~ the ~~2003 first~~control ~~quarter~~of ~~and~~the isCompany.

16Community Development

~~reflected~~Community development inexpenses ~~the~~decreased ~~results~~ 40% and 26% for the ~~six~~three-~~months~~ and nine-month periods ended ~~June~~September 30, 2003, respectively, compared to the same 2002 periods primarily due to the Company’s reduction in corporate marketing expenses as a result of the Company’s streamlining of its administration, sales and marketing efforts and a decrease in costs related to certain legal challenges. For ~~All~~all ~~escrow~~of ~~closings~~2003, community development expenses, excluding an $8.9 million cost recovery received on October 17, 2003 related to the settlement of Company initiated litigation (see Part II, Item 1. Legal Proceedings), are ~~subject~~expected to decrease about 25% from 2002 due to the Company’s anticipated reduction in ~~market~~marketing expenses and ~~other~~a ~~conditions~~decrease ~~that~~in ~~may~~costs related to legal challenges. These expense reductions are anticipated to be ~~beyond~~partially offset by continuing expenses related to obtaining entitlements and planning for the ~~control~~completion of the ~~Company~~projected sellout of Valencia residential land, and positioning Newhall Ranch to commence development.

~~Community~~In June, ~~Development~~2000, a Kern County Superior Court identified six issues in the Newhall Ranch Environmental Impact Report as requiring further review. On October 14, 2003, the Company returned to the Kern County Superior Court to address the additional analyses performed on these six issues. A hearing was held to determine the sufficiency of the environmental documents for the Newhall Ranch Specific Plan, which was approved by the Los Angeles County Board of Supervisors on May 27, 2003. Prior to the hearing, Ventura County withdrew from the lawsuit because the county’s issues had been adequately resolved. On October 22, 2003, the judge ruled that the court was satisfied with the adequacy of the additional environmental analysis that was performed at the court’s direction and granted Los Angeles County’s motion to discharge the writ of mandate related to Newhall Ranch. The Petitioners have 60 days from the entry of judgment to appeal the court’s decision. The Company continues to work on subdivision maps in several different villages within Newhall Ranch and will begin to process permit applications and environmental documents. Initial development is expected to begin in 2006. The length of time necessary to obtain completion of governmental review and approvals necessary for the project, and the timing of any judicial processes that may result, are difficult to predict and actual commencement of development may be delayed beyond the target date.

Community development expenses decreased 22% for the threeIncome-monthProducing period and 16% for the six-month period ended June 30, 2003 compared to the same 2002 periods primarily due to the Company’s reduction in corporate marketing expenses as a result of the Company’s streamlining of its administration, sales and marketing efforts and a decrease in costs related to certain legal challenges. Community development expenses for 2003 are expected to decrease about 30% from the 2002 level due to the Company’s anticipated reduction in marketing expenses and a decrease in costs related to legal challenges. These expense reductions are anticipated to be partially offset by continuing expenses related to obtaining entitlements and planning for the completion of the projected sellout of Valencia residential land, and positioning Newhall Ranch to commence development.Properties

InFor ~~early 2001,~~ the ~~Company~~three-month ~~initiated~~period ~~litigation~~ended ~~against~~September a30, ~~gas~~2003, ~~and~~revenues ~~oil-field~~increased ~~operator~~13% toover ~~seek to enforce contractual provisions requiring~~ the ~~operator~~same toperiod ~~perform adequate restoration~~in of2002 ~~the~~while ~~leased~~income ~~properties. On~~decreased ~~May~~45% ~~20, 2003,~~over the ~~Los~~2002 ~~Angeles~~third ~~County~~quarter. The ~~Superior~~increase ~~Court~~in ~~granted~~revenues awas ~~stay~~primarily ~~of the case~~ due to ~~allow the~~revenues ~~parties~~from ~~time~~Tournament toPlayers ~~document~~ClubÒ (TPC) ~~the~~at ~~details~~Valencia ofchampionship agolf ~~tentative~~course, ~~settlement~~ which ~~had been~~opened ~~reached~~for ~~and~~play ~~execute~~on aJune ~~definitive settlement agreement~~26, 2003. AtThe ~~this~~decrease ~~time,~~in ~~the~~income ~~definitive settlement~~was ~~agreement~~primarily isdue ~~not~~to ~~complete. However, discussions~~a ~~between~~net ~~the~~loss ~~Company~~recorded ~~and~~by ~~the~~TPC ~~defendants~~at ~~are~~Valencia ongolf ~~going.~~course

On May 27, 2003, the Los Angeles County Board of Supervisors approved the General-Plan and Sub-Plan Amendment, Zone Change, Conditional Use Permit and the Final Environmental Impact report relating to the Newhall Ranch Specific Plan. The next step in the process will be a hearing by the Kern County Superior Court, which is expected to occur in October 2003. At this hearing the judge is expected to determine whether the final documents meet the requirements set out in the court order that returned the project to the Los Angeles County Board of Supervisors. Meanwhile, the Company continues to work on developing subdivision maps and applications for permits, which need to be approved before development can occur. Initial development is currently expected to begin in 2006. The length of time necessary to obtain completion of governmental review and approvals necessary for the project, and the timing of any judicial processes that may result, are difficult to predict and actual commencement of development may be delayed beyond the target date.18

~~Income~~resulting from the start-~~Producing~~up ~~Properties~~of initial operations combined with lower income from Valencia Town Center regional shopping mall.

For the ~~three~~nine-month period ended ~~June~~September 30, 2003, revenues ~~and~~increased ~~income were down 3~~4% ~~and~~ ~~24%, respectively,~~ over ~~the same period in 2002. Revenues for the six-month period ended June 30, 2003 were~~ ~~comparable with~~ revenues for the ~~six~~nine months ended ~~June~~September 30, 2002 while income was down 2331% over the prior year. The ~~decrease~~ inincrease in revenues was primarily due to arevenues ~~reduction~~from inthe ~~ancillary~~TPC ~~charges~~at onValencia ~~the~~championship ~~Valencia~~golf ~~Town~~course ~~Center~~partially ~~mall~~offset ~~and~~by a ~~slight~~decrease ~~reduction~~ in ~~revenues~~occupancy at ~~the Hyatt~~ Valencia ~~hotel~~Town Center. The decrease in income ~~for~~was ~~both~~primarily the ~~three and six month periods ended June 30, 2003 was~~ ~~primarily~~result ~~due~~of toa ~~higher~~net ~~operating~~loss ~~expenses~~recorded atfrom the ~~existing~~TPC ~~properties~~at ~~and~~Valencia togolf course, including pre-opening and marketing expenses, ~~for~~increased ~~the~~operating ~~Tournament~~expenses ~~Players ClubÒ~~ at Valencia ~~championship~~Town ~~golf~~Center ~~course,~~and ~~which~~a ~~opened~~decrease onin ~~June~~operating ~~26,~~income ~~2003~~from the hotel properties.

Net operating income represents earnings from the income portfolio before deductions for administrative expenses and depreciation, and is the industry-accepted performance measure for such assets. Net operating income for the ~~second~~third quarter 2003 and the ~~six~~nine-month period ended ~~June~~September 30, 2003 decreased 1013% and 810%, respectively, over the same periods in 2002 primarily due to ~~higher~~a $200,000 net operating ~~expenses~~loss at the TPC at ~~existing~~Valencia golf course, increased operating expenses at Valencia Town Center and a decrease in operating income from both hotel properties.

17Income-Producing Properties

~~Income-producing~~(Dollars in ~~Properties~~thousands)

(Dollars in thousands)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2003			2002			2003			2002

Net Operating Income(1), (2)	$	4,918		$	5,492		$	15,068		$	16,642
Admin/Depreciation	(3,203		)	(2,371		)	(8,619		)	(7,342		)
Total Contribution to Income	$	1,715		$	3,121		$	6,449		$	9,300

Net Operating Income	Three Months Ended June 30,						Six Months Ended June 30,
	2003			2002			2003			2002
Retained Properties(1)	$	5,035		$	5,589		$	10,165		$	11,037
Properties Held for Sale(2)	—			(6		)	—			(12		)
Sold Properties	—			—			—			—
Net Operating Income(3)	5,035			5,583			10,165			11,025
Admin/Depreciation	(2,661		)	(2,444		)	(5,431		)	(4,846		)
Total Contribution to Income	$	2,374		$	3,139		$	4,734		$	6,179

(1) Includes NorthPark Village Square and River Oaks shopping centers, Valencia Town Center regional mall and entertainment center, retail along Town Center Drive, Hyatt Valencia and Valencia Hilton hotels, TPC at Valencia golf course, restaurants, leases, etc.

(12) ~~Includes~~ ~~NorthPark~~Before ~~Village~~administrative ~~Square~~expenses and ~~River~~ ~~Oaks~~depreciation. Net ~~shopping~~operating ~~centers,~~income ~~Valencia Town Center regional mall and entertainment~~is ~~center,~~the ~~retail~~industry-accepted ~~along~~performance ~~Town~~measure ~~Center~~for ~~Drive,~~income-producing ~~Hyatt~~properties. Maintenance ~~Valencia~~expensed ~~and~~as ~~Valencia Hilton hotels, restaurants, leases, etc~~incurred.

~~(2) Consists~~Occupancy ofrates aat ~~35,310~~the ~~sq.~~Company’s ~~ft.~~various ~~building~~income-producing properties ~~located~~were inas ~~Valencia~~follows ~~Commerce~~at ~~Center~~September ~~that~~30, ~~was~~2003 ~~sold~~and ~~in the 4th quarter of~~ 2002.:

(3) Before administration expenses, depreciation and interest. Maintenance costs are expensed as incurred.

Occupancy Rates(a):	September 30, 2003		September 30, 2002
Valencia Town Center Mall(b)	91	%	80	%
Entertainment Center(c)	94	%	97	%
Valencia Town Center Master Lease(d)	83	%	94	%
NorthPark/River Oaks Shopping Centers	100	%	99	%
Hotels	77	%	76	%

~~Occupancy~~(a) ~~rates~~Includes atsigned ~~the Company’s~~lease ~~various~~space ~~income-producing~~and ~~properties~~leases ~~were~~to asshort-term ~~follows at June 30, 2003 and 2002:~~tenants.

Occupancy Rates*:	June 30, 2003		June 30, 2002
Valencia Town Center Mall**	82	%	82	%
Entertainment Center***	94	%	97	%
Valencia Town Center Master Lease****	79	%	80	%
NorthPark/River Oaks Shopping Centers	100	%	99	%
Hotels	75	%	75	%

(b) Includes approximately 329,929 square feet of leasable retail space in the mall and along Town Center Drive, and 8,431 square feet of office space. Vacant space includes approximately 40,000 square feet, which is not available for occupancy due to construction activities at the property.

* (c) Includes ~~signed~~128,745 ~~lease~~square ~~space~~feet ~~and~~of ~~leases~~leasable ~~to short-term tenants~~space.

** (d) Includes ~~334~~51,~~661~~019 ~~sq.~~square feet ~~ft.~~ of ~~leasable~~ retail space infrom a 12-1/2 year leaseback agreement that was part of the ~~mall~~sale ~~and~~of four office buildings along Town Center Drive, ~~and~~that ~~8,431~~closed ~~sq.~~escrow ~~ft.~~in early ofDecember ~~office space~~2000.

*** IncludesThe ~~128,745~~primary sqcontributor to the vacancy at Valencia Town Center regional shopping mall was the approximately 12% of non-anchor gross leasable area that was not available for occupancy due to the construction related to the second phase of the remodel project underway at the property. The first ftphase of the remodel involved relocating an expanded food court to the west end of the shopping mall where Edwards Theatres was previously located. This was completed in February 2003. The second phase of ~~leasable~~the remodel in progress is to create new retail space in the former food court location and is expected to be open later this year for the holidays.

**** IncludesResults 51for the 2002 third quarter and the nine months ended September 30,~~019~~ ~~sq.~~2002 ~~ft.~~included the favorable effect of ~~retail~~the ~~space~~cessation ~~from~~of depreciation totaling $19,000 and $58,000, arespectively, 12on income-~~1/2~~producing ~~year~~properties ~~lease-back~~held ~~agreement~~for ~~that~~sale. One minor income property was ~~part~~sold ofin the 2002 ~~sale~~fourth ofquarter. There ~~four~~were ~~office~~no ~~buildings~~properties ~~along~~held ~~Town~~for ~~Center~~sale ~~Drive~~at ~~that~~September ~~closed~~30, ~~escrow~~2003 inor ~~early~~during ~~December~~the ~~2000~~nine month period then ended.

The primary contributor to the vacancy at Valencia Town Center regional shopping mall was the approximately 12% of non-anchor gross leasable area that was not available for occupancy due to the construction related to the second phase of the remodel project underway at the property. The first phase of the remodel involved relocating an expanded food court to the west end of the shopping mall where Edwards Theaters was previously located. This was complete in February 2003. The second phase of the remodel in progress is to create new retail space in the former food court location and is expected to be open later this year.19

~~Results for the 2002~~The ~~second~~Company’s ~~quarter~~portfolio ~~and~~of ~~the~~income-producing ~~six~~properties ~~months~~is ~~ended~~expected ~~June~~to ~~30,~~contribute approximately ~~2002~~$8 ~~included~~million ~~the~~to ~~favorable effect~~income ofin ~~the~~2003, ~~cessation~~after ofdeductions ~~depreciation~~for ~~totaling~~administrative expenses ~~$17,000~~ and ~~$36,000,~~depreciation. Net ~~respectively,~~operating onincome from the income-producing ~~properties~~portfolio ~~held~~is ~~for~~expected ~~sale. One~~to ~~minor~~be approximately ~~income~~$20 ~~property~~- ~~was~~$21 ~~sold~~million inafter ~~the 2002~~accounting ~~fourth~~for ~~quarter. There~~approximately ~~were~~$700,000 noin ~~properties~~projected ~~held~~start-up costs for ~~sale~~the TPC at ~~June~~Valencia ~~30,~~golf ~~2003~~course orin ~~during the six month period then ended~~2003.

The Company’s portfolio of income-producing properties is expected to contribute approximately $9 million to income in 2003 and generate net operating income of approximately $20 million, after accounting for approximately $700,000 in projected start-up costs for the Tournament Players ClubÒ at Valencia ~~championship golf course, which~~ ~~opened~~Water on June 26, 2003. These amounts reflect a decrease from the previously reported estimates of approximately $22 million in net operating income and $10 million in income for 2003. The change primarily is due to revised occupancy forecasts at Valencia Town Center regional shopping center and the Entertainment Center combined with higher operating expenses.Company

18Valencia Water Company is a regulated utility serving approximately 26,000 customers and is a wholly-owned subsidiary of the Company. Third quarter 2003 revenues and income increased 7% from the same period in 2002. For the first nine months of 2003, Valencia Water Company recorded a decrease of 22% in income over the nine-month period ended September 30, 2002 while revenues remained flat as compared to the same 2002 period. The increase in revenues and income for the 2003 third quarter was primarily due to a slight increase to the water company’s authorized revenues approved by the California Public Utilities Commission in May 2003 combined with an increase of approximately 2% in metered connections. The decrease in income for the nine months ended September 30, 2002 was primarily due to higher administrative expenses and expenses related to legal proceedings in which Valencia Water Company is involved.

Valencia Water Company

Valencia Water Company is a regulated utility serving approximately 25,000 metered connections and is a wholly-owned subsidiary of the Company. Second quarter 2003 revenues decreased 8% and income decreased 41% from the same period in the prior year. For the first six months of 2003, Valencia Water Company recorded a decrease of 5% in revenues and a 46% decrease in income over the six-month period ended June 30, 2002. The decrease in revenues for the three- and six-month periods ended June 30, 2003 was primarily due to reduced water sales resulting from generally wetter weather conditions in 2003 than in 2002. This was partially offset by a 5% increase in the water company’s metered connections. The decrease in income for the three- and six-month periods ended June 30, 2003 was primarily due to higher administrative expenses and expenses related to legal proceedings in which Valencia Water Company is involved.

In January 2002, Valencia Water Company was notified by the California Public Utilities Commission (CPUC) of the Commission’s desire to perform a review of the utility’s authorized rate of return based upon its approved rate structure. The review was completed in February 2002 and resulted in a 4.85% reduction in Valencia Water Company’s authorized water billing rates. In March 2002, Valencia Water Company filed a general rate case with the CPUC. A final decision received from the CPUC in May 2003 resulted in a 1.12% increase to the water company’s authorized revenues over current revenues.

Agricultural Operations

The Company’s remaining agricultural properties include the 14,000-acre New Columbia Ranch in Madera County and the 1,250-acre Newhall Orchard in Ventura County. InMost ~~prior years, most~~ of the remaining 14,750 acres in Ventura County owned by the Company has been leased for cattle grazing. ~~At June 30, 2003, there was no lessee for this land.~~ The Company ~~is currently seeking a new lessee. The Company~~ has leased out a majority of the New Columbia Ranch to farming tenants in 2003 to minimize the Company’s fixed overhead costs and its exposure to crop commodity price fluctuations.

For the three- and ~~six~~nine-month periods ended ~~June~~September 30, 2003, agriculture revenues, including ~~the~~ the Company’s energy operations, decreased 458% and 136%, respectively, compared to to revenues for the same periods in 2002. The decrease in revenues was primarily due to discontinuation of a substantial portion of the Company’s farming operations at New Columbia Ranch and reduced prices on citrus, partially offset by increased land rents at New Columbia Ranch combined with higher oil and gas production and prices.

For both the three- and ~~six~~nine-month periods ended ~~June~~September 30, 2003, income from agriculture operations, including the Company’s energy operations, increased in excess of 100% compared to the same periods in 2002. The increase in income was primarily due to the increased land rent revenues, together with a reduction in overhead costs related to the leasing of land to farming tenants at New Columbia Ranch and aan increase ~~reduction~~from inenergy ~~costs~~operations. In ~~associated~~addition, ~~with~~results ~~acreage~~for ~~being~~the ~~converted~~nine tomonths ~~idle~~ended ~~farmland. This~~September ~~was~~30, ~~partially~~2002 ~~offset~~included bycosts associated with the ~~recording~~Spineflower search inwarrant ~~the~~on ~~2003~~certain ~~second~~areas ~~quarter~~of Newhall Ranch and an alleged streambed violation, both of awhich ~~crop~~were ~~loss~~subsequently ~~reserve~~resolved ~~for~~in ~~citrus~~the 2003 first quarter.

General and Administrative Expense

General and administrative expenses for the 2003 ~~second~~ third quarter ~~decreased~~increased 2877% over 2002 third ~~second~~ quarter general and administrative expenses,. For ~~while expenses for~~ the ~~six~~nine months ended ~~June~~September 30, 2003, general and administrative expenses increased 1132% from the same ~~periods~~period in 2002. The ~~decrease~~increase in the 2003 ~~second~~third quarter was primarily due to ~~reduced~~expenses ~~levels~~incurred ofrelated to the Company’s pending merger ~~incentive-based~~transaction ~~compensation~~with ~~expense~~Lennar ~~accrual~~Corporation ~~resulting~~and ~~from~~LNR ~~lower~~Property ~~earnings~~Corporation ~~for~~announced on ~~the~~July 21, 2003. (See ~~second~~“Results ~~quarter~~of Operations” section of Part I, Item 2. – Management’s Discussion and Analysis of Financial Condition and Results of Operations, for additional information on the merger.) The increase for the ~~six~~ nine months ended ~~June~~September 30, 2003 compared to the same period in the prior year was primarily due to merger related expenses together with one time expenses associated with separation pay and related charges connected with the Company’s streamlining of its administration, sales and marketing efforts during the 2003 first quarter ~~to better align the Company with its strategic direction~~. ~~This~~For ~~was partially offset by reduced levels of incentive-based compensation expense. However, for~~ all of 2003, general and administrative expenses are expected to ~~remain~~increase ~~comparable~~approximately 25% compared to 2002 levels.

19Interest and Other

Interest and Other, ~~net~~Net increased 38% for the 2003 third quarter as compared to the 2002 third quarter. The increase was primarily due to a decrease in interest income from promissory notes accepted by the Company in

Interest and other, net decreased 15% and 35% for the 2003 second quarter and the six-months ended June 30, 2003, respectively, as compared to the same periods in 2002. The decreases were primarily due to lower interest expense on lines of credit due to lower outstanding balances, an increase in interest capitalized to the Company’s active construction projects and interest income received from an escrow account related to a freeway interchange infrastructure improvement. These were partially offset by a decrease in interest income from promissory notes accepted by the Company in conjunction with certain commercial land and residential lot sales and a pre-payment penalty incurred in relation with the early payment of the $9.6 million New Columbia Ranch mortgage. Interest expense in 2003 is expected to be approximately 10% lower than amounts reported in 2002.20

~~FINANCIAL~~conjunction ~~CONDITION~~with certain commercial land and residential lot sales and a decrease in interest capitalized due to fewer active construction projects. These increases were partially offset by lower interest expense on lines of credit due to lower outstanding balances.

~~Liquidity~~For the nine months ended September 30, 2003, Interest and ~~Capital~~Other, ~~Resources~~Net decreased 15% compared to the same period in 2002. The decrease was primarily due to lower interest expense on lines of credit due to lower outstanding balances, an increase in interest capitalized to the Company’s active construction projects and interest income received from an escrow account related to a freeway interchange infrastructure improvement. These decreases were partially offset by a decrease in interest income from promissory notes accepted by the Company in conjunction with certain commercial land and residential lot sales and a pre-payment penalty incurred in relation with the early payment of the $9.6 million New Columbia Ranch mortgage. Interest expense in 2003 is expected to be approximately 10% lower than amounts reported in 2002.

At June 30, 2003, the Company had cash and cash equivalents of $48.2 million and $162.0 million in available lines of credit, net of $20.0 million in outstanding letters of credit. At that date, there were no borrowings outstanding on unsecured lines of credit or a revolving mortgage facility. The Company had fixed rate debt outstanding totaling $65.2 million. In June 2003, a $2 million unsecured line of credit with Union Bank of California expired and may not be replaced. The Company believes it has adequate sources of cash from operations and debt capacity, combined with proceeds from anticipated land sales, to finance future operations on both a shortOff-Balance andSheet long-term basis and to fund unit repurchases. (See additional information on the unit repurchase program below.) The Company utilizes its available debt capacity to fund ongoing operations, as well as to fund administration and legal costs to bring future projects online over the longer term in order to enable the Company to complete the development of Valencia and to begin development of Newhall Ranch. As a guideline, the Company targets total debt not to exceed 60% of the appraised value of the income portfolio. The Company ended the 2003 second quarter with a conservative debt to income portfolio value ratio of 22%, which the Company believes will provide adequate debt capacity to fund operations and continue unit repurchases. At June 30, 2003, there was no debt secured by the Company’s raw land or land under development inventories.Arrangements

~~In May 2001, the Board of~~At ~~Directors~~September ~~authorized a unit repurchase program of up to 2~~30,~~520,000~~ ~~units~~2003, ora ~~10% of the then outstanding units~~$6. ~~In accordance~~6 ~~with~~million ~~the~~bank ~~program,~~loan ~~the~~secured ~~Company~~by ~~repurchases~~a ~~units~~deed ~~from~~of ~~time~~trust ~~to time at prevailing market prices and, depending~~ on ~~market conditions, either through~~ the ~~open market, or unsolicited negotiated transactions. Repurchases are generally funded from cash~~ ~~flow~~Valencia ~~generated~~Hilton ~~from~~Garden ~~normal~~Inn ~~business~~was ~~operations~~outstanding. ~~As of June 30, 2003, a total of 2,259,415 partnership units had~~ ~~been~~The ~~repurchased~~loan ~~under~~is ~~this~~payable ~~program~~in ~~for~~quarterly ~~$65.4~~principal ~~million,~~installments ~~or an average unit price~~ of $~~28.95. Of this total~~41,250 ~~302,230 units~~plus ~~were~~monthly ~~repurchased~~interest ~~during~~payments ~~the~~until ~~first~~maturity ~~six~~on ~~months~~March ~~of 2003 for $8.8 million~~31, ~~or an average unit price of $29~~2004.~~07.~~ AThis ~~total of~~loan ~~260,585~~is ~~units~~non-recourse ~~remained~~ to ~~be repurchased under this program at June 30,~~the ~~2003~~Company. As ~~a result of~~ the ~~merger agreement~~equity ~~announced~~method onis ~~July~~used ~~21,~~to ~~2003,~~account for the Company’s ~~has~~investment ~~suspended~~in the ~~repurchase~~joint ~~program~~venture with Hilton Inns, Inc. ~~(See~~, ~~Note~~the 8bank ofloan ~~Part~~is 1not ~~Item~~included ~~2: Financial~~in ~~Statements~~mortgage ~~for~~and ~~additional information~~other debt on the accompanying ~~merger~~balance ~~agreement~~sheet.)

~~For~~The ~~the six months ended June 30, 2003, the~~ Company ~~invested~~does ~~approximately $4.5 million (before $8.2~~not ~~million~~have inany ~~fee~~other ~~reimbursements~~transactions, ~~received~~arrangements ~~from~~or ~~the~~other ~~Valencia~~relationships ~~Bridge and Major~~with ~~Thoroughfare~~unconsolidated ~~District)~~entities inthat ~~major~~are ~~roads~~reasonably ~~and~~likely ~~freeway~~to ~~infrastructure~~affect ~~improvements primarily~~its ~~within~~liquidity ~~Valencia, which amounts are included in land under development~~or oncapital ~~the accompanying balance sheet~~resources. ~~In addition,~~ ~~the~~The Company ~~invested~~has ~~approximately~~no $5special ~~million~~purpose inor ~~the~~limited ~~remodel of the~~purpose ~~former~~entities ~~Edwards~~that ~~Theatres’~~provided ~~space~~off-balance insheet ~~Valencia~~financing, ~~Town~~liquidity ~~Center~~or ~~regional~~market ~~mall to~~or ~~relocate~~credit ~~the~~risk ~~existing food court and create retail space~~support, ~~and~~engaged ~~approximately~~in ~~$8 million on the completion of the construction of Tournament Players ClubÒ at Valencia championship golf course~~leasing, ~~in the Company’s Westridge community~~hedging, ~~which~~ ~~amounts~~research ~~are~~and ~~included in income-producing properties on the accompanying~~development ~~balance sheet. For the remainder of 2003~~services, ~~the~~or ~~Company~~other ~~expects~~relationships tothat ~~invest~~expose ~~approximately $13 million in major roads and freeway infrastructure improvements to enable~~ the Company to ~~continue~~liability ~~its land~~that ~~sales program in Valencia. In addition, approximately $7 million~~ is ~~expected to be invested in Valencia Town~~ ~~Center~~not ~~regional~~reflected ~~mall~~on ~~to complete~~ the ~~relocation~~face of the ~~existing~~financial ~~food court and the creation of new retail space~~statements. The Company expects to invest another approximately $3 million on the completion of the golf course and clubhouse. At June 30, 2003, there were no other material commitments for capital expenditures.

20FINANCIAL CONDITION

~~The~~Liquidity ~~following~~and ~~discussion~~Capital ~~relates to principal items in the Consolidated Statements of Cash Flow:~~Resources

~~Operating~~At September ~~Activities~~30, 2003, the Company had cash and cash equivalents of $68.8 million and $162.7 million in available lines of credit, net of $19.3 million in outstanding letters of credit. Included in the cash balance at September 30, 2003 was a $5 million deposit received by the Company in July 2003 related to the pending merger transaction with Lennar Corporation and LNR Property Corporation. Upon the closing of the merger transaction, the $5 million deposit will be applied to the purchase price from the Lennar/LNR venture. (See further discussion of the merger above in Part I, Item 2. – Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Part 1, Item 1 – Financial Statements, Note 8: Merger.) At September 30, 2003, there were no borrowings outstanding on unsecured lines of credit or a revolving mortgage facility. The Company had fixed rate debt outstanding totaling $65.1 million. The Company believes it has adequate sources of cash from operations and debt capacity, combined with proceeds from anticipated land sales, to finance future operations on both a short- and long-term basis. The Company utilizes its available debt capacity to fund ongoing operations, as well as to fund administration and legal costs to bring future projects online over the longer term in order to enable the Company to complete the development of Valencia and to begin development of Newhall Ranch. As a guideline, the Company targets total debt not to exceed 60% of the appraised value of the income portfolio. The Company ended the 2003 third quarter with a conservative debt to income portfolio value ratio of 21%, which the Company believes will provide adequate debt capacity to fund operations. At September 30, 2003, there was no debt secured by the Company’s raw land or land under development inventories.

~~Net~~In ~~cash~~May ~~provided~~2001, ~~by operating activities totaled $46.3 million for~~ the ~~first~~Board ~~six months~~ of ~~2003~~Directors ~~versus~~authorized ~~$27.7~~a ~~million~~unit ~~for~~repurchase ~~the~~program ~~six~~of ~~months~~up ~~ended~~to 2,520,000 ~~June 30~~units, ~~2002. Cash~~ ~~generated~~or ~~from~~10% ~~operating activities included the sales~~ of the ~~entire~~then ~~759~~outstanding ~~residential~~units. In ~~lots~~accordance inwith the ~~Company’s~~ ~~Creekside community~~program, ~~fourteen custom home sites in~~ the ~~Westridge golf~~Company ~~course~~repurchased ~~community,~~units ~~and~~from ~~approximately~~time 18to ~~acres~~time ofat ~~commercial~~prevailing market prices and, ~~industrial~~depending on ~~land. Together~~market ~~with~~conditions, ~~revenue~~either ~~from~~through the ~~Company’s portfolio~~open ~~of income-producing properties~~market, ~~these~~or ~~sources~~unsolicited ~~contributed $69.9~~negotiated ~~million to revenues~~transactions. ~~This~~Repurchases ~~was~~were ~~offset~~generally byfunded ~~the~~from ~~acceptance~~cash byflow ~~the~~generated ~~Company~~from ofnormal $2business operations.0 As ~~million~~a inresult ~~promissory~~of ~~notes in conjunction with~~ the ~~terms~~merger ofagreement announced ~~certain~~on ~~commercial~~July ~~land~~21, ~~sales~~2003, ~~during~~ the ~~six-month~~ ~~period. These notes have~~Company ~~maturity~~suspended ~~dates~~the ~~prior~~repurchase ~~to December 31, 2003~~program. ~~Cash~~(See ~~used~~“Results inof ~~operating activities~~Operations” ~~included~~section ~~the use~~ of ~~approximately~~Part ~~$19 million for land development expenditures~~I, ~~primarily~~Item ~~related to land preparation and infrastructure improvements to ready land for development or sale~~2. ~~Additional~~ ~~uses of cash included payment of the Company~~– Management’s ~~general and~~Discussion ~~administrative expenses~~ and ~~interest expense.~~

For the six months ended June 30, 2002, cash generated from operating activities included the sale of 733 residential lots, the sale of approximately 56 commercial acres and revenue from the Company’s portfolio of income-producing properties, combined for a total of $91.3 million. This was offset by the Company’s acceptance in the 2002 first quarter of $18.7 million in promissory notes in conjunction with the terms of certain commercial land and residential lot sales. These notes matured prior to December 31, 2002. One of these notes in the amount of $3 million was collected in the 2002 second quarter. In addition, $5.5 million of notes receivables outstanding at December 31, 2001 were collected in the 2002 second quarter. Cash used in operating activities also included the use of approximately $47 million for land under development expenditures mostly related to land preparation and infrastructure improvements to ready the land for development or sale. Additional uses of cash included the Company’s general and administrative expenses and interest expense.21

~~Investing~~Analysis of ~~Activities~~Financial Condition and Results of Operations, for additional information on the merger.) The last unit repurchase under this program was made on June 24, 2003. As of September 30, 2003, a total of 2,259,415 partnership units had been repurchased under this program for $65.4 million, or an average unit price of $28.95. Of this total, 302,230 units were repurchased during the first six months of 2003 for $8.8 million, or an average unit price of $29.07. A total of 260,585 units remained to be repurchased under this program at September 30, 2003.

For the ~~six~~nine months ended ~~June~~September 30, 2003, ~~and~~the ~~June~~Company ~~30,~~invested ~~2002,~~approximately ~~expenditures~~$8 ~~for~~million ~~development~~(before of$8.3 ~~income-producing~~million ~~properties~~in ~~totaled~~fee ~~$14.4~~reimbursements ~~million~~received from the Valencia Bridge and ~~$5.8~~Major Thoroughfare ~~million,~~District) in major roads and freeway infrastructure improvements ~~respectively~~primarily within Valencia, ~~and~~which amounts are included in land under development on the accompanying balance sheet. In addition, ~~for~~the ~~both~~Company ~~periods~~invested ~~were~~approximately ~~primarily~~$7 ~~for~~million in the remodel of the former Edwards Theatres’ space in Valencia Town Center regional mall to relocate the existing food court ~~remodel~~ and ~~expansion~~create new retail space in the former food court location, and approximately $10 million on the completion of the construction of Tournament Players ClubÒ at Valencia championship golf course and clubhouse, in the Company’s Westridge community, which amounts are included in income-producing properties on the accompanying balance sheet. For the remainder of 2003, the Company expects to invest approximately $6 million in major roads and freeway infrastructure improvements to enable the Company to continue its land sales program in Valencia. In addition, another approximately $4 million is expected to be invested in Valencia Town Center regional mall in 2003 to complete the creation of the new retail space. The Company expects to invest another approximately $1 million on the completion of the golf course and clubhouse. At September 30, 2003, there were no other material commitments for capital expenditures.

~~Purchase~~The offollowing ~~property~~discussion ~~and equipment~~relates ~~totaled $3.4 million for the six-month period ended June 30, 2003 compared~~ to ~~$4.1~~principal ~~million~~items ~~for~~on the ~~same 2002 period.~~ ~~Investments~~Consolidated inStatement ~~both~~of ~~periods~~Cash ~~were primarily for water utility construction.~~Flows:

Operating Activities

Net cash provided by operating activities totaled $62.6 million for the first nine months of 2003 versus $72.9 million for the nine months ended September 30, 2002. Cash generated from operating activities included the sales of the entire 759 residential lots in the Company’s Creekside community, twenty-four custom home sites in the Westridge golf course community, and approximately 30 acres of commercial and industrial land. Together with revenue from continuing operations of the Company’s portfolio of income-producing properties, these sources contributed $100.8 million to revenues. In addition, the Company received a $5 million deposit in July 2003 related to the pending merger transaction with Lennar Corporation and LNR Property Corporation. Upon the closing of the merger transaction, the $5 million deposit becomes part of the purchase price from the Lennar/LNR venture. (See further discussion of the merger above in Part I, Item 2. – Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Part 1, Item 1 – Financial Statements, Note 8: Merger.) This was offset by the acceptance by the Company of $2.0 million in promissory notes in conjunction with the terms of certain commercial land sales during the first nine months of 2003. During the three months ended September 30, 2003, $700,000 was collected against the outstanding notes. The remaining note balance has a maturity date prior to December 31, 2003. Cash used in operating activities included the use of approximately $32 million for land development expenditures, primarily related to land preparation and infrastructure improvements to ready land for development or sale. Additional uses of cash included payment of the Company’s general and administrative expenses and interest expense.

For the nine months ended September 30, 2002, cash generated from operating activities included the sales of 949 residential lots, the sales of approximately 57 acres of commercial land and continuing operations from the Company’s portfolio of income-producing properties. These activities combined contributed a total of $139.7 million to revenues. In addition, $11.7 million of notes receivables outstanding at December 31, 2001 were collected in the nine months ended September 30, 2002. This was offset by the Company’s acceptance in the 2002 first quarter of $8.3 million promissory note in conjunction with the terms of a commercial land sale. The term of the note was less than one year and was subsequently collected prior to December 31, 2002. Cash used in operating activities also included the use of approximately $68 million for land under development expenditures mostly related to land preparation and infrastructure improvements to ready the land for development or sale. Additional uses of cash included the Company’s general and administrative expenses and interest expense.

Investing Activities

For the nine months ended September 30, 2003 and September 30, 2002, expenditures for development of income-producing properties totaled $19.0 million and $12.0 million, respectively, and, for both periods were primarily for the Valencia Town Center food court remodel and expansion, and construction of Tournament Players Club^Ò at Valencia championship golf course and clubhouse, in the Company’s Westridge community.

Purchase of property and equipment totaled $4.9 million for the nine-month period ended September 30, 2003 compared to $6.8 million for the same 2002 period. Investments in both periods were primarily for water utility construction.

Financing Activities

Distributions to unitholders totaling $4.7.0 million and $810.04 million were made in the ~~six~~ nine months ended ~~June~~September 30, 2003 and ~~June~~September 30, 2002, respectively, consisting of ~~two~~three regular quarterly distributions of $.10 per unit in each year and a $.13 per unit special distribution in 2002. No special distribution was made in 2003. The Company declared a regular quarterly distribution of $.10 per unit, payable ~~September~~December 8, 2003 to unitholders of record on ~~August~~November 1110, 2003. The Company’s usual practice is to provide sufficient distributions, including special distributions, to pay the estimated approximate amount of taxes associated with Company earnings. The declaration of distributions and the amount declared, are determined by the Board of Directors on a quarterly basis taking into account the Company’s earnings, financial condition and prospects.

At ~~June~~ September 30, 2003, the Company had outstanding balances in mortgage and other debt of $65.21 million versus $8258.39 million at September ~~June~~ 30, 2002. The $176.12 ~~million~~net increase ~~decrease~~ was primarily due to the ~~absence~~refinancing of ~~any outstanding borrowings on~~ the ~~Company’s~~$9.6 ~~available~~million ~~lines~~mortgage ofsecured ~~credit~~by atthe ~~June~~New 30Columbia Ranch, ~~2003~~which ~~versus~~was ~~$23.3~~to ~~million~~mature ~~outstanding~~on atNovember ~~June 30~~1, ~~2002~~ 2003. ~~The~~On ~~reduced~~June ~~borrowings~~26, on2003, the ~~lines~~ ofCompany ~~credit~~closed ~~were~~the refinancing ~~due~~on tothe ~~strong~~new ~~operating~~15-year ~~cash~~mortgage ~~flow~~for $15 million, ~~primarily~~with ~~from~~a fixed interest ~~residential~~rate ~~lot~~of ~~sales,~~3.07% ~~and~~for athe ~~reduced~~first ~~pace~~three ofyears. ~~repurchases~~The ofremaining ~~partnership~~activity ~~units compared~~was due to ~~the~~an increase ~~six~~in ~~months~~the ~~ended~~outstanding ~~June~~principal ~~30,~~on ~~2002. This~~community ~~decrease~~facilities ~~was~~bonds ~~partially~~due ~~offset~~to by the refinance ~~refinancing~~ of the ~~$9.6 million~~bonds ~~mortgage~~in ~~secured~~October 2002 partially offset by ~~the~~principal ~~New~~payments on ~~Columbia~~the ~~Ranch,~~Company’s ~~which~~outstanding ~~was~~fixed torate ~~mature~~debt based on ~~November~~ 1,contractual ~~2003~~terms. OnThe ~~June~~Company’s ~~26,~~lines ~~2003,~~of ~~the~~credit are available ~~Company~~to ~~closed~~fund ~~the~~recurring operations and distributions.

During the nine months ended September 30, 2003, the Company repurchased 302,230 partnership units for $8.8 million, or an average unit price of $29.07. During the nine months ended September 30, 2002, 501,835 partnership units were repurchased for $15.0 million, or an average price of $29.81. As a result of the merger agreement announced on July 21, 2003, the Company suspended the unit repurchase program. (See “Results of Operations” section of Part I, Item 2. – Management’s Discussion and Analysis of Financial Condition and Results of Operations, for additional information on the merger.) The last unit repurchase under this program was made on June 24, 2003.

refinance onNew theAccounting new 15-year mortgage for $15 million, with a fixed interest rate of 3.07% for the first three years. The remaining activity was due to principal payments on the Company’s outstanding fixed rate debt based on contractual terms partially offset by an increase in the outstanding principal on community facilities bonds due to the refinance of the bonds in October 2002. The Company’s lines of credit are available to fund recurring operations, distributions and repurchases of partnership units.Pronouncement

~~During~~In April 2003, the ~~six~~Financial ~~months~~Accounting ~~ended~~Standards ~~June~~Board ~~30,~~(FASB) ~~2003~~issued Statement of Financial Accounting Standards (SFAS) No. 149, ~~the~~Amendment ~~Company~~of ~~repurchased~~Statement ~~302~~133 on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments,~~230~~ ~~partnership~~including certain ~~units~~derivative instruments imbedded in other contracts and for $8hedging activites under SFAS No.8 ~~million~~133, orAccounting anfor Derivative ~~average~~Instruments ~~unit~~and ~~price~~Hedging ~~of $29~~Activities.~~07.~~ ~~During~~The ~~the~~statement ~~six~~is ~~months~~generally ~~ended~~effective for contracts entered into or modified after June 30, ~~2002,~~2003 and for hedging relationships ~~415~~designated after June 30,~~935~~ ~~partnership~~2003. It ~~units~~is not ~~were~~anticipated ~~repurchased~~that ~~for~~the ~~$12.7~~adoption ~~million,~~of orthis anstatement ~~average~~will have a material effect ~~price~~on the Company’s results of ~~$30~~operations and financial condition for the year ending December 31, 2003.~~54.~~

~~New~~In May 2003, the FASB issued SFAS No. 150, Accounting ~~Pronouncements~~for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 established standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. In addition, the statement requires the presentation of the minority interest in certain consolidated entities at fair market value. The statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. However, on October 29, 2003, the FASB decided to defer indefinitely the implementation date for reporting at fair value minority interests in certain

In April 2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments imbedded in other contracts and for hedging activites under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. The statement is generally effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of this statement will not have a material effect on the Company’s results of operations and financial condition for the year ending December 31, 2003.23

~~In May 2003, the FASB~~consolidated ~~issued SFAS No. 150~~entities, ~~Accounting~~which ~~for~~previously ~~Certain~~was ~~Financial~~effective ~~Instruments~~beginning ~~with Characteristics~~in ofthe ~~both~~third ~~Liabilities~~quarter ~~and Equity~~of 2003. ~~SFAS~~As ~~No.~~a ~~150~~result ~~established standards for how an issuer classifies and measures certain financial instruments with characteristics~~ of ~~both~~this ~~liabilities and equity. The statement is effective for financial instruments entered into or modified after May 31~~deferral, ~~2003, and otherwise~~ it is ~~effective~~not atanticipated ~~the~~that ~~beginning of~~ the ~~first interim period beginning after June 15, 2003. The~~ adoption of this statement will ~~not~~ have a material effect on the Company’s results of operations and financial condition for the year ending December 31, 2003.

Internet Access to Company Financial Documents

The Company maintains a website at www.newhall.com. The Company makes available free of charge, either by direct access or a link to the Securities and Exchange Commission’s website, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the SEC. The Company’s reports filed with, or furnished to, the SEC are also available directly at the SEC’s website at www.sec.gov.

FORWARD-LOOKING INFORMATION AND RISK FACTORS

Except for historical matters, the matters discussed in this report are forward-looking statements that involve inherent risks and uncertainties. We have tried, wherever practical, to identify these forward-looking statements by using words like “anticipate,” “believe,” “estimate,” “target,” “project,” “expect,” “plan,” and similar expressions. Forward-looking statements include, but are not limited to, statements about plans; opportunities; anticipated regulatory approvals or actions; potential litigation outcomes; negotiations; market and economic conditions; development, construction, and sales activities; and availability of financing.

We caution you not to place undue reliance on these forward-looking statements, which reflect our current beliefs and are based on information currently available to us. We expressly undertake no obligation publicly to revise or update these forward-looking statements to reflect future events or changes in circumstances.

These forward-looking statements are subject to risks and uncertainties that could cause our actual results, performance, or achievements to differ from those expressed in or implied by these statements. See our risk factors below.

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

Economic Conditions: Development of residential, industrial and commercial real estate can be significantly impacted by general and local economic conditions, which are beyond the control of the Company. The Company’s real estate operations are concentrated in north Los Angeles County. The southern California economy is profoundly affected by the entertainment, technology and defense industries and certain other business segments. Consequently, all sectors of the Company’s real estate operations ~~tend~~ tend to be cyclical. The regional, state and national economies have slowed. There can be no assurances that the slowdown will not worsen or the economy will recover in the near future.

regional, state and national economies have slowed. There can be no assurances that the slowdown will not worsen or the economy will recover in the near future.

Inflation: The Company believes it is well positioned against the effects of inflation. Historically, during periods of inflation, the Company has been able to increase selling prices of properties to offset rising costs of land development and construction. A portion of the commercial income portfolio is protected from inflation since percentage rent clauses and Consumer Price Index increases in the Company’s leases tend to adjust rental receipts for inflation, while the underlying value of commercial properties has tended to rise over the long term. However, there can be no assurance that the Company will continue to be able to offset the impacts of inflation through increases in the selling prices of its properties in future periods.

Interest Rates and Financing: Fluctuations in interest rates and the availability of financing have an important impact on the Company’s performance. Sales of the Company’s properties could be adversely impacted by the inability of buyers to obtain adequate financing at rates acceptable to them. Further, the Company’s real estate development activities are dependent on the availability of adequate sources of capital. Certain of the Company’s credit facilities bear interest at variable rates and would be negatively impacted by increasing interest rates.

Competition: The sale and leasing of residential, industrial and commercial real estate is highly competitive, with competition coming from numerous and varied sources. The degree of competition is affected by such factors as the supply of real estate available comparable to that sold and leased by the Company and the level of demand for such real estate. Currently, the residential market in the Santa Clarita Valley, including Valencia, remains strong and has been capturing an increasing portion of Los Angeles County’s new home sales. However, there is no assurance that this trend will continue. Although there are indications the local market for industrial property is strengthening, the industrial market in Valencia is experiencing limited demand and vacancy rates remain high since the national and regional economies have slowed. In addition, local competition has intensified as other business parks within the area have opened or are in the planning stages.

Geographic Concentration: The Company’s real estate development activities are focused on the 18,100 acres that it owns in north Los Angeles County. The Company’s entire commercial real estate income portfolio is located in the Valencia area. Therefore, any economic or other factors affecting that concentrated area, such as changes in the housing market, economic conditions and environmental factors, which cannot be predicted with certainty, could affect future results.

Exposure to Natural Occurrences and Acts of Terror: The Company’s assets and real estate operations may be adversely affected by natural occurrences such as earthquakes, fire and weather conditions, and acts of of terrorism or armed conflict that may cause damage to assets, delay progress ~~and~~ and increase the costs of infrastructure construction and land development, ~~impact~~ impact the economy generally or locally, and affect the pace of sales.

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

Litigation: The land use approval processes the Company must follow ultimately to develop its projects have become increasingly complex. Moreover, the statutes, regulations and ordinances governing the approval processes provide third parties opportunities to challenge the proposed plans and approvals. As a result, the prospect of, and actual, third-party challenges to planned real estate developments have provided additional uncertainties in real estate development planning and entitlement activities. Third-party challenges in the form of litigation will, by their nature, adversely affect the length of time required to obtain the necessary approvals. In addition, adverse decisions arising from any litigation increase the costs and may adversely affect the design, scope, plans and profitability of a project.

Environmental Remediation and Endangered Species: The Company owns or formerly owned properties with respect to which the Company may be required to remediate environmental effects of prior releases of contamination. Future environmental costs are difficult to estimate because of factors such as, but not limited to, the unknown magnitude of possible contamination, the unknown timing and extent of remediative actions that may be required, the determination of the Company’s potential liability, and the extent to which such costs are recoverable from third parties or from applicable insurance coverages. In addition, the length of time to perform any required remediation or the successful pursuit of responsible third parties is difficult to predict. The ability to, or length of time required to, remediate any property could increase the costs of, and restrict, prevent or delay the development of a new project. Additionally, the presence of endangered species on the Company’s property could delay and increase the cost of development, and, in limited circumstances, could prevent the development of some properties.

2425

~~Item~~Part 1. Financial Information

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

The Company is exposed to market risk primarily due to fluctuations in interest rates. The Company utilizes both fixed rate and variable rate debt. At ~~June~~September 30, 2003, the Company had no outstanding variable rate debt and $65.21 million of outstanding fixed rate debt with interest rates ranging from 3.07% to 8.00%.

The table below presents principal cash flows and related weighted average interest rates of the Company’s long-term fixed rate and variable rate debt at ~~June~~September 30, 2003 by expected maturity dates:

Dollars in thousands	2003			2004			2005			2006			2007			Thereafter			Total			Fair Value
Mortgage and Other Debt
Fixed Rate Debt (3)	$	~~231~~117		$	499		$	557		$	22,314		$	75		$	41,556		$	65,~~232~~118		$	7068,~~481~~928	(2)
Weighted Average Interest Rate	7.44		%	7.41		%	7.35		%	7.44		%	5.76		%	5.38		%	6.12		%
Variable Rate Debt (1)																			$	—		$	—
Weighted Average Interest Rate

(1) The Company has a $50 million revolving mortgage facility which bears interest at LIBOR plus 1.40% against which no no borrowings were outstanding at ~~June~~September 30, 2003. The Company also has unsecured lines of credit consisting of a $130 million line on which the interest rate is LIBOR plus 1.40%, against which no borrowings were outstanding at ~~June~~September 30, 2003. A $2 million line on which the interest rate was LIBOR plus 1.25% expired in June 2003 and ~~may~~was not be replaced.

(2) The fair values of the Company’s fixed rate debt either approximate carrying value or are estimated using discounted cash flow analyses based on the Company’s current incremental borrowing arrangments ranging from 3.07% to 56.6500%.

(3) Amounts include a $15 million mortgage secured by New Columbia Ranch. The mortgage bears interest at 3.07% per annum for the first three years and resets to a variable rate, reset quarterly, thereafter.

The table below presents principal cash flows and related weighted average interest rates of the Company’s long-term fixed rate and variable rate debt at December 31, 2002 by expected maturity dates:

Dollars in thousands	2003			2004			2005			2006			2007			Thereafter			Total			Fair Value
																						Fair
Dollars in thousands	2003			2004			2005			2006			2007			Thereafter			Total			Value
Mortgage and Other Debt
Fixed Rate Debt	$	10,055		$	499		$	557		$	22,314		$	75		$	26,537		$	60,037		$	64,045
Weighted Average Interest Rate	8.40		%	7.41		%	7.35		%	7.44		%	5.76		%	6.69		%	7.26		%
Variable Rate Debt (1)																			$	—		$	—
Weighted Average Interest Rate

There is inherent rollover risk for borrowings as they mature and are renewed at current market rates. The extent of this risk is not quantifiable or predictable because of the variability of future interest rates and the Company’s future financing requirements. The Company manages its interest rate risk by maintaining a conservative ratio of fixed rate, long-term debt to total debt in order to maintain variable rate exposure at an acceptable level and by taking advantage of favorable market conditions for long-term debt. In addition, the Company’s guideline for total debt is not to exceed 60% of the appraised value of the income portfolio. As of ~~June~~September 30, 2003, the Company’s debt to income ~~portfolio~~ portfolio value ratio was 2221%. The Company does not currently hedge any potential interest rate exposure.

2526

Part 1. Financial Information

Item 4. Controls and Procedures.

~~Within 90 days prior to~~As ~~the filing date~~ of ~~this report, an evaluation was performed under~~ the ~~supervision~~ ~~and~~end ~~with~~of the ~~participation~~period ofcovered ~~the~~by ~~Company’s~~this ~~management~~quarterly report, ~~including~~ the Chief Executive Officer and Chief Financial Officer, ofhave ~~the~~concluded ~~effectiveness of~~that the Company’s disclosure controls and procedures~~. Based~~ on(as ~~that evaluation,~~defined ~~the~~in ~~Company’s~~Rules ~~management,~~13a-15 ~~including~~or 15d-15 under the Securities ~~Chief~~Exchange ~~Executive~~Act ~~Officer~~of ~~and Chief~~1934, ~~Financial~~as ~~Officer~~amended,) ~~concluded~~are ~~that~~effective ~~the~~based ~~Company’s~~on ~~disclosure~~their evaluation of the controls and procedures ~~were~~as ~~effective~~required by the rules promulgated under the Exchange Act. There have been no ~~significant~~ changes in the Company’s internal controls orover infinancial ~~other~~reporting ~~factors~~during the last fiscal quarter that ~~could~~have ~~significantly~~materially ~~affect internal~~affected, ~~controls~~or ~~subsequent~~are reasonably likely to materially affect, the ~~date~~Company’s ofinternal ~~their~~control ~~evaluation~~over financial reporting.

Part II. Other Information

Item 1. Legal Proceedings.

~~Please~~The ~~refer~~Company initiated litigation against gas and oil-field operators to enforce contractual ~~“Community~~provisions ~~Development”~~requiring ~~under~~them ~~Part~~to I,perform ~~Item~~adequate 2.restoration –and ~~“Management~~remediation on the Company’s ~~Discussion~~property. On May 20, 2003, the Los Angeles County Superior Court granted a stay of the case to allow the parties time to document the details of a tentative settlement which had been reached and execute a definitive settlement agreement. A definitive settlement agreement was signed ~~Analysis~~by all parties on October 16, 2003. The key terms of ~~Financial~~the ~~Condition~~settlement address the level of property remediation and restoration ~~Results~~to be performed by the defendants, Kerr-McGee and Medallion, the timing of ~~Operations”~~performance and the financial security provided to the Company to assure completion of the remediation and restoration of the property. On October 17, 2003, the Company received a cash payment of $8.9 million for partial reimbursement of its expenses incurred in pursuing the lawsuit. This cost recovery will be recorded in the Company’s results for the fourth quarter 2003. All pending actions will be dismissed and restoration operations will commence in 2004.

~~Item~~On September 10, 2003, the Valencia Water Company along with other local water agencies, Castaic Lake Water Agency (CLWA), Newhall County Water District and Santa Clarita Water Division of CLWA, announced that they have agreed to an interim settlement of their lawsuit with the Whittaker Corporation over the discovery of perchlorate in five water wells located near Whittaker’s property. Under the interim settlement, Whittaker has agreed to pay certain past costs incurred to date and fund up to $5 million to prepare a clean-up plan that will restore water production and capacity of the impacted wells and protect other wells from future contamination. The interim settlement provides for a one-year stay of the lawsuit between the parties. ~~Other~~As ~~Information~~soon as the clean-up plan is developed and submitted to the regulatory agencies for approval and the cost for the remedy is developed, the parties will enter into good faith negotiations to reach a complete settlement.

OnPlease ~~July~~also 21, 2003, the Company entered into a merger agreement with Lennar Corporation, a Delaware corporation, LNR Property Corporation, a Delaware corporation, NWHL Investment LLC, a Delaware limited liability company and NWHL Acquisition, L.P., a California limited partnership. Please refer to “~~Note~~Community ~~8 – Subsequent Event~~Development” under Part I, Item 12. – “Management’s Discussion and Analysis of Financial ~~Statements~~Condition and Results of Operations”.

The Company's electronic filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to each, are available free of charge through a link on the Company's website as soon as reasonably practicable after such material is electronically filed with the Commission. The Company's website address is www.newhall.com.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits (listed by numbers corresponding to the Exhibit Table of Item 601 in Regulation S-K):

(a)	Exhibits (listed by numbers corresponding to the Exhibit Table of Item 601 in Regulation S-K):

	10 (a)	The Newhall Land and Farming Company Management Unit Ownership Program Amendment No. 4

	31 (a)	Certification of Quarterly Report By Principal Executive Officer Pursuant to Exchange Act Rules 13a-14(a) or 15d-14(a)

	31 (b)	Certification of Quarterly Report By Principal Financial Officer Pursuant to Exchange Act Rules 13a-14(a) or 15d-14(a)

	32 (a)	Certification of Principal Executive Officer Pursuant to 18 U.S.C. 1350 (As set forth in Exhibit 32(a) hereof, Exhibit 32(a) is being furnished and shall not be deemed “filed”.)

	32 (b)	Certification of Principal Financial Officer Pursuant to 18 U.S.C. 1350 (As set forth in Exhibit 32(b) hereof, Exhibit 32(b) is being furnished and shall not be deemed “filed”.)

10 (a) The Newhall Land and Farming Company Retirement Plan (Restatement effective January 1, 2002) Amendment No. 1

10 (b) The Newhall Land and Farming 2002 Equity Compensation Plan Amendment No. 1

31(a) Certification of Quarterly Report by Principal Executive Officer Pursuant to Exchange Act Rules 13a-14 and 15d-14

31(b) Certification of Quarterly Report by Principal Financial Officer Pursuant to Exchange Act Rules 13a-14 and 15d-14

32(a) Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350*

32(b) Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350*

* Exhibits 32(a) and 32(b) are to be treated as “furnished” rather than “filed” as part of the report.

(b) The following reports on Form 8-K were filed in the second quarter ended June 30, 2003:

Item Reported		Date of Report
A news release issued by the Company on April 2, 2003 announcing that first quarter earnings were expected to be approximately $0.48 to $0.52 per unit and the Newhall Ranch public hearing was closed.		April 2, 2003

Part II . Other Information

Item 6. Exhibits and Reports on Form 8-K

Item Reported		Date of Report
Two news releases issued by the Company on April 15, 2003. One announced the promotions of Donald L. Kimball to Vice President and Chief Financial Officer and Vicki M. Stiller to Controller. The second news release declared a regular quarterly distribution of $0.10 per partnership unit.		April 15, 2003
A news release issued by the Company on May 28, 2003 announcing that Newhall Ranch Specific Plan was approved and that the Company has reached a tentative settlement agreement to resolve pending litigation initiated by the Company.		May 28, 2003
A news release issued by the Company on June 26, 2003 announcing that second quarter earnings were expected to be approximately $0.03 to $0.06 per unit.		June 26, 2003

(b) The following reports on Form 8-K were filed in the third quarter ended September 30, 2003:

Item Reported		Date of Report

A news release issued by the Company on		July 15, 2003
July 15, 2003 announcing that the Company
declared a regular quarterly distribution
of $0.10 per partnership unit. In addition, a
news release was issued by the Company on
July 16, 2003 announcing the Company’s
2003 second quarter results of $.06 per unit.

As of July 21, 2003, the Company entered		July 21, 2003
into a merger agreement with Lennar Corporation,
a Delaware corporation, LNR Property Corporation,
a Delaware corporation, NWHL Investment LLC,
a Delaware limited liability company and NWHL
Acquisition, L.P., a California limited partnership
(the “Merger Agreement”). A joint news release was
issued with Lennar Corporation and LNR Property
Corporation on July 21, 2003 announcing that the
Company entered into the Merger Agreement.

A news release issued by the Company on		September 4, 2003
September 4, 2003 announcing that Lennar
Corporation and LNR Property Corporation
completed their due diligence in connection
with the previously announced acquisition of the
Company, and the Lennar/LNR venture deposited
$25 million into escrow as contemplated by the
Agreement and Plan of Merger between the Company
and the Lennar/LNR venture.

SIGNATURES

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

THE NEWHALL LAND AND FARMING COMPANY
(a California Limited Partnership)
Registrant
	By:	Newhall Management Limited Partnership,
				Managing General Partner
		By:	Newhall Management Corporation,
					Managing General Partner
Date: August 4, 2003						By:	/ S / GARY M. CUSUMANO
							Gary M. Cusumano, President and Chief Executive Officer of Newhall Management Corporation
							(Principal Executive Officer)
Date: August 4, 2003						By:	/ S / DONALD L. KIMBALL
							Donald L. Kimball, Vice President and Chief Financial Officer of Newhall Management Corporation
							(Principal Financial Officer)
Date: August 4, 2003						By:	/ S / VICKI M. STILLER
							Vicki M. Stiller, Controller of Newhall Management Corporation
							(Principal Accounting Officer)

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

By:	Newhall Management Limited Partnership,
Managing General Partner

	By:	Newhall Management Corporation,
Managing General Partner

Date: November 10, 2003	By:	/ S / GARY M. CUSUMANO
		Gary M. Cusumano, President and Chief Executive Officer of Newhall Management Corporation
		(Principal Executive Officer)


Date: November 10, 2003	By:	/ S / DONALD L. KIMBALL
		Donald L. Kimball, Vice President and Chief Financial
		Officer of Newhall Management Corporation
		(Principal Financial Officer)


Date: November 10, 2003	By:	/ S / VICKI M. STILLER
		Vicki M. Stiller, Controller of Newhall Management Corporation
		(Principal Accounting Officer)

THE NEWHALL LAND AND FARMING COMPANY

INDEX TO EXHIBITS

Exhibit Number		Description
10 (a)		The Newhall Land and Farming Company ~~Retirement~~Management ~~Plan~~Unit ~~(Restatement~~Ownership ~~effective January 1, 2002) Amendment No. 1~~Program
10 (b)		The Newhall Land and Farming 2002 Equity Compensation Plan Amendment No. 1
		Amendment No. 4
31(a)		Certification of Quarterly Report By Principal Executive Officer Pursuant to Exchange Act Rules 13a-14 and 15d-14
31 (a)		Certification of Quarterly Report By Principal Executive Officer Pursuant to Exchange Act Rules 13a-14(a) or 15d-14(a)
31(b)		Certification of Quarterly Report By Principal Financial Officer Pursuant to Exchange Act Rules 13a-14 and 15d-14
31 (b)		Certification of Quarterly Report By Principal Financial Officer Pursuant to Exchange Act Rules 13a-14(a) or 15d-14(a)
32(a)		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350
32 (a)		Certification of Principal Executive Officer Pursuant to 18 U.S.C. 1350
32(b)		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350
32 (b)		Certification of Principal Financial Officer Pursuant to 18 U.S.C. 1350

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Filing Compare · NEWHALL LAND & FARMING CO /CA/