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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

|ý                                           |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|------------------------------------------- |  | ----------------------------------------------------------------------------------------
|For the fiscal year ended December 31, 2002
|OR                                         
|o                                           |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to

Commission File Number 1-8885

THE NEWHALL LAND AND FARMING COMPANY(a California Limited Partnership)(Exact name of Registrant as specified in its charter)

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

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

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

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

Title of each class

Name of each exchange
on which registeredDepositary Receipts

New York Stock Exchange
Pacific Stock Exchange


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

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

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o

Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the
Act). YESý NOo

The
aggregate market value of depositary receipts held by non-affiliates as of June 30, 2002 (the last business day of the Registrant's most recently completed second
fiscal quarter), based upon the closing price of such depositary receipts on the New York Stock Exchange was $660,331,520.

DOCUMENTS INCORPORATED BY REFERENCE: None

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THE NEWHALL LAND AND FARMING COMPANY

2002
FORM 10-K

TABLE OF CONTENTS

|                                                         |  |                                                                                       |  | Page
Number
|-------------------------------------------------------- |  | ------------------------------------------------------------------------------------- |  | -----------
|PART I                                                   |  |                                                                                       |  |            
|Item 1.                                                  |  | Business                                                                              |  | 1          
|Item 2.                                                  |  | Properties                                                                            |  | 8          
|Item 3.                                                  |  | Legal Proceedings                                                                     |  | 9          
|Item 4.                                                  |  | Submission of Matters to a Vote of Security Holders                                   |  | 10         
|PART II                                                  |  |                                                                                       |  |            
|Item 5.                                                  |  | Market for the Registrant's Depositary Units and Related Security Holder Matters      |  | 10         
|Item 6.                                                  |  | Selected Financial Data                                                               |  | 11         
|Item 7.                                                  |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 12         
|Item 7A.                                                 |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 28         
|Item 8.                                                  |  | Financial Statements and Supplementary Data                                           |  | 30         
|Item 9.                                                  |  | Changes In and Disagreements with Accountants on Accounting and Financial Disclosure  |  | 51         
|PART III                                                 |  |                                                                                       |  |            
|Item 10.                                                 |  | Directors and Executive Officers of the Registrant                                    |  | 52         
|Item 11.                                                 |  | Executive Compensation                                                                |  | 58         
|Item 12.                                                 |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 69         
|Item 13.                                                 |  | Certain Relationships and Related Transactions                                        |  | 72         
|Item 14.                                                 |  | Controls and Procedures                                                               |  | 74         
|Part IV                                                  |  |                                                                                       |  |            
|Item 15.                                                 |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                      |  | 75         
|SIGNATURES                                               |  | 81                                                                                   
|SCHEDULE III    Real Estate and Accumulated Depreciation |  | 85                                                                                   
|INDEX TO EXHIBITS                                        |  | 87                                                                                   

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PART I

FORWARD-LOOKING INFORMATION

Except for historical matters, the matters discussed in this Annual 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; 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. For additional information, please refer to the "Forward Looking Information and Risk Factors" section underPart II. Item 7.Management's
Discussion and Analysis of Financial Condition and Results of Operations.

Item 1.    Business

INTRODUCTION

The Newhall Land and Farming Company, a California Limited Partnership, (the "Company" or the "Partnership") is engaged in the development of residential,
industrial and commercial real estate and in agriculture, on its approximately 48,000 acres in California. The interests in the Company (other than those held by the general partners) are represented
by transferable Depositary Units listed on the New York and Pacific Stock Exchanges under the ticker symbol NHL (also referred to in this Annual Report as "partnership units"). The Company was
reorganized from a corporation to a limited partnership on January 8, 1985. The predecessor corporation was established in 1883 by the family of Henry Mayo Newhall; the shares of the
corporation were listed on the New York Stock Exchange in 1970.

The
Company's primary business is developing two master-planned communities, Valencia and Newhall Ranch. Since 1965, the Company has been developing the town of Valencia on a portion of
the Company's landholdings in Los Angeles County, which now is home to approximately 48,000 residents and about 1,500 companies that provide over 45,000 jobs. With approximately 6,000 acres remaining
to be developed, and residential buildout expected by 2007, Valencia is the regional center for north Los Angeles County and the northern gateway to the entire Los Angeles metropolitan area.

In
1994, the Company started the entitlement process on Newhall Ranch, a new master-planned community to be located on 12,000 acres adjacent to Valencia and west of Interstate 5. In
March 1999, the Company received initial approval for the project from the Los Angeles County Board of Supervisors. The Newhall Ranch Specific Plan permits 21,600 homes in five distinct
lifestyle villages and 325 net acres of commercial and business park uses. In June 2000, a Kern County Superior Court judge identified six issues in the Newhall Ranch Environmental Impact
Report as requiring further environmental review. In October 2001, the Regional Planning Commission approved the additional analyses performed by the Company concerning the court-ordered
issues. Hearings before the Los Angeles County Board of Supervisors are expected to begin on March 25, 2003. Based on the current schedule, the Company expects to return to the Kern County
Superior Court late in 2003 or in early 2004 for resolution of the six issues that were identified by the Court as requiring further environmental review. The target date for the commencement of
initial development of Newhall Ranch

1

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is 2006. Planning and design work continues on the infrastructure for the project and detailed planning is proceeding on the first two villages planned for the community. For additional information
on this matter, please refer to the "Community Development" section underPart II. Item 7.Management's Discussion and Analysis of Financial Condition and
Results of Operations.

Valencia
and Newhall Ranch are located on the Company's prime landholding consisting of over 18,000 contiguous acres in north Los Angeles County, a rapidly growing region in California.
The development potential of these properties is unmatched in the entire County and is directly in the path of growth along the Interstate 5 corridor, just 30 miles north of downtown Los Angeles. Four
major freeways intersect Interstate 5 within ten minutes of Valencia providing businesses and residents easy access to the Los Angeles metropolitan area, major airports and the ports of Los Angeles
and Long Beach.

In
the late 1980s, the Company adopted the strategy of selling farm properties with little or no potential for development and re-deploying the proceeds into real estate
operations. As of December 31, 2002, more than 70,000 acres of non-strategic farmland have been sold. However, no farmland has been sold since 1999. The Company's remaining
agricultural properties are the New Columbia Ranch in the San Joaquin Valley and the Newhall Orchard in Ventura County. The Company has leased out a majority of the New Columbia Ranch to farming
tenants in 2003 in order to minimize the Company's fixed overhead costs and its exposure to crop commodity price fluctuations.

In
May 2001, the Board of Directors authorized a unit repurchase program to acquire up to 2,520,000 partnership units, or 10% of the then outstanding units. As of
December 31, 2002, a total of 1,957,185 units had been repurchased under this program. Completion of the repurchase program is planned for 2003. The Company's Board of Directors may approve
additional repurchases of partnership units after completion of the current program, taking into account the Company's earnings, financial condition and prospects. For additional information about the
repurchase program, please refer to the "Liquidity and Capital Resources" section underPart II. Item 7.Management's Discussion and Analysis of Financial
Condition and Results of Operations.

In
order to finance an aggressive partnership unit repurchase program initiated by the Company in late 1999, certain income properties were identified for sale. This asset sales program
was substantially complete in 2001. The Company closed escrow on one minor income property in 2002. For additional information about income property sales and unit repurchases, please refer to the
"Results of Operations," "Income Property Sales" and "Liquidity and Capital Resources" sections underPart II. Item 7.Management's Discussion and Analysis
of Financial Condition and Results of Operations.

Financial
information concerning the Company's business segments appears in Note 10 of theNotes to Consolidated Financial
Statementssection in this Annual Report. Information regarding compliance with governmental and environmental regulations appears in the "Forward-Looking Information and Risk
Factors" section underPart II. Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations. At
February 28, 2003, the Company had 155 employees.

Competition

Valencia is among the most successful master planned communities in the nation, having achieved a 41% market share of new home sales in the Santa Clarita Valley
in 2002, with a record 991 home sales for the year. In 2002, Valencia's share of the new home sales market in the Santa Clarita Valley increased over 2001. In addition, the residential market in the
Santa Clarita Valley, including Valencia, is capturing an increasing portion of Los Angeles County's new home sales. However, there is no assurance these current trends will continue. The Company
competes with several developers within the Santa Clarita Valley and the greater north Los Angeles County. These developers have residential projects and amenities similar to Valencia and offer
significant competition in terms of home pricing. The industrial market in Valencia is experiencing limited demand and vacancy rates remain high since

2

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the national and regional economies have slowed. In addition, local competition has intensified as other business parks in the area have opened or are in the planning stages.

Appraisal of Real Property Assets

The independent appraisal firm of Buss-Shelger Associates appraised the market value of the Company's real property assets to be $894 million
at December 31, 2002. The appraised properties did not include oil and gas assets, water supply systems, cash and cash equivalents and certain other assets. The appraised value of the Company's
net assets at December 31, 2002 was $889 million, after adjusting for debt and certain other assets and liabilities not independently appraised as shown in the table below.

For
the purpose of the appraisals, market value was defined as the most probable price in a competitive and open market under all conditions requisite to a fair sale, the buyer and
seller each acting prudently, knowledgeably and assuming the price is not affected by undue stimuli. A significant portion of the appraised real property assets is located on the Company's 18,000
acres, 30 miles north of downtown Los Angeles and currently is undeveloped.

The
receipt of entitlements on the Company's undeveloped properties and the continuing development of Valencia enhance the appraised value of the Company's remaining land assets.
Although raw land increases in value as development opportunities arise, the most significant increases occur when necessary land use entitlements, including zoning and mapping approvals, are obtained
from city and county governments.

The
appraised values of the Company's remaining land and income-producing properties in the Valencia master-planned community have increased from $222 million in 1984, the first
year independent property appraisals were obtained, to $613 million in 2002 despite significant reductions in acreage due to land sales during the period. On a per unit basis, the Company's net
appraised value has increased from $11.74 to $37.78 over the same 19-year period. In 1999, Newhall Land initiated an aggressive unit repurchase program to capitalize on the investment
opportunity to create unitholder value based upon the difference in the record-high underlying asset values in relation to Newhall Land's unit price. With this announcement in 1999, the
Company has completed a program for the sale of certain of the Company's income-producing properties. The $301.5 million in proceeds received from these sales, which were substantially
completed by the end of 2001, were used to reduce outstanding debt and to fund unit repurchases. In the past four years ended 2002, the Company has repurchased more than 9.7 million of its
units, representing nearly a 30% reduction in the Company's units then outstanding, for a total investment of $257.5 million. Repurchases of units represent the removal of asset value and a
corresponding decrease in the remaining number of partnership units outstanding in the appraisal of the Company's net assets. Results for 2002 include the sale of 1,330 residential lots and 69 acres
of commercial and industrial land as well as $12.8 million in distributions and $28.9 million in unit repurchases. The appraised value of Newhall Land's net assets per unit increased by
3% in 2002 as
a 1% reduction in asset value was more than offset by a 4% reduction in units outstanding. Absent the above sales in 2002, remaining Valencia land increased by 17% over 2001 values.

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A
summary of year-end appraised values follows (the appraisals were performed by the independent appraiser except as noted):

Appraised Values

|                                                |                                                             | 2002   |        | 2001 |        | 2000 |     | 1999 |   | 1998   |    
|----------------------------------------------- | ----------------------------------------------------------- | ------ | ------ | ---- | ------ | ---- | --- | ---- | - | ------ | ---
|
|Valencia and nearby properties                  |                                                             | 6,006  |        | $    | 323    |      | (20 | )%   | $ | 405    |    
|Income-producing real estate                    |                                                             | 136    |        |      | 290    |      | 10  |      |   | 263    |    
|                                                |                                                             |        |        |      |        |      |     |      |   |        |    
|Total Valencia area properties                  |                                                             | 6,142  |        |      | 613    |      | (8  | )    |   | 668    |    
|Community development properties:               |                                                             |        |        |      |        |      |     |      |   |        |    
|                                                | Newhall Ranch, Broomfield*
and City Ranch (50.1% interest)* |        | 11,965 |      |        | 219  |     | 13   |   |        | 194
|Agricultural properties                         |                                                             | 30,110 |        |      | 57     |      | (2  | )    |   | 58     |    
|Mortgage and other debt
at book carrying value  |                                                             |        |        |      | (60    | )    | (30 | )    |   | (86    | )  
|All other, net, not independently appraised     |                                                             |        |        |      | 60     |      | (3  | )    |   | 62     |    
|                                                |                                                             |        |        |      |        |      |     |      |   |        |    
|Net appraised value                             |                                                             | 48,217 |        | $    | 889    |      | (1  | )%   | $ | 896    |    
|                                                |                                                             |        |        |      |        |      |     |      |   |        |    
|Number of partnership units outstanding (000's) |                                                             |        |        |      | 23,518 |      | (4  | )%   |   | 24,374 |    
|                                                |                                                             |        |        |      |        |      |     |      |   |        |    
|Net appraised value per partnership unit        |                                                             |        |        | $    | 37.78  |      | 3   | %    | $ | 36.78  |    
|                                                |                                                             |        |        |      |        |      |     |      |   |        |    

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Appraised values are judgments. Land and property appraisals are an estimated value based on the sale of
comparably located and zoned real estate or on the present value of income anticipated from commercial properties. There is no assurance that the appraised value of property would be received if any
of the assets were sold. No assumptions have been made with respect to the bulk sale of the Company's total real estate assets. Certain reclassifications within categories have been made to conform to
the current year presentation; however, prior period amounts have not been restated to reflect land sale activity, unit repurchases or distributions to unitholders. For the five-year
period ended 2002, the Company has invested $302.2 million in unit repurchases and paid out $84.3 million in distributions.

REAL ESTATE

The Company's primary business is developing new towns and master-planned communities in north Los Angeles County. This includes the town of Valencia, 30 miles
north of downtown Los Angeles and Newhall Ranch, a new community planned for over 21,000 homes on 12,000 acres adjacent to Valencia and west of Interstate 5. The Company sells residential lots to
merchant builders, operates a portfolio of commercial properties, provides building-ready sites for sale to industrial and commercial developers/users and owns a public water utility.

For
additional information regarding the Company's business refer toPart II. Item 7.Management's Discussion and Analysis of Financial
Condition and Results of Operations. Valencia, the first master-planned community developed by the Company, has experienced tremendous success and set the standard for the
Company's future planned communities. Today, Valencia is a balanced community, providing residential, commercial and retail properties, along with industrial and recreational facilities and is the
regional center for north Los Angeles County. The Company believes Valencia residents are attracted to the quality of life offered in the community's relatively safe, clean environment, combined with
award-winning schools. Major business, such as Princess Cruises and

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Explorer Insurance, have relocated to Valencia for similar reasons plus the added benefit of a strong local labor pool and proximity to the Los Angeles metropolitan area. Plans for the
build-out of Valencia include approximately 4,300 homes and over 1,000 acres of commercial and industrial land. The Company's goal is to complete the sellout of Valencia area residential
land by 2007.

Newhall
Ranch, the next master-planned community for the Company on 12,000 acres adjacent to Valencia and west of Interstate 5, is based on a master plan that incorporates the Santa
Clara River in its natural state and provides access within the community to over 6,000 acres, which will be preserved as permanent open space. Approval of this 21,600 home project was received in
1999 from the Los Angeles County Board of Supervisors. In June 2000, a Kern County Superior Court judge identified six issues in the Newhall Ranch Environmental Impact Report as requiring
further environmental review. In October 2001, the Regional Planning Commission approved the additional analyses performed by the Company concerning the court-ordered issues. Hearings before
the Los Angeles County Board of Supervisors are expected to begin on March 25, 2003. Based on the current schedule, the Company expects to return to the Kern County Superior Court late in 2003
or in early 2004 for resolution of the six issues that were identified by the Court as requiring further environmental review. The target date for the commencement of initial development of Newhall
Ranch is 2006. Riverwood and The Mesas will be the first two villages in the Newhall Ranch community. Initial mapping, engineering, and soils and geology work is underway for the first neighborhoods
in these villages, along with design work on the major infrastructure to open the project.

Residential Development and Land Sales

Valencia new home sales continued to be strong in 2002. Historically low interest rates, combined with low unemployment for the region, a rebounding southern
California economy and a tight supply of new homes have pushed Valencia's home sale performance to record levels. In 2002, Valencia merchant builders sold 991 new homes built on land previously sold
by the Company, an all-time record for Valencia and 13.5% higher than the previous record of 873 new homes sold by merchant builders in 2001. The success of Valencia has earned the
community the honor of being one of the top selling master-planned communities in the nation. At December 31, 2002, merchant builders had 319 new homes in escrow, exceeding the 245 homes in
escrow at the end of 2001. Including lots purchased from the Company late in the 2002 fourth quarter, merchant builders had an inventory at the end of 2002 of 1,577 lots remaining on which to build
new homes, compared to a remaining inventory of 818 lots at the end of 2001. While the Company does not participate directly in profits generated from escrow closings by merchant builders, indirectly
the Company generally shares with 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.

In
2002, the Company closed escrows on a record 1,330 residential lots. Included in the total lot sales were 726 lots in the Westridge golf course community, all the 329 lots in the Alta
Vista community, and all the 275 lots in the Hidden Creek community. The Company is continuing to capitalize on the strength of the residential market in 2003, as all 759 lots to be marketed for sale
to merchant builders in 2003 were in escrow at December 31, 2002, with closings scheduled for the 2003 first quarter. The Company's current goal is to complete the sellout of its remaining
Valencia area residential land by 2007. The Company continues to invest heavily in land use entitlements, land planning and responding to legal challenges in order to move forward with the remaining
Valencia area communities and to position Newhall Ranch to commence development.

Industrial/Commercial Development and Land Sales

In creating a balanced master-planned community in Valencia, the Company has ensured there are business opportunities to complement the residential development.
The Company develops the infrastructure and provides sites for sale to industrial and commercial land developers and users.

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Valencia's location just 30 miles north of downtown Los Angeles on Interstate 5, California's major north-south freeway, provides an attractive environment for industrial, commercial, service,
distribution and entertainment businesses. Valencia is the regional center for 4 north Los Angeles County and, as of the end of 2002, had a 3:1 jobs-to-housing ratio with
approximately 46,000 jobs and 16,000 homes. The Company believes businesses will continue to be attracted to Valencia's relatively safe and clean environment, highly skilled workforce, variety of
housing options and award-winning public schools.

The
Company markets industrial and commercial land as Valencia Gateway. Spanning 4,500 acres, Valencia Gateway is planned at buildout to accommodate 34 million square feet of
building space, an
estimated 63,000 employees and 2,700 companies in business sectors including technology, aerospace, biomedical, entertainment and education, making it the largest master-planned center for business,
technology and industry in Los Angeles County. Although commercial land sales were strong in 2002, particularly the demand for apartment and retail land, industrial and office land sales have slowed
recently as the market absorbs the significant new space being brought to market from strong land sales in previous years. However, the outlook is encouraging. With the City of Santa Clarita, of which
most of Valencia is a part, being the second fastest growing city in Los Angeles County, the Company anticipates that companies will look to Valencia to relocate to larger, more modern facilities to
accommodate growth. In 2002, the Company sold 3 acres of industrial land and 66 acres of commercial land. In 2003, the Company expects to market for sale approximately 23 acres of industrial land and
65 acres of commercial land.

Community Development

The Company continues to actively invest in land use entitlements to support accelerated growth and to maximize the value of its landholdings. The Company's
community development activities are focused on securing the necessary governmental land use approvals, as well as preliminary planning and community marketing activities, to complete the projected
sellout of Valencia area residential land by 2007 and to position Newhall Ranch to commence development. Initial mapping, engineering, and soils and geology work is underway for the first
neighborhoods in the 21,600-home Newhall Ranch project, along with design work on the major infrastructure to open the project.

Income-Producing Properties

In 2001 and 2000, the Company sold several income-producing properties to finance the repurchase of partnership units. This asset sales program was substantially
complete in 2001. The Company closed escrow on one minor income property in 2002. For additional information about the properties sold and the unit repurchase plan, see the "Income Property and Other
Sales", "Income-Producing Properties" and "Liquidity and Capital Resources" sections underPart II. Item 7.Management's Discussion and Analysis of Financial
Condition and Results of Operations.

For
information about the Company's remaining income-producing properties at December 31, 2002, seePart I. Item
2.Properties, the "Income-Producing Properties" section underPart II. Item 7.Management's Discussion and Analysis of
Financial Condition and Results of OperationsandSchedule IIIReal Estate and Accumulated Depreciationof
this Annual Report. In 2002, the Company's development of income-producing properties primarily consisted of the construction of the Tournament Players Club® at Valencia championship golf
course, in the Company's Westridge community, and the remodel of the former Edwards Theatres' space in Valencia Town Center regional mall for the relocation of the existing food court and creation of
new retail space. Under the Company's business plan, no other development of income properties is anticipated in 2003. For additional information on capital expenditures, see the "Liquidity and
Capital Resources" section underPart II. Item 7.Management's Discussion and Analysis of Financial Condition and Results of
Operations.

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Valencia Water Company

Valencia Water Company, a wholly-owned subsidiary that supplies water to Valencia and other adjacent developments, is a regulated public utility serving over
24,000 metered customers. The water supply for the service area is obtained from wells owned by Valencia Water Company and by purchases from the California State Water Project. In 2002, 46% of
Valencia Water Company's water was supplied through ground sources.

AGRICULTURE

The Company's agricultural division consists of farming and energy operations. The Company's remaining agricultural properties include the New Columbia Ranch in
the San Joaquin Valley and the Newhall Orchard in Ventura County on which the Company and its tenants raised over 25 different crops during the 2002 calendar year. Of the Company's land devoted to
farming, over 62% was leased to third parties in 2002. In 2003, the Company has leased out a majority of the New Columbia Ranch to farming tenants to minimize the Company's fixed overhead costs and
its exposure to crop commodity price fluctuations. Including the New Columbia Ranch, it is anticipated in 2003 about 81% of the Company's land devoted to farming will be leased to third parties.
Approximately 21,000 acres of land at the Newhall Orchard and on Newhall Ranch not suitable for cultivation or ready for development are leased to third parties for cattle grazing.

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

Energy
operations consist of royalty interests in oil and gas assets on the Newhall Ranch property. In total, the Company has royalty interests in approximately 150 oil wells and 16 gas
wells. Energy operations do not represent a material source of revenues or income for the Company.

Central Administration

Central Administration includes the Company's corporate functions including executive offices, treasury, tax, employee relations, accounting, finance, information
systems, headquarters facilities, secretary/legal, investor relations, market research, internal audit and, in prior years, land acquisition. Except for
certain costs relating to headquarters facilities and specific services billed to Valencia Water Company, expenses for these functions are expensed as general and administrative expenses and are not
allocated to the Company's operating business segments.

Available Information

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.

7

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Item 2.    Properties

Land

Listed below are the location and acreage of properties owned by the Company at December 31, 2002:

|Property        |  | State      |  | County      |  | Acreage |  | Business Segment(s)                                                
|--------------- |  | ---------- |  | ----------- |  | ------- |  | -------------------------------------------------------------------
|Valencia area   |  | California |  | Los Angeles |  | 6,142   |  | Residential, Industrial and Commercial, Income-producing properties
|Newhall Ranch   |  | California |  | Los Angeles |  | 11,965  |  | Community Development                                              
|Newhall Orchard |  | California |  | Ventura     |  | 16,110  |  | Agriculture                                                        
|New Columbia    |  | California |  | Madera      |  | 14,000  |  | Agriculture                                                        
|                |  |            |  |             |  |         |  |                                                                    
|                |  |            |  |             |  | 48,217  |  |                                                                    
|                |  |            |  |             |  |         |  |                                                                    

At
December 31, 2002, the New Columbia Ranch secured a $9.6 million non-recourse mortgage. For additional information concerning encumbrances against Company
properties, refer to Note 7 of theNotes to Consolidated Financial Statementssection in this Annual Report.

Plants and buildings

AgricultureVarious buildings located at two farming operations in California.

Income-producing
propertiesListed below are square footage, occupancy, net operating income by group and anchor tenants of major commercial properties owned by the Company
at December 31, 2002. The Company also has numerous land leases. The commercial properties are leased to 210 tenants.

|Dollars in thousands                                        |  | Year
Opened |  | Approximate
GLA(1) in
Square Feet |     | 2002 Net
Operating
Income(2) |        | 12/31/02
Occupancy(3) |      | Major Tenants
|----------------------------------------------------------- |  | ----------- |  | --------------------------------- | --- | ---------------------------- | ------ | --------------------- | ---- | -------------
|Shopping Centers                                            |  |             |  |                                   |     |                              |        |                       |      |              
|Valencia Town Center
(expanded in 1998)                     |  | 1992        |  | 736,000                           | (5) |                              |        |                       | 84   | %            
|Valencia Entertainment Center                               |  | 1999        |  | 129,000                           |     |                              |        |                       | 97   | %            
|River Oaks                                                  |  | 1987        |  | 272,000                           |     |                              |        |                       | 100  | %            
|NorthPark Village Square                                    |  | 1996        |  | 87,000                            |     |                              |        |                       | 100  | %            
|Other                                                       |  | various     |  | 94,000                            |     |                              |        |                       |      |              
|                                                            |  |             |  |                                   |     |                              |        |                       |      |              
|Sub-total                                                   |  |             |  | 1,318,000                         | (5) | $                            | 16,201 |                       |      |              
|Other Income Properties                                     |  | various     |  | 95,000                            | (6) | $                            | 1,247  |                       |      |              
|Hotels                                                      |  |             |  | Rooms                             |     |                              |        |                       |      |              
|Valencia Hilton Garden Inn
(75% joint venture interest)     |  | 1991        |  | 152                               |     |                              |        |                       | 79.5 | %            
|Hyatt Valencia Hotel and Santa Clarita Conference Center(4) |  | 1998        |  | 244                               |     |                              |        |                       | 69.8 | %            
|                                                            |  |             |  |                                   |     |                              |        |                       |      |              
|Sub-total                                                   |  |             |  | 396                               |     | $                            | 3,824  |                       |      |              

---

8

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All of the Company's commercial real estate properties and the properties and equipment of Valencia Water Company are located in and around
Valencia, California. The Company considers all of its properties to be in good condition, well maintained, and suitable and adequate to carry on the Company's present and foreseeable future business.

At
December 31, 2002, principal of $23.7 million was outstanding on two financings each secured by a retail shopping center. No amounts were outstanding against a
$50 million revolving mortgage facility secured by Valencia Town Center regional shopping mall. Valencia Water Company has an $11 million financing secured by the utility's property and
equipment. For additional information concerning encumbrances against Company properties, refer to Note 7 of theNotes to Consolidated Financial
Statementssection in this Annual Report.

For
additional information on the Company's properties, refer to the summary of appraised values on page 4 andSchedule IIIReal Estate
and Accumulated Depreciationon pages 85 and 86.

Item 3.    Legal Proceedings

The Company, including its subsidiary, are named defendants in many lawsuits arising from the ordinary course of its business. While the outcome of these lawsuits
cannot be predicted, management does not expect these matters in the aggregate to have a material adverse effect on the Company's business, financial condition or results of operations.

In
early 2001, the Company filed a lawsuit in Los Angeles Superior Court against Kerr-McGee Corporation, Kerr-McGee Oil & Gas Onshore LLC,
Kerr-McGee Oil & Gas Onshore LP (collectively, "Kerr-McGee") and Medallion California Properties Company ("Medallion") for damages associated with oil field
contamination on property owned by the Company and leased to Kerr-McGee or its predecessors, which successively transferred the lease interest to other lessees, including Medallion. During
the period beginning in 1935 to the present, the lessees conducted crude oil and gas extraction operations on the property. The Company is seeking damages resulting from the defendants' failure to
clean the property in accordance with the lease terms.

During
the 2001 fourth quarter, Kerr-McGee filed a cross-complaint against the Company seeking declaratory relief that it has satisfied its clean-up obligations
under the lease. Also during the 2001 fourth quarter, Medallion filed a cross-complaint against the Company claiming the Company is responsible for clean-up costs for the portions of the
leased property, which Medallion claims to have the continued right to occupy and on which Mediallion claims the Company failed to clean up the contamination caused by Kerr-McGee.

Kerr-McGee
and Medallion commenced discovery proceedings and filed eight pre-trial motions for summary adjudication in 2002. In 2003, the Company prevailed on
seven of the motions, with the ruling on one motion still pending. The trial date was moved to May 12, 2003. Kerr-McGee has brought two writ petitions seeking review of the denial
of three of its motions for summary adjudication. Decisions thereon are pending. Environmental site assessment of the leased property was completed in 2002. The Company is vigorously pursuing its
claims and believes that the defendants' cross-claims will be
unsuccessful. No governmental agency is participating in the litigation, and no proceedings are known to be contemplated by any governmental authority.

In
November 2000, Valencia Water Company, along with Castaic Lake Water Agency (the water wholesaler for the Santa Clarita Valley), Newhall County Water District and Santa Clarita
Water Company (collectively, the "water purveyors") filed a lawsuit in U.S. District CourtCentral District of California against Whittaker Corporation, Santa Clarita LLC and Remediation
Financial, Inc. arising from the existence of the chemical perchlorate found in four local groundwater wells that are owned by the water purveyors.

Whittaker
Corporation and a predecessor owner manufactured munitions on a site now located in the City of Santa Clarita from 1934 to 1987 (called the "Whittaker-Bermite site"). During
that period,

9

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the chemical perchlorate and various other chemicals were used in the munitions manufacturing process. In 1994, Whittaker Corporation and the California Department of Toxic Substances Control
("DTSC") entered into a consent order, under which Whittaker was required to commence preparation of a remediation work plan for the Whittaker-Bermite site. Subsequently, remediation plans have been
the subject of ongoing negotiations among Whittaker, DTSC and the subsequent landowner and its parent, Santa Clarita LLC and Remediation Financial, Inc.

The
water purveyors independently filed the lawsuit to enforce the defendants' obligations to remediate the perchlorate contamination. In 2001, Santa Clarita LLC and Remediation
Financial, Inc. filed counterclaims against the water purveyors alleging that the water purveyors caused or contributed to the perchlorate contamination in an unspecified manner. Valencia Water
Company believes the counterclaim against it will not be successful. The case is in the early phase of discovery. Discovery is on-going. Mediation sessions among the parties have occurred,
but no resolution ensued. The water purveyors are vigorously pursuing their claims.

For
information on lawsuits pertaining to Newhall Ranch and the West Creek community, please refer to the "Community Development" section underPart II.
Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations. For information on the California Public Utilities Commission matter
regarding Valencia Water Company, please refer to the "Residential Land Sales" section underPart II. Item 7.Management's Discussion and Analysis of
Financial Condition and Results of Operations.

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

None.

Part II

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

Market
Price and Distribution Data Years ended December 31

|                           |  | Market Price |       |      |   |       |  |  
|-------------------------- |  | ------------ | ----- | ---- | - | ----- |  | -
|
|
|
|First quarter              |  | $            | 31.30 |      | $ | 29.40 |  | $
|Second quarter             |  |              | 33.80 |      |   | 31.00 |  |  
|Third quarter              |  |              | 32.30 |      |   | 23.75 |  |  
|Fourth quarter             |  |              | 30.20 |      |   | 22.59 |  |  
|                           |  |              |       |      |   |      
|Year's high and low        |  | $            | 33.80 |      | $ | 22.59 |  | $
|                           |  |              |       |      |   |      
|                           |  | 2002         |       | 2001 |   |       |  |  
|December 31, closing price |  | $            | 28.75 |      | $ | 29.60 |  |  
|                           |  |              |       |      |   |       |  |  

The
Company's Depositary Units are traded on the New York and Pacific Stock Exchanges under the ticker symbol NHL and, at February 28, 2003, the Company had 961 unitholders of
record. The Company has paid uninterrupted quarterly cash distributions since 1936 and on occasion the Company has declared and paid special cash distributions. 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.

10

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Item 6.    Selected Financial Data

The following selected financial data is derived from audited consolidated financial statements. The data for the eight-year period ended
December 31, 1999 was derived from our audited financial statements and are not included in this Annual Report. You should read the selected financial information set forth below in conjunction
with Management's Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and related notes appearing elsewhere in this Annual Report.

|In thousands, except per unit, percentages and sales information |                                                                   | 2002 |   | 2001    |   | 2000 |         | 1999 |   | 1998    |     | 1997 |         | 1996 |   | 1995    |   | 1994 |           | 1993 |   | 1992    |    
|---------------------------------------------------------------- | ----------------------------------------------------------------- | ---- | - | ------- | - | ---- | ------- | ---- | - | ------- | --- | ---- | ------- | ---- | - | ------- | - | ---- | --------- | ---- | - | ------- | ---
|Operating Results                                                |                                                                   |      |   |         |   |      |         |      |   |         |     |      |         |      |   |         |   |      |           |      |   |         |    
|                                                                 | Revenues                                                          |      | $ | 239,790 |   | $    | 241,615 |      | $ | 400,968 |     | $    | 322,506 |      | $ | 304,678 |   | $    | 207,701   |      | $ | 220,186 |    
|                                                                 | Operating income                                                  |      |   | 43,655  |   |      | 96,837  |      |   | 103,331 |     |      | 100,782 |      |   | 71,260  |   |      | 53,630    |      |   | 51,451  |    
|                                                                 | Interest and other, net                                           |      |   | (3,080  | ) |      | (5,780  | )    |   | (17,935 | )   |      | (10,390 | )    |   | (7,180  | ) |      | (9,137    | )    |   | (9,562  | )  
|                                                                 | Net income                                                        |      |   | 40,575  |   |      | 91,057  |      |   | 85,396  |     |      | 90,392  |      |   | 64,080  |   |      | 44,493    |      |   | 41,889  |    
|                                                                 | General and administrative expense (included in operating income) |      |   | (12,793 | ) |      | (12,470 | )    |   | (14,642 | )   |      | (14,431 | )    |   | (12,634 | ) |      | (10,268   | )    |   | (9,133  | )  
|                                                                 | Depreciation and amortization (included in operating income)      |      |   | (11,382 | ) |      | (11,597 | )    |   | (13,800 | )   |      | (15,296 | )    |   | (10,101 | ) |      | (10,148   | )    |   | (8,857  | )  
|                                                                 |                                                                   |      |  
|Per Unit Information                                             |                                                                   |      |   |         |   |      |         |      |   |         |     |      |         |      |   |         |   |      |           |      |   |         |    
|                                                                 | Net income                                                        |      | $ | 1.69    |   | $    | 3.60    |      | $ | 3.09    |     | $    | 2.88    |      | $ | 1.89    |   | $    | 1.29      |      | $ | 1.19    |    
|                                                                 | Net incomeassuming dilution                                      |      |   | 1.66    |   |      | 3.56    |      |   | 3.05    |     |      | 2.85    |      |   | 1.86    |   |      | 1.28      |      |   | 1.18    |    
|                                                                 | Distributions (including special)                                 |      |   | .53     |   |      | .50     |      |   | .75     |     |      | .62     |      |   | .52     |   |      | .48       |      |   | .40     |    
|                                                                 | Partners' capital                                                 |      |   | 5.77    |   |      | 5.55    |      |   | 4.48    |     |      | 4.71    |      |   | 4.40    |   |      | 4.21      |      |   | 3.48    |    
|                                                                 | Appraised value                                                   |      |   | 37.78   |   |      | 36.78   |      |   | 34.66   |     |      | 32.85   |      |   | 29.72   |   |      | 25.25     |      |   | 23.35   |    
|                                                                 | Market pricehigh                                                 |      |   | 33.80   |   |      | 30.00   |      |   | 28.88   |     |      | 28.00   |      |   | 34.75   |   |      | 32.00     |      |   | 18.75   |    
|                                                                 | low                                                              |      |   | 22.59   |   |      | 23.15   |      |   | 20.20   |     |      | 22.19   |      |   | 20.25   |   |      | 16.50     |      |   | 15.00   |    
|                                                                 | year-end closing                                                 |      |   | 28.75   |   |      | 29.60   |      |   | 23.25   |     |      | 27.00   |      |   | 26.00   |   |      | 30.00     |      |   | 16.88   |    
|                                                                 |                                                                   |      |  
|Financial Position                                               |                                                                   |      |   |         |   |      |         |      |   |         |     |      |         |      |   |         |   |      |           |      |   |         |    
|                                                                 | Land under development                                            |      | $ | 56,097  |   | $    | 77,885  |      | $ | 53,988  |     | $    | 39,401  |      | $ | 47,667  |   | $    | 53,875    |      | $ | 63,266  |    
|                                                                 | Income-producing properties, net                                  |      |   | 159,971 |   |      | 150,932 | (1)  |   | 160,505 | (1) |      | 281,060 | (1)  |   | 248,712 |   |      | 227,203   |      |   | 182,641 |    
|                                                                 | Total assets                                                      |      |   | 359,625 |   |      | 358,319 |      |   | 342,541 |     |      | 504,824 |      |   | 432,207 |   |      | 403,932   |      |   | 373,488 |    
|                                                                 | Mortgage and other debt (total debt)                              |      |   | 60,037  |   |      | 85,511  |      |   | 74,557  |     |      | 222,825 |      |   | 157,609 |   |      | 156,946   |      |   | 163,256 |    
|                                                                 | Other long-term obligations                                       |      |   | 62,129  |   |      | 56,986  |      |   | 57,611  |     |      | 50,474  |      |   | 48,832  |   |      | 40,393    |      |   | 37,544  |    
|                                                                 | Total liabilities                                                 |      |   | 223,929 |   |      | 223,108 |      |   | 223,337 |     |      | 365,099 |      |   | 288,394 |   |      | 258,655   |      |   | 252,835 |    
|                                                                 | Partners' capital (capital)                                       |      |   | 135,696 |   |      | 135,211 |      |   | 119,204 |     |      | 139,725 |      |   | 143,813 |   |      | 145,277   |      |   | 120,653 |    
|                                                                 | Market capitalization at year end                                 |      |   | 676,143 |   |      | 721,470 |      |   | 618,218 |     |      | 801,036 |      |   | 849,576 |   |      | 1,035,810 |      |   | 585,575 |    
|                                                                 |                                                                   |      |  
|Statistics                                                       |                                                                   |      |   |         |   |      |         |      |   |         |     |      |         |      |   |         |   |      |           |      |   |         |    
|                                                                 | Return on total debt and capital                                  |      |   | 21      | % |      | 41      | %    |   | 44      | %   |      | 25      | %    |   | 21      | % |      | 15        | %    |   | 15      | %  
|                                                                 | Total debt as a percent of total debt and capital                 |      |   | 31      | % |      | 39      | %    |   | 38      | %   |      | 61      | %    |   | 52      | % |      | 52        | %    |   | 58      | %  
|                                                                 | Total debt as a percent of total market capitalization            |      |   | 8       | % |      | 11      | %    |   | 11      | %   |      | 22      | %    |   | 16      | % |      | 13        | %    |   | 22      | %  
|                                                                 | Units outstandingweighted average                                |      |   | 24,052  |   |      | 25,284  |      |   | 27,658  |     |      | 31,388  |      |   | 33,986  |   |      | 34,520    |      |   | 35,292  |    
|                                                                 | weighted averagediluted                                         |      |   | 24,393  |   |      | 25,580  |      |   | 27,969  |     |      | 31,668  |      |   | 34,376  |   |      | 34,750    |      |   | 35,411  |    
|                                                                 | year end                                                         |      |   | 23,518  |   |      | 24,374  |      |   | 26,590  |     |      | 29,668  |      |   | 32,676  |   |      | 34,527    |      |   | 34,701  |    
|                                                                 |                                                                   |      |  
|Sales Information                                                |                                                                   |      |   |         |   |      |         |      |   |         |     |      |         |      |   |         |   |      |           |      |   |         |    
|                                                                 | Residential lots and homes sold                                   |      |   | 1,330   |   |      | 232     |      |   | 208     |     |      | 1,060   |      |   | 1,232   |   |      | 888       |      |   | 1,284   | (2)
|                                                                 | Industrial and commercial acres sold                              |      |   | 68.9    |   |      | 92.3    |      |   | 108.5   |     |      | 120.6   |      |   | 125.0   |   |      | 81.0      |      |   | 36.9    |    
|                                                                 | Farm acres sold                                                   |      |   |        |   |      |        |      |   |        |     |      | 39,142  |      |   | 970     |   |      | 1,673     |      |   | 544     |    
|                                                                 |                                                                   |      |  

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11

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

Years ended December 31, 2002, 2001 and 2000

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company's consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. Inherent in
the preparation of these financial statements are certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. The Company evaluates these estimates and assumptions on a regular basis taking into account historical experience and other relevant current factors. Therefore, actual results
may differ from reported amounts under different assumptions or conditions.

The
accounting policies used by the Company in the preparation of its consolidated financial statements as they relate to its business segments are presented in Note 2 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. In 2002, the
Company's audit committee 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 No. 66,Accounting for Sales of Real Estate("SFAS 66"), to record these sales. SFAS 66 provides
specific sales recognition criteria to determine when land sales revenues can be recorded. For example, SFAS 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

12

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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 8 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

Results for 2002 reflect a strong residential market. New home sales in Valencia for 2002 reached a record level as merchant builders sold 991 new homes on lots
previously purchased from the Company compared to the prior record of 873 new homes sold in 2001. Historically low interest rates, combined with low unemployment for the region and a tight supply of
new homes, contributed to the increased home sales levels and pushed new home prices for the region to record highs in 2002. 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. The Company is continuing to capitalize on the strength of the residential market in
2003, as all of the Company's 759 entitled residential lots available to be sold to merchant builders were in escrow at December 31, 2002, with closings scheduled for the 2003 first quarter.

Commercial
land sales were strong in 2002, particularly the demand for apartment and retail land. Industrial and office land sales were not major contributors to the Company's 2002
results. However, demand in these sectors is improving. As the economy continues to become more expansive, businesses are expected to look to Valencia to relocate to larger facilities to accommodate
their growth.

In
2002, the Company reported revenues of $239.8 million compared to $241.6 million in 2001. Net income of $40.6 million, or $1.66 per unit, was reported in 2002
compared to net income of $91.1 million, or $3.56 per unit, in 2001. Despite revenues decreasing only slightly from the prior year, net income for 2002 was approximately 55% lower than 2001.
This was primarily due to high profit margins achieved on sales in 2001 of the Company's option to purchase 1,800 acres in Broomfield, Colorado and the Chiquita Canyon Landfill. Combined, these sales
contributed $78.0 million to revenues and $76.9 million to income. No similar property sales occurred in 2002.

Major
contributors to 2002 results were the sales of 1,330 residential lots and approximately 69 acres of commercial and industrial land. These sales added a combined total of
$164.4 million to revenues and $65.9 million to income in 2002 under percentage of completion accounting.

The
major contributors to the Company's 2001 results were the sales of 232 residential lots, approximately 92 acres of commercial and industrial land, the sale of the Company's option to
purchase 1,800 acres in Broomfield, Colorado and four income-producing properties. The sale of income properties included one mixed-use building, two office buildings and the Chiquita
Canyon

13

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Landfill. Combined, these sales added $174.9 million to revenues and $115.8 million to income in 2001. The sale of the landfill for $65.0 million in the second quarter of 2001
was the single largest contributor to the year's revenues and income.

In
2000, the Company recorded revenues of $401.0 million and income of $85.4 million, or $3.05 per unit, primarily as a result of the sale of income properties in
accordance with its business strategy to finance the repurchase of partnership units. The properties sold included two shopping centers, four apartment complexes and four office buildings. In addition
to the income properties, 208 residential lots and over 108 acres of commercial and industrial land were sold during the year. These sales, combined with the sales of income properties, added
$298.0 million to revenues and $105.9 million to income.

The
Company's 2003 business plan anticipates the majority of its 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 in escrow to merchant builders at December 31, 2002. As of February 28, 2003,
escrows closed on 239 of the 759 lots. The remaining escrows are expected to close in the first quarter of 2003. The Company also anticipates selling 26 custom, residential lots in the Westridge
community in 2003. At December 31, 2002, seven of these custom lots were in escrow. As of February 28, 2003, one of these had closed. In addition to the 18 acres of commercial land and
10 acres of industrial land in escrow at the end of 2002 that are scheduled to close in 2003, the business plan targets another approximately 60 acres of commercial and industrial land for sale in
2003. As of February 28, 2003, one industrial land sale and three commercial land sales had closed escrow. The Company's portfolio of income-producing properties is expected to generate net
operating income of approximately $22 million in 2003, after deducting projected start-up costs of approximately $700,000 related to the initial operations of the Tournament Players
Club® at Valencia championship golf course, which is planned for opening in the summer of 2003 in the Company's Westridge community. The ability to complete sales 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 other conditions, many of which are beyond the
control of the Company.

Plans
for 2003 also include completion of the current unit repurchase program of approximately 563,000 partnership units. Factors that could affect the Company's ability to complete its
unit repurchase program include, but are not limited to, the factors listed in the paragraph above, changing interest rates, obtaining entitlements and subsequent challenges to these governmental
approvals, many of which are beyond the control of the Company.

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.

For
the year ended December 31, 2002, a record 1,330 residential lots in Valencia closed escrow, contributing a total of $118.1 million to revenues and $41.6 million
to income under percentage of completion accounting. Included in the total lot sales were 726 lots in the Westridge golf course

14

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community, contributing $85.5 million to revenues and $29.3 million to income. Escrow also closed on the entire 329 residential lots in the Alta Vista community, contributing
$16.3 million to revenues and $6.5 million to income. In addition, the entire 275 lots in the Hidden Creek community closed escrow in 2002, contributing $16.3 million to revenues
and $5.8 million to income. Results for 2002 also included the recognition under percentage of completion accounting of $7.0 million in revenues and $2.2 million in income from
prior year lot sales and $1.4 million received from merchant builders under price and profit participation agreements related to Valencia area lot sales in prior years.

At
December 31, 2002, the entire 759 lots in the Creekside community were in escrow for approximately $53 million. 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 may be deferred to future periods when the Company has an obligation to
complete development on property sold. As of February 28, 2003, escrows closed on 239 lots for approximately $15 million, which will be reflected in the results for 2003 under the
percentage of completion method of accounting. Escrows for the remaining 520 lots are expected to close in the first quarter 2003. Also, in escrow at December 31, 2002 were seven of the 26
custom, residential lots in the Westridge community planned for sale in 2003 for approximately $4 million. As of February 28, 2003, one of the custom lots had closed escrow for $895,000,
which will be reflected in the results for 2003.

A
total of 232 residential lots was sold in 2001, contributing $15.5 million to revenues and $4.7 million to income under percentage of completion accounting. Despite a 12%
increase in the number of residential lots sold in 2001 compared to 2000, a loss of $201,000 was reported after divisional expenses in 2001 compared to income of $3.8 million in 2000. This
decrease was primarily due to $14.1 million in revenues and $5.9 million in income recognized in 2000 under percentage of completion accounting from lot sales in the prior year. No
revenue or income from prior year lot sales was recorded in 2001. Results for 2001 also included $211,000 received from price and profit participation agreements relating to Valencia lot sales in
prior years. At December 31, 2001, no residential lots were in escrow.

A
total of 208 residential lots was sold in 2000 for $12.7 million contributing $5.7 million to income. These were the remaining lots in the Bridgeport lake community.
Results for 2000 also included the recognition of revenues and income from lot sales in the prior year as discussed above and $309,000 received from price and profit participation agreements relating
to Valencia lot sales in prior years. Also in 2000, the Company recorded a $5.2 million loss associated with the dissolution of the Company's 50.1% interest in City Ranch, a joint venture
project with Kaufman and Broad of Southern California, Inc. At December 31, 2000, no residential lots were in escrow.

Lot
sales in 2001 and 2000 were impacted by the California Public Utilities Commission's (CPUC) decision to combine its review of Valencia Water Company's request to expand its service
area together
with the review of Valencia Water Company's water management plan. Late in 2001, the CPUC approved the Valencia Water Company's water management plan and granted the service expansion request, which
permits Valencia Water Company to expand its service area to the Hidden Creek, Creekside, Alta Vista and West Creek communities (see the "Community Development" section below). Valencia Water Company
is Newhall Land's wholly-owned public water utility company serving Valencia and nearby areas. In April 2002, the CPUC denied opponents' request for a re-hearing regarding the
CPUC's approval of Valencia Water Company's water management plan and service area expansion. Opponents' appeal of the CPUC's decision to the California Supreme Court was denied on June 19,
2002.

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Industrial and Commercial Sales

Industrial Land Sales

For the year ended December 31, 2002, escrow closed on one industrial parcel totaling 3.1 acres. This escrow contributed $1.6 million to revenues
and $258,000 to income. The decrease in acres sold in 2002 compared to prior years is due to the continuation of absorption of significant new space being brought to market from strong land sales in
previous years. As of December 31, 2002, the Company had approximately 371 net acres of entitled industrial land remaining in Valencia. There are indications the local market for industrial
property beginning to strengthen. Valencia's industrial vacancy rate at the end of 2002 had improved to 12%, compared to over 13% at the end of 2001. The net amount of all new or existing available
space that was leased in 2002 in the both Valencia Industrial Center and Valencia Commerce Center was approximately 944,000 square feet compared to a negative 482,000 square feet absorbed in 2001.
With the City of Santa Clarita, of which most of Valencia is a part, being the second fastest growing city in Los Angeles County, the Company anticipates that companies will look to Valencia to
relocate to larger, more modern facilities to accommodate growth. The Company expects to market for sale approximately 23 acres of industrial land in 2003. At December 31, 2002, two industrial
parcels totaling about 10 acres were in escrow for approximately $7.2 million, with closings expected in 2003. Subsequent to December 31, 2002, one of these escrows closed on a
5.7-acre parcel, contributing $2.8 million to revenues, which will be reflected in the results for 2003. All escrow closings are subject to market and other conditions beyond the
control of the Company.

Five
industrial parcels totaling 16.8 acres closed escrow in 2001. These sales contributed $8.4 million to revenues and $2.4 million to income. The decrease in acres sold
in 2001 as compared to the prior year was due to the marketing for sale or lease of approximately 2 million square feet of new space coming on line as a result of aggressive land sales in
previous years, as well as the slowing of the southern California economy. No industrial land was in escrow at December 31, 2001.

In
2000, escrows closed on 58.8 industrial acres contributing $28.4 million to revenues and $8.5 million to income. No industrial land sales were in escrow at
December 31, 2000. In September 2000, the Company agreed to accept a reduced note pay-off in return for accelerating the due date on a 1998 industrial land sale note with
scheduled maturities through September 2002. This resulted in the Company recording a $2.1 million charge to income to reduce the note receivable and accrued interest to the negotiated
$14.4 million pay-off amount. The note was collected in December 2000.

Commercial Land Sales

Approximately 66 acres of commercial land closed escrow in 2002, contributing $44.8 million to revenues and $24.0 million to income under percentage
of completion accounting. Included in the 66 acres were 22.3 acres in the Westridge golf course community for two commercial sites and an apartment site, which, combined, contributed
$20.1 million to revenues and $10.9 million to income. A 16.7-acre parcel in the Town Center area and a 7.5-acre apartment site in the Creekside community
contributed an additional combined total of $16.6 million to revenues and $9.5 million to income. In addition, 2002 results include $3.0 million in revenues and
$1.7 million in income recognized under percentage of completion accounting from prior year sales. At December 31, 2002, six commercial parcels totaling approximately 18 acres were in
escrow for approximately $10.2 million, with closings expected in 2003. Subsequent to December 31, 2002, three of these escrows closed on a total of 8 acres for $3.2 million,
which will be reflected in the results for 2003. All escrow closings are subject to market and other conditions beyond the control of the Company.

Commercial
land escrow closings for 2001 totaled 75.5 acres, contributing $59.0 million to revenues and $30.8 million to income. Included in these sales were a
13.8-acre parcel in the Valencia Corporate Center, the entire 23-acre Rockwell Canyon Business Park and three apartment sites, which, combined,

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contributed $51.5 million to revenues and $26.8 million to income. In addition, 2001 results included $2.8 million in revenues and $400,000 in income recognized under percentage
of completion accounting from sales in prior years. At December 31, 2001, five commercial parcels totaling about 29 acres were in escrow for approximately $13.5 million. Four of the
escrows closed in 2002. The remaining escrow was still open at December 31, 2002 and is expected to close in 2003.

In
2000, a total of 49.7 commercial acres closed escrow contributing $36.9 million to revenues and $18.9 million to income. The sales included a 16.5-acre
parcel for a retail center for $12.9 million adding $6.3 million to income. Results for 2000 also included revenues of $3.2 million and income of $1.9 million recognized
under percentage of completion accounting from the prior year sale of an apartment site. At December 31, 2000, seven commercial parcels totaling 37.9 acres were in escrow for
$24.9 million.

Income Property and Other Sales

The Company closed escrow on one minor income property in 2002. The sale of a 35,000 square foot building in Valencia Commerce Center contributed
$2.5 million to revenues and $17,000 to income. The Company does not anticipate any income property sales in 2003.

Income
property sales in 2001 included one mixed-use building, two office buildings and the Chiquita Canyon Landfill. The Company also sold its option to purchase
approximately 1,800 acres in Broomfield, Colorado. Combined, these sales in 2001 contributed $92.0 million to revenues and $77.8 million to income. The sale of the Chiquita Canyon
Landfill was the largest contributor, generating $65.0 million in revenues and $64.0 million in income.

Income-producing
properties sold in 2000 included Castaic Village Shopping Center, Plaza del Rancho mixed-use retail, four office buildings and four apartment complexes.
These income property sales were part of the Company's business strategy, announced late in 1999, to sell approximately half of its income portfolio to finance the repurchase of the Company's
partnership units. These sales combined added $220 million to revenues and $72.9 million to income. The primary contributor to the results was the sale of the apartment complexes for
$129.0 million, contributing $74.0 million to income.

The
2000 sale of the four office buildings for $72.3 million exceeded the construction costs by approximately $7.8 million. A condition of the sale included a monthly
rental payment by the Company to the buyer for 161,000 square feet of building space (principally occupied by Princess Cruises) until Princess Cruises' rent commencement date in the first quarter of
2001. In addition, under the terms of the agreement, the Company leased back approximately 51,000 square feet of retail space for a term of 121/2 years. With regard to the retail
leaseback, accounting guidelines do not allow the consideration of any future new or renewal leasing activity to reduce the calculation of the net lease obligation. As a result, the Company recorded
an accounting loss on the sale of the buildings of $4.9 million in 2000. Management believes that subleasing of the retail space will more than offset this accounting loss over the life of the
leaseback and ultimately will result in additional revenues and income. As of December 31, 2002, approximately 79% of the retail space was leased compared to 77% at December 31, 2001.

In
2001, an easement was sold contributing $600,000 to revenues and income. In 2000, a right-of-way parcel was sold to the California Department of
Transportation, which contributed $5.1 million to revenues and $4.0 million to income. No similar property was sold in 2002.

Community Development

Community development expenses in 2002 increased 61% from the prior year primarily due to expenses related to litigation initiated by the Company against a gas
and oil-field operator to enforce

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contractual provisions requiring adequate clean-up of leased properties. Absent these costs, community development expenses would have shown a decline in 2002 over 2001. For 2003,
community development expenses are expected to decrease about 40% over 2002 levels due to the Company's anticipated reduction in costs related to certain legal challenges partially offset by the
continued focus on entitlements and planning to complete the projected sellout of Valencia residential land and to position Newhall Ranch to commence development.

In
2001, community development expenses increased 9% from the prior year primarily due to higher administrative and preliminary entitlement expenses. Community development expenses in
2000 decreased 6% from 1999 primarily due to expenses in 1999 related to preliminary planning work for Newhall Ranch, certain initial costs relating to commercial properties under development and a
strategic marketing program.

In
June 2000, a Kern County Superior Court judge identified six issues in the Newhall Ranch Environmental Impact Report (EIR) as requiring further environmental review. The six
issues include the impact of the 21,600-home Newhall Ranch development on the Salt Creek wildlife corridor and on traffic congestion in Ventura County; biological impacts on the Santa
Clara River corridor; consistency with the General Plan and impacts in Significant Ecological Areas; adequacy and reliability of the water supply; and a further alternative site analysis for the water
reclamation plant location. On October 24, 2001, the Regional Planning Commission approved the additional analyses performed by the Company concerning the court-ordered issues. Hearings before
the Los Angeles County Board of Supervisors are expected to begin on March 25, 2003.

Hearings
before the Board of Supervisors were delayed as a result of the January 2002 decertification of an EIR prepared in connection with the acquisition and importation of
41,000 acre-feet per year of California State Water Project water by Castaic Lake Water Agency (CLWA), the water wholesaler serving the Santa Clarita Valley. However in
October 2002, the Company entered into an agreement to acquire a separate water supply source for its potable water needs that it believes will satisfy the requirements of the Los Angeles
County Board of Supervisors. Accordingly, the Company will not be relying on any of the 41,000 acre-feet of State Project Water from CLWA to meet Newhall Ranch's primary water needs.

In
May 2002, the California Department of Fish and Game (Fish and Game) conducted a search on certain areas of Newhall Ranch. The search was to determine if an endangered plant,
the San Fernando Valley spineflower, had been taken through routine farming operations being conducted on the Ranch that are exempt from certain endangered species regulations. During the search, Fish
and Game found the plant, which, until 1999, was thought to be extinct, in several locations in the eastern area of Newhall Ranch. The Company completed surveying other portions of Newhall Ranch and
found spineflower populations in a total of three locations on the Newhall Ranch site. On February 11, 2003, the Company reached an agreement with Fish and Game and the Los Angels County
District Attorney regarding this matter. The agreement requires recordation of a conservation easement for the perpetual benefit of the State of California on approximately 64 acres in the Airport
Mesa and Grapevine Mesa areas of Newhall Ranch. The Company also will provide a funded management plan
and allow Fish and Game personnel expanded access to the Company's property and biological reports. This agreement resolves all the outstanding issues related to spineflower and the alleged streambed
violation (see the "Agricultural Operations" section below). This civil compromise is not expected to have a significant impact on Newhall Ranch as the project's Specific Plan provides the Company
with some flexibility in mapping the planned 21,600 homes on the property.

Based
on the current schedule, the Company expects to return to the Kern County Superior Court late in 2003 or in early 2004 for resolution of the six issues that were identified by the
Court as requiring further environmental review. The target date for the commencement of initial development of Newhall Ranch is currently 2006. The length of time necessary to obtain completion of
governmental

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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.

West
Creek is a planned 2,214-home community in Valencia's North River planning area. The project received final approval from the Los Angeles County Board of Supervisors in
January 2001. Opponents to the community filed a lawsuit under California environmental and planning laws in 2001 challenging the Board of Supervisors' approval. In November 2001, the
Superior Court determined that the opponents' claims had no merit. Opponents filed an appeal and the California Court of Appeal Second Appellate District heard the challenge to the Board of
Supervisor's approval of West Creek on November 13, 2002. In a ruling filed February 27, 2003, the Court of Appeal confirmed the correctness of the Superior Court's ruling regarding the
adequacy of the project's water supply mitigation measures, environmental flood analysis, and the County's adherence to the requirements of its Development Monitoring System. The Court of Appeal
referred the issue of water availability for the West Creek project back to the County of Los Angeles for further review. This will require the Company to participate in further public proceedings
before the County of Los Angeles. The Company anticipates this process and further court proceedings could take approximately 18 months. However, the actual time required will depend on a
number of factors that make it difficult to estimate the time to complete applicable legal processes. Therefore, lot sales in West Creek may not commence until late 2005, which would impact the
Company's current 2004 business plan.

Income-Producing Properties

Revenues and income from the Company's income-producing properties decreased 6% and 27%, respectively, compared to 2001. The reduction is primarily the result of
income property sales in the prior year and lower occupancy at Valencia Town Center regional shopping mall due primarily to the vacancy in the third quarter 2001 of Edwards Theatres due to bankruptcy.

For
2001, revenues and income decreased 27% and 33%, respectively, from the prior year. The decrease is primarily due to the sale of income properties in 2001 and 2000. In 2001, income
property sales included one mixed-use building, two office buildings and the Chiquita Canyon Landfill. In
addition, 2001 income decreased due to interest expense recorded on the net lease obligation recorded in 2000 in conjunction with the sale of four office buildings.

Revenues
in 2000 increased 15% over 1999 while income increased 32% primarily due to suspension of depreciation on income properties during the period the properties were held for sale.
This accounted for approximately 56% of the increase in income compared to 1999. In 2000, four apartment complexes, four office buildings, a neighborhood shopping center and a mixed-use
retail property were sold in accordance with the Company's business strategy to finance the repurchase of partnership units. In addition, improved results from hotel operations, continued high retail
occupancy and favorable rents also contributed to increases in revenues and income for 2000.

In
August 2000, a potential buyer terminated its due diligence work on Valencia Town Center regional shopping mall and entertainment center due to the Chapter 11 bankruptcy filing
by Edwards Theatres Circuit, Inc., a major tenant in the mall. In December 2000, the Company announced it was no longer marketing the properties for sale and recorded a charge of
$4 million for depreciation that had been suspended during the period the assets were held for sale. In 2001, Edwards Theatres reaffirmed its current lease for the 12-screen theater
in the Valencia Entertainment Center but rejected its lease for the original 10-screen theater located in Valencia Town Center regional shopping mall and vacated in September 2001.
In May 2002, the Company received a settlement from Edwards Theatres' bankruptcy proceeding for lost rent on the canceled lease space and other expenses.

In
2001, the Company began the process of remodeling the west end of Valencia Town Center regional mall where Edwards Theatres was located for the relocation an expanded mall food court
to

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the space. The initial phase of the renovation was completed in February 2003 with the opening of the new food court. The new food court includes additional quick stop restaurants and double
the seating capacity. A second phase of the renovation involves the remodel of the prior food court location into new retail space. The second phase of the remodel is expected to be completed and open
by the 2003 holiday shopping season.

At
December 31, 2002, the occupancy at Valencia Town Center regional shopping mall was 84%, including short-term tenants, which is unchanged from December 31,
2001. The primary contributor to the vacancy was Edwards Theatres vacating the mall in September 2001, which represented approximately 12% of the non-anchor gross leasable area in
the mall. The Company's other retail centers continue to have high occupancy rates, with NorthPark Village Square and River Oaks Shopping Center both 100% leased. Hotel operating performance continues
to be strong. At December 31, 2002, the year-to-date occupancy levels for the Valencia Hilton Garden Inn and Hyatt Valencia Hotel were 79% and 69%, respectively.
Although, these rates are 7% and 3% lower, respectively, than prior year levels, this is primarily the result of higher average daily room rates charged in 2002. The average daily rates at Valencia
Hilton Garden Inn and Hyatt Valencia Hotel were 11% and 6% higher, respectively, than the prior year.

For
2003, the Company expects the portfolio of income-producing properties to generate revenues approximately 8% higher and income approximately 12% lower than 2002's results. Increased
revenues are primarily due to the commencement of operation at the Tournament Players Club® at Valencia championship golf course in the summer of 2003 together with an increase in Valencia
Town Center regional shopping mall revenues due to the opening of the remodeled food court area and new retail space. The decrease in projected income is primarily the result of an anticipated loss
from operation of the golf course due to initial start-up costs and pre-opening expenses.

Valencia Water Company

Valencia Water Company is a regulated utility and a wholly-owned subsidiary of the Company, serving over 24,000 metered connections. For the year ended
December 31, 2002, revenues increased approximately 6% and net income decreased 8% compared to 2001 levels. The increase in revenues was primarily the result of a 5% increase in the water
company's metered connections and increased customer usage due to drier weather conditions, partially offset by a February 2002 water rate reduction of 4.85%. The decrease in income was
primarily due to higher administrative expenses and expenses related to legal proceedings in which Valencia Water Company is involved.

For
2001, revenues increased 4% and income decreased 2% compared to 2000. Increased revenues were primarily due to a 7.5% growth in metered customers. The decrease in income was
primarily due to higher administrative and legal expenses. In 2000, revenues increased 8% and income increased 18% compared to 1999 due to the continuing expansion of the utility's customer base.

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 proposed decision is expected in March 2003 with a final decision by the end of the second
quarter 2003. It is anticipated that the final decision from the CPUC will result in a slight increase to the water company's authorized water billing rates over current rates.

Agricultural Operations

For 2002, agriculture operations, including the Company's energy operations, reported revenues and income of $7.4 million and $495,000, respectively. The
increase in revenues over 2001 was primarily

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due to high yields on almonds and higher citrus prices. The increase in income was due to the yields and prices previously mentioned and to operating expense reductions.

In
October 2002, the Company appeared in Los Angeles County Superior Court to answer a misdemeanor charge of illegally altering a streambed, which was filed on behalf of the
California Department of Fish and Game (Fish and Game). The Company pled not guilty and on February 11, 2003 reached an agreement with Fish and Game and the Los Angeles County District Attorney
regarding this issue. The agreement requires a permanent conservation easement on approximately 64 acres in two areas of Newhall Ranch to be granted in favor of the state, the Company providing a
funded management plan for the area, and Fish and Game personnel having expanded access to the Company's property and biological reports. This agreement resolves all the outstanding issues related to
the alleged streambed violation as well as issues regarding the San Fernando Valley Spineflower found on areas of Newhall Ranch (see the "Community Development" section above).

For
2001, the Company reported revenues of $7.2 million and a loss of $437,000 from agriculture operations, including the Company's energy operations. This represented a decrease
in revenues compared to the prior year and was primarily due to lower prices for citrus and other crops, which was partially offset by higher gas prices during most of 2001. The 2001 loss was
consistent with the decrease in revenue combined with higher operating expenses. In 2000, revenues and income decreased as compared to 1999 primarily due to the sale of over 39,000 acres of farm land
in 1999 and lower prices for oranges, which were partially offset by higher revenues and income from energy operations due to higher oil and gas prices.

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.
Most of the remaining 14,750 acres in Ventura County owned by the Company are leased for cattle grazing. 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.

General and Administrative Expenses

General and administrative expenses increased 3% in 2002 primarily due to higher expenses related to general legal matters and consulting. These increases were
partially offset by lower base compensation and incentive-based compensation expenses. In 2001, general and administrative expenses decreased 15% from 2000 levels primarily due to lower compensation
expense. A net increase of 1% for the year ended December 31, 2000 compared to 1999 was primarily due to an increase of $3.1 million in compensation expense partially offset by a
reduction of $2.2 million in land acquisition costs. General and administrative expenses in 2003 are expected to remain comparable to 2002.

Interest and Other Expense, net

Lower interest rates on the Company's bank line borrowings and lower outstanding balances on available lines of credit together with increased interest income
from promissory notes accepted by the
Company in conjunction with certain commercial land and residential lot sales in the 2001 fourth quarter and 2002 first quarter were the primary contributors to a 47% decrease in interest and other
expense, net for the year ended December 31, 2002 compared to 2001.

Reduced
borrowings throughout 2001 and lower interest rates resulted in a 68% decrease in net interest expense compared to 2000. In 2000, net interest expense increased 73% over 1999
levels due to increased borrowings under credit facilities to temporarily fund partnership unit repurchases prior to completion of the sale of income properties, most of which occurred in
December 2000.

Interest
and other expense, net is expected to increase approximately 30% in 2003 compared to 2002 primarily due to a decrease in interest income from promissory notes accepted in
conjunction with

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land sales and planned increases in borrowings under existing lines of credit. No notes receivable were outstanding at December 31, 2002 and the Company does not anticipate any 2003 land sales
involving note payments.

FINANCIAL CONDITION

Liquidity and Capital Resources

At December 31, 2002, the Company had cash and cash equivalents of $25.4 million and $160.1 million in available lines of credit, net of
$23.9 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 $60.0 million. The Company believes it has adequate sources of cash from operations and debt capacity, combined with anticipated land sales, to finance future operations on
both a short- and 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 2002 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 December 31, 2002, there was no debt
secured by the Company's raw land or land under development inventories.

In
May 2001, the Board of Directors authorized a unit repurchase program of up to 2,520,000 units, or 10% of the then outstanding units. In accordance with the program, the
Company repurchases units
from time 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 generated from normal business operations. As of December 31, 2002, a total of 1,957,185 units had been repurchased under this program for $56.6 million, or an average unit price of
$28.93. Of this total, 987,035 partnership units were repurchased in 2002 for $29.0 million, or an average unit price of $29.37. A total of 562,815 units remained to be repurchased under this
program at December 31, 2002. Completion of the repurchase program is planned for 2003 and is expected to require approximately $17 million. Factors that could affect the Company's
ability to complete its unit repurchase program include, but are not limited to, governmental approvals, changing market and economic conditions, changing interest rates, challenges to governmental
approvals and finding suitable buyers for certain properties. The Company's Board of Directors may approve additional repurchases of partnership units after completion of the current program after
taking into account the Company's earnings, financial condition and prospects.

For
the year ended December 31, 2002, the Company invested approximately $24 million in major roads and freeway infrastructure improvements primarily within Valencia, which
amounts are included in land under development on the accompanying balance sheet. In addition, the Company invested approximately $8 million in the remodel of the former Edwards Theatres' space
in Valencia Town Center regional mall to relocate of the existing food court and create retail space, and approximately $8 million on the construction of the Tournament Players
Club® at Valencia championship golf course, in the Company's Westridge community, which amounts are included in income-producing properties on the accompanying balance sheet. In 2003, the
Company expects to invest approximately $24 million in major roads and freeway improvements to enable the Company to continue its land sales program in Valencia. In addition, approximately
$13 million is expected to be invested in 2003 in Valencia Town Center regional mall to complete the relocation of the existing food court and the creation of new retail space. Additionally in
2003, the Company expects to invest approximately $11 million on the completion of the golf course and clubhouse. At December 31, 2002, there were no other material commitments for
capital expenditures.

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The following discussion relates to principal items in the Consolidated Statements of Cash Flows:

Operating Activities

Net cash provided by operating activities totaled $110.8 million in 2002. Cash generated from operating activities included the sales of 1,330 residential
lots, the sale of approximately 69 acres commercial and industrial land and the sale of one income-producing property, which, combined, resulted in a total of $185.7 million. During 2002,
$11.7 million of notes receivable outstanding at December 31, 2001 from certain prior year land sales were collected. All notes receivable recorded in 2002 were collected during the
year. Cash used in operating activities included the use of approximately $85.5 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.

Net
cash provided by operating activities totaled $84.1 million in 2001. Cash generated from operating activities included the sale of 232 residential lots, 92.3 acres of
industrial and commercial land, the sale of an option on 1,800 acres in Broomfield, Colorado and the sales of four income producing properties, including Chiquita Canyon Landfill. These combined sales
generated $176.9 million in cash and $19.7 million in notes. During the year, an $8.3 million portion of one note was subsequently sold to a bank at par. Notes totaling
$10.5 million were collected in 2001 from land sales in prior years. Expenditures for land under development inventories totaled $75.4 million in 2001 and were primarily related to land
preparation and infrastructure improvements to ready land for development or sale.

Net
cash provided by operating activities in 2000 totaled $221.7 million and included sales of 208 residential lots, over 108 acres of industrial and commercial land and sales of
income properties which included four apartment complexes, four office buildings, a neighborhood shopping center and a mixed-use center. These sales combined provided $239.8 million
in cash and $10.5 million in notes. In addition, notes totaling $49.7 million from land sales in prior years were collected and $5.1 million was received from a
right-of-way purchase by the California Department of Transportation. The notes collected included $14.4 million from a 1998 land sale note on which the Company recorded
a $2.1 million charge to income in 2000 to reduce the note principal and accrued interest to a negotiated $14.4 million payoff amount in return for accelerating the due date to
December 2000. Expenditures for land under development inventories in 2000 totaled $76.1 million and were primarily related to land preparation and infrastructure improvements to ready
land for development or sale.

Investing Activities

Expenditures for the development of income-producing properties for the year ended December 31, 2002 totaled $19.1 million and were primarily for
the Valencia Town Center food court remodel and expansion, and the construction of the Tournament Players Club® at Valencia championship golf course.

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In 2001, expenditures for development of income-producing properties totaled $13.7 million and were primarily for the construction of the Tournament Players Club® at
Valencia golf course and the completion of construction of two office buildings sold in December 2000. The buildings were sold prior to completion of construction and the Company was obligated
to finish construction of the buildings in 2001.

Expenditures
for development of income-producing properties in 2000 totaled $27.4 million and primarily were for the two office buildings that were completed in 2001 and the
expansion of Valencia Entertainment Center.

Purchase
of property and equipment totaled $7.6 million, $8.9 million and $9.7 million in 2002, 2001 and 2000, respectively, and were primarily for water utility
construction costs.

Financing Activities

In 2002, distributions to unitholders totaling $12.8 million were made consisting of four quarterly distributions of $.10 per unit and a special
distribution of $.13 per unit. Distributions in 2001 totaled $12.7 million and consisted of four quarterly distributions of $.10 per unit and a $.10 per unit special distribution. In 2000,
distributions totaling $21.2 million were made which consisted of four quarterly distributions of $.10 per unit and a $.35 per unit special distribution. The Company declared a regular
quarterly distribution of $.10 per unit, payable March 6, 2003 to unitholders of record on February 1, 2003. No special distribution was declared for the 2003 first quarter. The
Company's usual practice is to provide sufficient distributions, including special distributions, to pay the 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
December 31, 2002, the Company had balances in mortgage and other debt of $60.0 million. The $25.5 million decrease from prior year was primarily due to the
absence of any outstanding borrowings on the Company's available lines of credit and revolving mortgage facility at December 31, 2002 versus $23.7 million in outstanding borrowings at
December 31, 2001. The Company's lines of credit are available to fund recurring operations, distributions and repurchases of partnership units. The reduced borrowings on the lines of credit
were due to strong operating cash flow, primarily from record residential lot sales, and a reduced pace of repurchases of partnership units compared to 2001.

At
the end of 2002, a $6.8 million bank loan secured by a deed of trust on the Valencia Hilton Garden Inn was outstanding. The loan is payable in quarterly principal installments
of $41,250 plus monthly interest payments until maturity on March 31, 2004. As the equity method is used to account for the Company's investment in the joint venture with Hilton
Inns, Inc., the bank loan is not included in mortgage and other debt on the accompanying balance sheet.

For
the year ended December 31, 2001, the Company had a balance in mortgage and other debt of $85.5 million. This represented an $11.0 million increase from 2000 and
was primarily due to a net increase in the outstanding balance on the Company's lines of credit to fund the recurring operations, distributions to unitholders and repurchases of partnership units.

At
December 31, 2000, the Company had balances in mortgage and other debt of $74.6 million. This was a $148.3 million decrease from 1999 balances and included an
$85 million reduction in amounts outstanding against available lines of credit. As planned, the Company utilized available debt capacity during the year to temporarily fund the unit repurchase
program until major asset and land sales were completed. Mortgages secured by three apartment complexes totaling $49.0 million were assumed by the buyer of the apartment complexes in
December 2000 and a $12.0 million note payable was canceled upon divestiture of the Company's interest in the City Ranch joint-venture with Kaufman and Broad of Southern
California, Inc. in September 2000.

24

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Partnership Unit Repurchases

In 2002, 2001 and 2000, the Company repurchased 987,035 partnership units for $29.0 million, 2,455,094 units for $66.2 million and 3,175,550 units
for $86.5 million, respectively. For the three-year period ended December 31, 2002, the Company has repurchased approximately 22% of its total partnership units outstanding
at the end of 1999.

New Accounting Pronouncements

On January 1, 2002, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible
Assets. This statement makes significant changes to the accounting for business combinations, goodwill, and intangible
assets. The adoption of this statement did not have a material effect on the Company's results of operations or financial condition for the year ended December 31, 2002.

On
January 1, 2002, the Company adopted the provisions of SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived
Assets. SFAS No. 144 addresses financial accounting and reporting for the disposal of long-lived assets and supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. This statement retains the
requirements of SFAS No. 121 for recognizing an impairment loss only if the carrying amount of a long-lived asset is not recoverable from its undiscounted cash flows and to measure
an impairment loss as the difference between the carrying amount and the fair value. This statement also establishes criteria for when an asset should be classified as held for sale and depreciation
ceased. The adoption of this statement did not have a material effect on the Company's results of operations or financial condition for the year ended December 31, 2002.

The
Financial Accounting Standards Board (FASB) issued SFAS No. 145,Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections,in April 2002. Under SFAS No. 145, any gain or loss on extinguishments of debt that was classified as an extraordinary
item in prior periods presented that does not meet certain defined criteria must be reclassified. Although, the provisions of SFAS No. 145 are not effective until fiscal years beginning after
May 15, 2002, the Company adopted this statement in 2002. The adoption of this statement did not have a material effect on the Company's results of operations or financial condition for the
year ended December 31, 2002.

The
FASB issued SFAS No. 148,Accounting for Stock-Based CompensationTransition and Disclosure,in
December 2002. SFAS No. 148 amends SFAS No. 123,Accounting for Stock Based Compensation, to provide alternative methods of
transition for an entity that voluntarily changes to the fair value recognition provision of recording stock option expense. SFAS No. 148 also requires disclosure in the summary of significant
accounting policies of the effects of an entity's accounting policy with respect to stock options on reported net income and net income per unit in annual and interim financial statements. The Company
continues to account for stock-based employee compensation using the intrinsic value method allowed under APB Opinion No. 25,Accounting for Stock Issued to
Employees, and, as such, no expense will be recorded for stock options. Therefore, the adoption of this statement by the Company on January 1, 2003 will not have a
material effect on the Company's results of operations or financial condition for the year ended December 31, 2003.

The
FASB issued FASB Interpretation No. (FIN) 45,Guarantor's Accounting and Disclosure Requirements for Guarantees Including Indirect Guarantees of Indebtedness
of Others, in November 2002. FIN 45 changes the current practice in accounting for, and disclosure of, guarantees. Guarantees and indemnification agreements meeting the
characteristics described in FIN 45 are required to be initially recorded as a liability at fair value. The disclosure requirements within FIN 45 are effective for financial statements for annual or
interim periods ending after December 15, 2002. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The Company has completed the process of

25

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evaluating the impact that will result from adopting FIN 45 and determined that the adoption of this interpretation will not have a material effect on the Company's results of operations or financial
position.

The
FASB issued FIN 46,Consolidation of Variable Interest Entities,in January 2003. FIN 46 clarifies the application of
Accounting Research Bulletin No. 51,Consolidated Financial Statements, and provides guidance on the identification of entities for which control
is achieved through means other than through voting rights, referred to as "variable interests", and how to determine when and which business enterprise should consolidate the variable interest entity
(VIE). This new model for consolidation applies to an entity which either (1) the equity investors, if any, do not have a controlling financial interest or (2) the equity investment at
risk is sufficient to finance that entity's activities without receiving additional subordinated financial support from other parties. The provisions of this interpretation are immediately effective
for VIEs formed after January 31, 2003. For VIEs formed prior to January 31, 2003, the provisions of this interpretation apply to the first fiscal year or interim period beginning after
June 15, 2003. The Company is currently evaluating the impact this interpretation will have on its financial statements.

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; 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 to be
cyclical. The regional, state and national economies have slowed into recession. There can be no assurances that the recession 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

26

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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. The industrial market in Valencia is experiencing limited demand and vacancy rates remain high since the national
and regional economy has slowed. In addition, local competition has intensified as local business parks 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 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 and weather conditions, and acts of terrorism or armed conflict that may cause damage to assets, delay progress and increase the costs of infrastructure
construction and land development, 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 to develop its projects have become increasingly complex
and subject to uncertainty. The statutes, regulations and ordinances governing the approval processes provide third parties the opportunity to challenge the proposed plans

27

---

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 due to 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.

Item 7A.    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 December
31, 2002, the Company had no variable rate debt outstanding and $60.0 million of outstanding fixed rate debt with interest rates ranging from 5.76% to 8.45%.

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 |  
|----------------------- | ------------------------------ | ---- | - | ------ | - | ---- | ---- | ---- | - | ---- | - | ---------- | ------ | ----- | ---- | ---------- | -
|Mortgage and Other Debt |                                |      |   |        |   |      |      |      |   |      |   |            |        |       |      |            |  
|                        | Fixed Rate Debt                |      | $ | 10,055 |   | $    | 499  |      | $ | 557  |   | $          | 22,314 |       | $75  |            | $
|                        | Weighted Average Interest Rate |      |   | 8.40   | % |      | 7.41 | %    |   | 7.35 | % |            | 7.44   | %     | 5.76 | %          |  
|                        | Variable Rate Debt(1)          |      |   |        |   |      |      |      |   |      |   |            |        |       |      |            |  
|                        | Weighted Average Interest Rate |      |   |        |   |      |      |      |   |      |   |            |        |       |      |            |  

---

28

---

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, 2001 by expected maturity dates:

|Dollars in thousands    |                                | 2002 |   | 2003  |   | 2004 |        | 2005 |   | 2006   |   | Thereafter |       | Total |   | Fair
Value
|----------------------- | ------------------------------ | ---- | - | ----- | - | ---- | ------ | ---- | - | ------ | - | ---------- | ----- | ----- | - | ----------
|Mortgage and Other Debt |                                |      |   |       |   |      |        |      |   |        |   |            |       |       |   |           
|                        | Fixed Rate Debt                |      | $ | 4,097 |   | $    | 10,970 |      | $ | 1,509  |   | $          | 1,657 |       | $ | 23,525    
|                        | Weighted Average Interest Rate |      |   | 7.36  | % |      | 8.32   | %    |   | 7.38   | % |            | 7.35  | %     |   | 7.43      
|                        | Variable Rate Debt(1)          |      | $ | 2,000 |   |      |        |      | $ | 21,700 |   |            |       |       |   |           
|                        | Weighted Average Interest Rate |      |   | 3.39  | % |      |        |      |   | 3.29   | % |            |       |       |   |           

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 December 31, 2002, the Company's debt to income portfolio
value ratio was 22%.

29

---

Item 8.    Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS INCLUDED IN ITEM 8:

Page
NumberReports of Independent Auditors

31Consolidated Statements of Income for the years ended December 31, 2002, 2001 and 2000

32Consolidated Balance Sheets at December 31, 2002 and 2001

33Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000

34Consolidated Statements of Changes in Partners' Capital for the years ended December 31, 2002, 2001 and 2000

35Notes to Consolidated Financial Statements

36


30

---

Report of Independent Auditors

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

We
have audited the accompanying consolidated balance sheets of The Newhall Land and Farming Company and subsidiaries as of December 31, 2002 and 2001 and the related consolidated
statements of income, changes in partners' capital, and cash flows for the years then ended. Our audits also included the financial statement schedule listed in the index at Item 14. These financial
statements and the financial statement schedule are the responsibility of the management of the Company. Our responsibility is to express an opinion on these financial statements and the financial
statement schedule based on our audits. The financial statements of the Company for the year ended December 31, 2000 was audited by other auditors whose report, dated January 16, 2001,
expressed an unqualified opinion on those statements.

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

In
our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of The Newhall and Farming Company and subsidiaries at
December 31, 2002 and 2001, and the results of its operations and its cash flows the years then ended in conformity with accounting principles generally accepted in the United States of
America. Also in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects,
the information set forth therein.

|Los Angeles, California
January 21, 2003 |  | /S/ DELOITTE & TOUCHE LLP
|---------------------------------------- |  | -------------------------

*********************************************************************

Report of Independent Auditors

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

We
have audited the accompanying consolidated statements of income, changes in partners' capital, and cash flows of The Newhall Land and Farming Company and subsidiaries for the year
ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audit.

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

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of The Newhall Land and Farming
Company and subsidiaries for the year ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America.

|Los Angeles, California
January 16, 2001 |  | /S/ KPMG LLP
|---------------------------------------- |  | ------------

31

---

Consolidated Statements of Income

|                                      |                                    | Years ended December 31,        |                            
|------------------------------------- | ---------------------------------- | ------------------------------- | ---------------------------
|
|
|Revenues                              |                                    |                                 |                            
|                                      | Real estate                        |                                 |                            
|                                      |                                    | Residential land sales          |                            
|                                      |                                    | Industrial and commercial sales |                            
|                                      |                                    | Commercial operations           |                            
|                                      |                                    |                                 | Income-producing properties
|                                      |                                    |                                 | Valencia Water Company     
|                                      | Agriculture Operations             |                                 |                            
|                                      |                                    |                                 |                            
|Total Revenues                        |                                    |                                 | 239,790                    
|                                      |                                    |                                 |                            
|Costs and Operating Expenses          |                                    |                                 |                            
|                                      | Real estate                        |                                 |                            
|                                      |                                    | Residential land sales          |                            
|                                      |                                    | Industrial and commercial sales |                            
|                                      |                                    | Community development           |                            
|                                      |                                    | Commercial operations           |                            
|                                      |                                    |                                 | Income-producing properties
|                                      |                                    |                                 | Valencia Water Company     
|                                      | Agriculture Operations             |                                 |                            
|                                      | General and administrative expense |                                 |                            
|                                      |                                    |                                 |                            
|Total Costs and Operating Expenses    |                                    |                                 | 196,135                    
|                                      |                                    |                                 |                            
|Operating Income                      |                                    |                                 | 43,655                     
|                                      | Interest and other expense, net    |                                 |                            
|                                      |                                    |                                 |                            
|Net Income                            |                                    | $                               | 40,575                     
|                                      |                                    |                                 |                            
|Net Income Per Unit                   |                                    | $                               | 1.69                       
|Net Income Per UnitAssuming Dilution |                                    | $                               | 1.66                       
|                                      |                                    |                                 |                            

See
notes to consolidated financial statements

32

---

Consolidated Balance Sheets

|                                  |                                                                     | December 31,                                                                                                                                                                                           
|--------------------------------- | ------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
|
|Assets                            |                                                                     |                                                                                                                                                                                                        
|                                  | Cash and cash equivalents                                           |                                                                                                                                                                                                        
|                                  | Accounts and notes receivable                                       |                                                                                                                                                                                                        
|                                  | Land under development                                              |                                                                                                                                                                                                        
|                                  | Land held for future development                                    |                                                                                                                                                                                                        
|                                  | Income-producing properties held for sale, net                      |                                                                                                                                                                                                        
|                                  | Income-producing properties, net                                    |                                                                                                                                                                                                        
|                                  | Property and equipment, net                                         |                                                                                                                                                                                                        
|                                  | Investment in joint venture                                         |                                                                                                                                                                                                        
|                                  | Other assets and deferred charges                                   |                                                                                                                                                                                                        
|                                  |                                                                     |                                                                                                                                                                                                        
|                                  |                                                                     | $                                                                                                                                                                                                      
|                                  |                                                                     |                                                                                                                                                                                                        
|Liabilities and Partners' Capital |                                                                     |                                                                                                                                                                                                        
|                                  | Accounts payable                                                    |                                                                                                                                                                                                        
|                                  | Accrued expenses                                                    |                                                                                                                                                                                                        
|                                  | Deferred revenues                                                   |                                                                                                                                                                                                        
|                                  | Mortgage and other debt                                             |                                                                                                                                                                                                        
|                                  | Advances and contributions from developers for utility construction |                                                                                                                                                                                                        
|                                  | Other liabilities                                                   |                                                                                                                                                                                                        
|                                  |                                                                     |                                                                                                                                                                                                        
|                                  |                                                                     | Total liabilities                                                                                                                                                                                      
|                                  | Commitments and contingencies (Note 9)                              |                                                                                                                                                                                                        
|                                  | Partners' capital                                                   |                                                                                                                                                                                                        
|                                  |                                                                     | 23,518 units outstanding, excluding 13,254 units in treasury (cost $330,358) at December 31, 2002 and 24,374 units outstanding, excluding 12,398 units in treasury (cost$304,335) at December 31,
2001
|                                  | Accumulated other comprehensive income                              |                                                                                                                                                                                                        
|                                  |                                                                     |                                                                                                                                                                                                        
|                                  |                                                                     |                                                                                                                                                                                                        
|                                  |                                                                     |                                                                                                                                                                                                        
|                                  |                                                                     | $                                                                                                                                                                                                      
|                                  |                                                                     |                                                                                                                                                                                                        

See
notes to consolidated financial statements

33

---

Consolidated Statements of Cash Flows

|                                                                      |                                                                                   | Years ended December 31, |                                                                                
|--------------------------------------------------------------------- | --------------------------------------------------------------------------------- | ------------------------ | -------------------------------------------------------------------------------
|
|
|Cash Flows from Operating Activities:                                 |                                                                                   |                          |                                                                                
|                                                                      | Net income                                                                        |                          | $                                                                              
|                                                                      | Adjustments to reconcile net income to net cash provided by operating activities: |                          |                                                                                
|                                                                      |                                                                                   |                          | Depreciation and amortization                                                  
|                                                                      |                                                                                   |                          | Decrease (increase) in land under development                                  
|                                                                      |                                                                                   |                          | Decrease (increase) in accounts and notes receivable                           
|                                                                      |                                                                                   |                          | Increase (decrease) in accounts payable, accrued expenses and deferred revenues
|                                                                      |                                                                                   |                          | Cost of property sold                                                          
|                                                                      |                                                                                   |                          | Loss on sale of office buildings                                               
|                                                                      |                                                                                   |                          | Loss on divestiture of joint venture                                           
|                                                                      |                                                                                   |                          | Write-down of note receivable                                                  
|                                                                      |                                                                                   |                          | Other adjustments, net                                                         
|                                                                      |                                                                                   |                          |                                                                                
|                                                                      | Net cash provided by operating activities                                         |                          |                                                                                
|                                                                      |                                                                                   |                          |                                                                                
|Cash Flows from Investing Activities:                                 |                                                                                   |                          |                                                                                
|                                                                      | Development of income-producing properties                                        |                          |                                                                                
|                                                                      | Purchase of property and equipment                                                |                          |                                                                                
|                                                                      | Investment in joint ventures                                                      |                          |                                                                                
|                                                                      |                                                                                   |                          |                                                                                
|                                                                      | Net cash used in investing activities                                             |                          |                                                                                
|                                                                      |                                                                                   |                          |                                                                                
|Cash Flows from Financing Activities:                                 |                                                                                   |                          |                                                                                
|                                                                      | Distributions paid                                                                |                          |                                                                                
|                                                                      | Borrowings on mortgage and other debt                                             |                          |                                                                                
|                                                                      | Repayment of mortgage and other debt                                              |                          |                                                                                
|                                                                      | Increase in advances and contributions from developers for utility construction   |                          |                                                                                
|                                                                      | Purchase of partnership units                                                     |                          |                                                                                
|                                                                      | Other, net                                                                        |                          |                                                                                
|                                                                      |                                                                                   |                          |                                                                                
|                                                                      | Net cash used in financing activities                                             |                          |                                                                                
|                                                                      |                                                                                   |                          |                                                                                
|Net Increase (Decrease) in Cash and Cash Equivalents                  |                                                                                   |                          | 22,353                                                                         
|Cash and Cash Equivalents, Beginning of Year                          |                                                                                   |                          | 3,050                                                                          
|                                                                      |                                                                                   |                          |                                                                                
|Cash and Cash Equivalents, End of Year                                |                                                                                   | $                        | 25,403                                                                         
|                                                                      |                                                                                   |                          |                                                                                
|Supplemental Disclosure of Cash Flow Information:                     |                                                                                   |                          |                                                                                
|                                                                      | Interest paid (net of amount capitalized)                                         |                          | $                                                                              
|                                                                      |                                                                                   |                          |                                                                                
|Supplemental Schedule of Non-Cash Investing and Financing Activities: |                                                                                   |                          |                                                                                
|                                                                      | Payable for unit repurchases                                                      |                          | $                                                                              
|                                                                      | Divesture of joint venture                                                        |                          |                                                                                
|                                                                      | Note payable in connection with investment in joint venture                       |                          |                                                                                
|                                                                      | Assumption of debt on sale of real estate                                         |                          |                                                                                
|                                                                      |                                                                                   |                          |                                                                                

See
notes to consolidated financial statements

34

---

Consolidated Statements of Changes in Partners' Capital

|In thousands                 |                                        | Number
of Units                      |        | Partners'
Capital |        
|---------------------------- | -------------------------------------- | ------------------------------------ | ------ | ----------------- | -------
|Balance at December 31, 1999 |                                        | 29,668                               |        | $                 | 139,725
|                             | Net income                             |                                      |       |                   |        
|                             | Distributions                          |                                      |       |                   |        
|                             | Purchase of partnership units          |                                      | (3,176 | )                 |        
|                             | Unit ownership plans and other, net    |                                      | 98     |                   |        
|                             |                                        |                                      |        |                   |        
|Balance at December 31, 2000 |                                        | 26,590                               |        |                   | 119,204
|                             |                                        |                                      |        |                   |        
|                             | Net income                             |                                      |       |                   |        
|                             | Distributions                          |                                      |       |                   |        
|                             | Purchase of partnership units          |                                      | (2,455 | )                 |        
|                             | Unit ownership plans and other, net    |                                      | 239    |                   |        
|                             |                                        |                                      |        |                   |        
|Balance at December 31, 2001 |                                        | 24,374                               |        |                   | 135,211
|                             |                                        |                                      |        |                   |        
|                             | Net income                             |                                      |       |                   |        
|                             | Accumulated other comprehensive income |                                      |        |                   |        
|                             |                                        | Minimum pension liability adjustment |        |                  |        
|                             |                                        |                                      |        |                   |        
|                             |                                        | Comprehensive income                 |        |                  |        
|                             | Distributions                          |                                      |       |                   |        
|                             | Purchase of partnership units          |                                      | (987   | )                 |        
|                             | Unit ownership plans and other, net    |                                      | 131    |                   |        
|                             |                                        |                                      |        |                   |        
|Balance at December 31, 2002 |                                        | 23,518                               |        | $                 | 135,696
|                             |                                        |                                      |        |                   |        

See
notes to consolidated financial statements

35

---

Notes to Consolidated Financial Statements

December 31, 2002

Note 1.    Organization

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

Note 2.    Business Segments and Summary of Significant Accounting Policies

Nature of Operations and Business Segments

The Company operates in two lines of business: real estate and agriculture. The business segments of the Company's real estate operations consist of residential;
industrial and commercial; development and operation of income-producing properties; Valencia Water Company, a public water utility; and community development. Agriculture consists primarily of
farming and energy operations and sales of non-strategic farm land.

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

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

Industrial and Commercial:Industrial and commercial land sales and respective land under development inventories are
accounted for under the same criteria as described in the Residential section.

The
industrial and commercial division is also responsible for the development of the Company's income-producing properties. Upon completion of construction, the property is reported
with Income-Producing Properties.

Community Development:Project litigation costs are charged to expense when incurred. Record map costs are capitalized to the
identified project.

Income-Producing Properties:The Company owns and leases shopping centers, hotels, commercial buildings and land to tenants.
Rents are typically based on the greater of a percentage of the lessee's gross revenues or a minimum rent. Most lease agreements require that the lessee pay all taxes, maintenance, insurance and
certain other operating expenses applicable to leased properties.

Valencia Water Company:Valencia Water Company (a California corporation), a wholly-owned subsidiary, is a public water
utility subject to regulation by the California Public Utilities Commission. Water utility revenues include amounts billed monthly to customers and an estimated amount of

36

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unbilled revenues. Income taxes are included in operating expenses. Deferred income taxes are reflected in the consolidated financial statements.

Agriculture:Revenue is recognized as crops are delivered to farm cooperatives and other purchasers. At the time of delivery,
the Company estimates the proceeds to be received from the cooperatives and
records these amounts as unbilled receivables. Costs incurred during the development stage of orchard and vineyard crops (ranging from 3 to 10 years) are capitalized and amortized over the
productive life of the trees or vines. Farming inventories include crops in process and harvested crops and are valued at the lower of cost or market, determined on the first-in,
first-out method.

Central Administration:Central Administration includes the Company's corporate functions including executive offices,
treasury, tax, employee relations, accounting, finance, information systems, headquarters facilities, secretary/legal, investor relations, market research, internal audit and, in prior years, land
acquisition. Except for certain costs relating to the headquarters facilities and specific services billed to Valencia Water Company, expenses for these functions are expensed as general and
administrative expenses and are not allocated to the Company's operating business segments.

Basis of Consolidation:The consolidated financial statements include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany balances and transactions are eliminated.

Reclassifications:Certain reclassifications have been made to prior years' amounts to conform to the current year
presentation.

Joint Ventures:The equity method is used to account for an investment a joint venture with Hilton Inns, Inc., which
is not controlled by the Company. A joint venture with Kaufman and Broad of Southern California, Inc. was divested in 2000 and a $5.2 million loss was recorded within Residential Land
Sales in connection with the divestiture and expenses incurred prior to the divestiture.

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

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

Impairment of Assets:Long-lived assets and assets held for sale are reviewed for impairment whenever events or
changes in circumstances indicate that an impairment may have occurred. No impairment loss was recorded in 2002 or 2001. In 2000, an impairment loss of $4.9 million was recorded within
Industrial and Commercial Sales on four office buildings held for sale, which subsequently were sold.

There
is no depreciation expense recorded on assets held for sale. Income-Producing Properties Held for Sale avoided depreciation expense of $71,000 for 2002, $378,000 for 2001 and
$2.5 million for 2000.
For 2002, 2001 and 2000, revenues from such properties, after the properties were classified as held for sale, totaled $0, $586,000 and $6.8 million, respectively.

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.

37

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

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

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

The
Revenue Act of 1987 contained provisions which, in some cases, taxes publicly traded partnerships as corporations. Beginning in 1998, 90% of the Partnership's gross income, as
defined, must be derived from rent, sales of real estate, interest, and income from other "natural resources" as provided in Internal Revenue Section 7704. The Partnership's 2002, 2001 and 2000
gross income qualifies under this provision and the Company expects to continue to be taxed as a partnership for the foreseeable future.

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

|(in 000's except per unit)           |                                     | Income
(numerator) |        | Units
(denominator) |        | Per Unit |  
|------------------------------------ | ----------------------------------- | ------------------ | ------ | ------------------- | ------ | -------- | -
|For the year ended December 31, 2002 |                                     |                    |        |                     |        |          |  
|Net income per unitbasic            |                                     |                    |        |                     |        |          |  
|                                     | Net income available to unitholders |                    | $      | 40,575              |        | 24,052   |  
|Effect of dilutive securities        |                                     |                    |        |                     |        |          |  
|                                     | Unit options                        |                    |        |                    |        | 341      |  
|                                     |                                     |                    |        |                     |        |          |  
|Net income per unitdiluted          |                                     | $                  | 40,575 |                     | 24,393 |          | $
|                                     |                                     |                    |        |                     |        |          |  
|For the year ended December 31, 2001 |                                     |                    |        |                     |        |          |  
|Net income per unitbasic            |                                     |                    |        |                     |        |          |  
|                                     | Net income available to unitholders |                    | $      | 91,057              |        | 25,284   |  
|Effect of dilutive securities        |                                     |                    |        |                     |        |          |  
|                                     | Unit options                        |                    |        |                    |        | 296      |  
|                                     |                                     |                    |        |                     |        |          |  
|Net income per unitdiluted          |                                     | $                  | 91,057 |                     | 25,580 |          | $
|                                     |                                     |                    |        |                     |        |          |  
|For the year ended December 31, 2000 |                                     |                    |        |                     |        |          |  
|Net income per unitbasic            |                                     |                    |        |                     |        |          |  
|                                     | Net income available to unitholders |                    | $      | 85,396              |        | 27,658   |  
|Effect of dilutive securities        |                                     |                    |        |                     |        |          |  
|                                     | Unit options                        |                    |        |                    |        | 311      |  
|                                     |                                     |                    |        |                     |        |          |  
|Net income per unitdiluted          |                                     | $                  | 85,396 |                     | 27,969 |          | $
|                                     |                                     |                    |        |                     |        |          |  

New Accounting Pronouncements:On January 1, 2002, the Company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 142,Goodwill and Other Intangible Assets.This statement makes significant changes to the accounting for
business combinations, goodwill, and intangible assets. The adoption of this statement did not have a material effect on the Company's results of operations or financial condition for the year ended
December 31, 2002.

38

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On
January 1, 2002, the Company adopted the provisions of SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived
Assets. SFAS No. 144 addresses financial accounting and reporting for the disposal of long-lived assets and supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. This statement retains the
requirements of SFAS No. 121 for recognizing an impairment loss only if the carrying amount of a long-lived asset is not recoverable from its undiscounted cash flows and to measure
an impairment loss as the difference between the carrying amount and the fair value. This statement also establishes criteria for when an asset should be classified as held for sale and depreciation
ceased. The adoption of this statement did not have a material effect on the Company's results of operations or financial condition for the year ended December 31, 2002.

The
Financial Accounting Standards Board (FASB) issued SFAS No. 145,Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections,in April 2002. Under SFAS No. 145, any gain or loss on extinguishments of debt that was classified as an extraordinary
item in prior periods presented that does not meet certain defined criteria must be reclassified. Although, the provisions of SFAS No. 145 are not effective until fiscal years beginning after
May 15, 2002, the Company adopted this statement in 2002. The adoption of this statement did not have a material effect on the Company's results of operations or financial condition for the
year ended December 31, 2002.

The
FASB issued SFAS No. 148,Accounting for Stock-Based CompensationTransition and Disclosure,in
December 2002. SFAS No. 148 amends SFAS No. 123,Accounting for Stock Based Compensation, to provide alternative methods of
transition for an entity that voluntarily changes to the fair value recognition provision of recording stock option expense. SFAS No. 148 also requires disclosure in the summary of significant
accounting policies of the effects of an entity's accounting policy with respect to stock options on reported net income and net income per unit in annual and interim financial statements. The Company
continues to account for stock-based employee compensation using the intrinsic value method allowed under APB Opinion No. 25,Accounting for Stock Issued to
Employees, and, as such, no expense will be recorded for stock options. Therefore, the adoption of this statement by the Company on January 1, 2003 will not have a
material effect on the Company's results of operations or financial condition for the year ended December 31, 2003.

The
FASB issued FASB Interpretation No. (FIN) 45,Guarantor's Accounting and Disclosure Requirements for Guarantees Including Indirect Guarantees of Indebtedness
of Others, in November 2002. FIN 45 changes the current practice in accounting for, and disclosure of, guarantees. Guarantees and indemnification agreements meeting the
characteristics described in FIN 45 are required to be initially
recorded as a liability at fair value. The disclosure requirements within FIN 45 are effective for financial statements for annual or interim periods ending after December 15, 2002. The initial
recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The Company has completed the process of
evaluating the impact that will result from adopting FIN 45 and determined that the adoption of this interpretation will not have a material effect on the Company's results of operations or financial
position.

The
FASB issued FIN 46,Consolidation of Variable Interest Entities,in January 2003. FIN 46 clarifies the application of
Accounting Research Bulletin No. 51,Consolidated Financial Statements, and provides guidance on the identification of entities for which control
is achieved through means other than through voting rights, referred to as "variable interests", and how to determine when and which business enterprise should consolidate the variable interest entity
(VIE). This new model for consolidation applies to an entity which either (1) the equity investors, if any, do not have a controlling financial interest or (2) the equity investment at
risk is sufficient to finance that entity's activities without receiving additional subordinated financial support from other parties. The provisions of this interpretation are immediately effective
for VIEs formed after January 31, 2003. For VIEs formed prior

39

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to January 31, 2003, the provisions of this interpretation apply to the first fiscal year or interim period beginning after June 15, 2003. The Company is currently evaluating the impact
this interpretation will have on its financial statements.

Note 3.    Federal Income Tax Results of the Partnership

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

At
December 31, 2002, the net tax basis of the Company's assets and liabilities exceeded the Company's consolidated financial statement basis of its assets and liabilities by
$253,406,000. This excess amount does not reflect the step-up in asset basis allocated to individual partners upon purchase of units subsequent to the formation of the Partnership.

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

Note 4.    Disclosures About Fair Value of Financial Instruments

|                                                  |  | December 31,
|------------------------------------------------- |  | ------------
|
|
|Notes receivable from land sales                  |  | $           
|Mortgage and other debt                           |  |             
|Advances from developers for utility construction |  |             
|                                                  |  |             

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

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

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

Mortgage and Other Debt:The 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 rates for similar types of borrowing arrangements ranging from 5.05% to 6.05%.

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

40

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Note 5.    Composition of Certain Financial Statement Captions

|                                          |                                                                                            | December 31,                               |        
|----------------------------------------- | ------------------------------------------------------------------------------------------ | ------------------------------------------ | -------
|
|
|Accounts and notes receivable             |                                                                                            |                                            |        
|                                          | Trade receivables, less allowance for doubtful accounts of $1,687 and $1,588, respectively |                                            | $      
|                                          | Notes receivable from land sales                                                           |                                            |        
|                                          | Unbilled accounts receivable                                                               |                                            |        
|                                          |                                                                                            | Agriculture                                |        
|                                          |                                                                                            | Other                                      |        
|                                          | Other                                                                                      |                                            |        
|                                          |                                                                                            |                                            |        
|                                          |                                                                                            | $                                          | 6,131  
|                                          |                                                                                            |                                            |        
|Land under development                    |                                                                                            |                                            |        
|                                          |                                                                                            | Residential development                    |        
|                                          |                                                                                            | Industrial and commercial land development |        
|                                          |                                                                                            | Agriculture                                |        
|                                          |                                                                                            |                                            |        
|                                          |                                                                                            | $                                          | 56,097 
|                                          |                                                                                            |                                            |        
|Income-producing properties held for sale |                                                                                            |                                            |        
|                                          | Office                                                                                     |                                            | $      
|                                          | Accumulated depreciation                                                                   |                                            |        
|                                          |                                                                                            |                                            |        
|                                          |                                                                                            | $                                          |       
|                                          |                                                                                            |                                            |        
|Income-producing properties               |                                                                                            |                                            |        
|                                          | Land                                                                                       |                                            | $      
|                                          | Buildings                                                                                  |                                            |        
|                                          | Other                                                                                      |                                            |        
|                                          |                                                                                            |                                            |        
|                                          |                                                                                            |                                            | 180,257
|                                          | Accumulated depreciation                                                                   |                                            |        
|                                          |                                                                                            |                                            |        
|                                          |                                                                                            |                                            | 136,230
|                                          | Properties under development                                                               |                                            |        
|                                          |                                                                                            |                                            |        
|                                          |                                                                                            | $                                          | 159,971
|                                          |                                                                                            |                                            |        

41

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|                                  |                                                       | December 31, |        
|--------------------------------- | ----------------------------------------------------- | ------------ | -------
|
|
|Property and equipment            |                                                       |              |        
|                                  | Land                                                  |              | $      
|                                  | Buildings                                             |              |        
|                                  | Equipment                                             |              |        
|                                  | Water supply systems, orchards and other              |              |        
|                                  | Construction in progress                              |              |        
|                                  |                                                       |              |        
|                                  |                                                       |              | 117,404
|                                  | Accumulated depreciation                              |              |        
|                                  |                                                       |              |        
|                                  |                                                       | $            | 76,449 
|                                  |                                                       |              |        
|Other assets and deferred charges |                                                       |              |        
|                                  | Prepaid expenses                                      |              | $      
|                                  | Unamortized loan fees                                 |              |        
|                                  | Deferred charges and assets of Valencia Water Company |              |        
|                                  | Other                                                 |              |        
|                                  |                                                       |              |        
|                                  |                                                       | $            | 15,221 
|                                  |                                                       |              |        
|Accrued expenses                  |                                                       |              |        
|                                  | Deferred compensation                                 |              | $      
|                                  | Operating and other accruals                          |              |        
|                                  | Project accruals                                      |              |        
|                                  | Lease obligation, net                                 |              |        
|                                  | Other                                                 |              |        
|                                  |                                                       |              |        
|                                  |                                                       | $            | 43,119 
|                                  |                                                       |              |        
|Other liabilities                 |                                                       |              |        
|                                  | Warranty and other reserves                           |              | $      
|                                  | Deferred taxes of Valencia Water Company              |              |        
|                                  | Non-qualified benefit plans                           |              |        
|                                  | Other                                                 |              |        
|                                  |                                                       |              |        
|                                  |                                                       | $            | 23,639 
|                                  |                                                       |              |        

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Note 6.    Commercial Leases

As
of December 31, 2002, minimum lease payments to be received under non-cancelable operating leases and a lease obligation to be paid in conjunction with the sale of
four office buildings are as follows:

|In thousands |  | Lease
Receipts |         | Lease
Obligation
|------------ |  | -------------- | ------- | ----------------
|2003         |  | $              | 15,707  |                 
|2004         |  |                | 15,261  |                 
|2005         |  |                | 13,071  |                 
|2006         |  |                | 12,414  |                 
|2007         |  |                | 11,700  |                 
|Thereafter   |  |                | 61,559  |                 
|             |  |                |         |                 
|             |  | $              | 129,712 | *               
|             |  |                |         |                 

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Note 7.    Mortgage and Other Debt

|                                                  |  |          |    | December 31,
|------------------------------------------------- |  | -------- | -- | ------------
|
|
|Unsecured lines of credit                         |  | Variable |    | $           
|Prudential (shopping center loans)                |  | 7.44     | %  |             
|Prudential (ranch mortgage)                       |  | 8.45     | %  |             
|Pacific Life (Valencia Water Company)             |  | 8.00     | %  |             
|Community facilities bonds (Valencia Town Center) |  | 5.76     | %* |             
|Vidler Water Company (water rights)               |  | 7.25     | %  |             
|                                                  |  |          |    |             
|                                                  |  |          |    | $           
|                                                  |  |          |    |             

---

In
November 2000, the Company replaced its existing bank lines, totaling $159 million, with a $130 million three-year, unsecured line of credit from
Wells Fargo and Bank of America. Subsequent to December 31, 2002, the Company extended the maturity date of the credit line to November 2005. The interest rate is LIBOR plus 1.25% -
1.45% and the commitment fee is up to .25% per annum of the unused portion. In addition, the Company has a $2 million unsecured line of credit with Union Bank (formerly Valencia Bank &
Trust) on which the rate is LIBOR plus 1.25%. Letters of credit outstanding against available lines of credit totaled $23.9 million and $13.7 million, respectively, at
December 31, 2002 and 2001.

In
September 1999, the Company completed two financings totaling $25 million with Prudential Insurance Company of America. Each loan is secured by a retail shopping center
and is due in seven years. Principal and interest are paid monthly based on a 25-year amortization.

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The
Prudential ranch mortgage is a non-recourse mortgage financing secured by the 14,000-acre New Columbia Ranch property. The terms of the note call for interest
payments on each May 1 and November 1 and annual principal payments of $240,000 until maturity on November 1, 2003. The Company does not intend to refinance the mortgage upon
maturity.

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

In
November 2000, a $50 million revolving mortgage facility secured by Valencia Town Center replaced a $40 million facility. In October 2001, the facility was
renewed for 3 years plus a 2 year extension and bears interest at LIBOR plus 1.40% during the initial term and LIBOR plus 1.45% during the extension term. No amounts were outstanding on
the facility at December 31, 2002 or 2001.

In
October 1992, tax-exempt community facilities bonds were issued to finance a portion of the costs of certain public infrastructure improvements located within or in
the vicinity of Valencia Town Center, the Company's regional shopping mall. In October 2002, the bonds were refinanced and will be repaid over 30 years from special taxes levied on the
mall property.

In
March 2001, Vidler Water Company, Inc. ("Vidler") assigned to the Company a portion of the water rights Vidler is party to in the Semitropic Water Storage District. The
Company acquired these water rights for the development of Newhall Ranch. In May 2001, the Company executed a $2.6 million promissory note for the water rights, which was paid upon
maturity on May 21, 2002.

Annual
maturities of mortgage and other debt are approximately (in thousands) $10,055 in 2003, $499 in 2004, $557 in 2005, $22,314 in 2006, $75 in 2007 and $26,537 thereafter.

Interest Expense, Capitalized Interest and Interest Income:During 2002, 2001 and 2000, total interest expense incurred
amounted to (in thousands) $4,278, $5,714, $20,622, net of $1,613, $1,481 and $329,
which was capitalized, respectively. Interest income from investments and notes receivable totaled (in thousands) $1,495 in 2002, $478 in 2001 and $3,000 in 2000.

44

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Note 8.    Employee Benefit Plans

Incentive Compensation Plan:Under the terms of the Company's Executive Incentive Plan, the Board of Directors may authorize
incentive compensation awards to key management personnel of up to 7% of net income. The Board of Directors authorized awards of $2,883,000 (7.0%), $4,020,000 (4.4%) and $4,728,000 (5.5%) for the
years ended December 31, 2002, 2001 and 2000, respectively.

Unit Compensation Plans:The Company has two unit-based compensation plans, which are described below. The
Company applies the provisions of APB Opinion No. 25 and related interpretations in accounting for its plans. Accordingly, compensation expense is only recognized for market price fluctuations
in connection with option appreciation rights under the unit option plan as all options granted under the plan had 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 Compensationto stock-based employee compensation.

Years ended December 31,In thousands, except per unit2002

2001

2000Net Income, as reported

$
40,575

$
91,057

$
85,396Total stock-based employee compensation expense


(3,141
)

(2,735
)

(4,346
)Pro forma net income

$
37,434

$
88,322

$
81,050Net income per unitBasicas reported

$
1.69

$
3.60

$
3.09Basicpro forma


1.56


3.49


2.93Dilutedas reported

$
1.66

$
3.56

$
3.05Dilutedpro forma


1.53


3.45


2.90


Unit Option Plan:In January 1995, the Board of Directors approved the 1995 Option/Award Plan, which superseded the
Option, Appreciation Rights and Restricted Units Plan. Under the terms of the Plan, an additional 600,000 units could be granted as options, restricted units, unit rights or appreciation rights to key
employees. In November 1997, the Plan was amended to increase the number of units which may be granted by 3,050,000 units. In September 2002, the Board of Directors approved the 2002
Equity Compensation Plan, which supercedes the 1995 Plan. Under the terms of the 2002 Plan, the aggregate number of depositary units that may be issued will not exceed 1,720,000.

Generally,
non-qualified options and appreciation rights are exercisable 25% after the end of each of the first four years and terminate in ten years. The following
non-qualified, market price options, all without appreciation rights, were granted: 2002 - 498,400; 2001 - 327,198;
2000 - 316,707. An expense of $393,000 was recorded in 2001 and a recovery of $400,000 was recorded in 2000 for market price fluctuations in connection with option
appreciation rights granted prior to 1992. Restricted unit rights granted prior to July 2000 as part of the Company's Management Unit Ownership Program vest 20% at the end of each of the first
five years. Unit rights granted subsequent to July 2000 vest at 33% at the end of each of the first three years. The following restricted unit rights were granted as part of the program:
2002 - 5,595; 2001 - 10,830; 2000 - 6,205.

In
November 1997, the Board of Directors granted premium price options for key executives tied to the performance of the Company's partnership units. Options totaling
2.45 million units were granted to key executives. The number of options granted was larger than the Company's typical market-price option program due to the increased risks associated with the
premium price and forfeiture provisions and was in lieu of market price options for the executives over the three-year period ended November 2000. Under the terms of the program,
participants were granted options in

45

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two tranches, each of which had a five-year option life and becomes exercisable in three years but is subject to forfeiture if certain performance criteria are not met. The second tranche
was canceled in November 2000 because price objectives were not met. In 2002, 200,313 units of the 1997 grant were exercised. The remaining balance of 690,887 units was canceled because price
objectives were not met. In November 2000, a total of 490,000 premium price options were granted to key executives. All of these options were outstanding at December 31, 2002.

In
October 2001, the Board of Directors approved a grant of 64,000 restricted units to key executives. The restrictions lapse on 50% of the units in October 2004 and on the
remainder in October 2005. An expense of $516,000 and $86,000 was recorded in 2002 and 2001, respectively, based upon the vesting provisions and market price at the date of grant.

The
per unit weighted-average fair value of non-qualified, market price options granted in 2002, 2001 and 2000 was $9.86, $8.72 and $9.35, respectively, on the date of grant
using the Black-Scholes option pricing model with the following weighted-average assumptions: 2002distribution yield of 2.35% expected volatility of 25.9%, risk-free interest
rate of 4.65% and an expected life of 10 years; 2001distribution yield of 2.62%, expected volatility of 26.7%, risk-free interest rate of 4.77% and expected life of
10 years; 2000distribution yield of 2.85%, expected volatility of 29.5%, risk-free interest rate of 6.06% and expected life of 10 years.

The
per unit weighted-average fair value of premium price options granted in 2000 was $3.82 using the Black-Scholes option pricing model with the following weighted- average assumptions:
yield of 2.4%, expected volatility of 23.3%, risk-free interest rate of 6.1% and expected life of five years.

At
December 31, 2002, 1,720,000 units were available for future grants. A summary of the status of the Company's Option/Award Plan is presented below:

Units

Weighted Average
Exercise PriceOutstanding at December 31, 1999

3,466,643

$
27.34Granted

812,912


27.58Exercised

(80,414
)

16.99Canceled

(1,225,853
)

30.22Outstanding at December 31, 2000

2,973,288


25.42Granted

402,028


29.07Exercised

(181,248
)

18.45Canceled

(30,115
)

26.21Outstanding at December 31, 2001

3,163,953


26.11Granted

504,636


31.39Exercised

(337,952
)

25.72Canceled

(725,703
)

31.11Outstanding at December 31, 2002

2,604,937

$
25.71


At
December 31, 2002 and 2001, the number of options exercisable was 1,526,636 and 2,231,101, respectively, and the weighted-average exercise price of those options was $23.54 and
$25.71, respectively.

46

---

The
following summarizes information about outstanding options at December 31, 2002:

Range of Exercise Prices

Number
Outstanding*

Weighted-Average
Exercise Price

Weighted-Average
Remaining Life$13.00-$16.75

416,350

$
14.95

2.2$19.75-$27.95

643,533


24.64

6.3$28.00-$31.40

1,459,920


29.62

6.6


---

The
following summarizes information about exercisable options at December 31, 2002:

Range of Exercise Prices

Number
Exercisable

Weighted-Average
Exercise Price$13.00-$16.75

416,350

$
14.95$19.75-$27.95

458,283


24.04$28.00-$31.40

652,003


28.66


Employee Unit Purchase Plan:Under the terms of the Employee Unit Purchase Plan, employees may have up to 15% of their base
salary withheld to purchase the Company's partnership units. The purchase price is a specified percentage (no less than 85% and no more than 100%, as determined by the Plan Administrator for each
purchase period) of the lower of the market price on the first day of the purchase period or the last day of the purchase period. At December 31, 2002, a total of 198,631 units was available
for future issuance under the plan.

Under
the plan, the Company sold 4,062, 7,340 and 8,922 units to employees in 2002, 2001 and 2000, respectively. The weighted-average fair value of the purchase discount was $2.01 for
2002, $1.78 for 2001 and $1.63 for 2000, using the Black-Scholes model with the following assumptions: expected life of seven months due to salary withholdings throughout the year; distribution yield
of 2.39% and expected volatility of 23.99% for 2002, distribution yield of 2.33% and expected volatility of 24.10% for 2001, distribution yield of 2.3% and expected volatility of 24.1% for 2000 and
risk-free interest rate of 4.81% for 2002, 6.00% for 2001 and 4.39% for 2000. Prior to the plan fiscal year ended January 31, 2002, the purchase price was equal to 85% of the lower
of the market price on either the first or last day of the purchase period. Effective for the plan year ended January 31, 2002, the purchase price is the lower of the market price on either the
first or last day of the purchase period. In addition, unit rights are granted on the purchase date, which provide the employee the right after one year to receive partnership units equivalent to 15%
of the total purchase price of units provided the employee has not sold the units purchased in the plan year prior to the vesting period of the unit rights. For the plan year ended January 31,
2002, 644 unit rights were granted.

Retirement Plans:The Retirement Plan is a defined benefit plan that is Company funded and qualified under ERISA. Generally,
all employees of the Company and subsidiaries of the Company are eligible to participate in the Retirement Plan after one year of employment and attainment of age 21. Participants' benefits
accumulated through December 31, 1996 are calculated as 40.5% of the highest average annual earnings up to Social Security covered compensation, plus 60% of average annual earnings in excess of
covered compensation, reduced pro rata for years of service less than 30. Benefits
which accumulate after January 1, 1997 are calculated as 32.4% of the Social Security wage base and 48% of the excess over covered compensation.

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

47

---

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

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

The
cost of the Company's Supplemental Executive Retirement Plan and a Retirement Plan for Directors who were retired prior to the termination of the plan in 1997 was $102,000 in 2002,
$102,000 in 2001 and $109,000 in 2000.

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

December 31,In thousands2002

2001Change in Benefit ObligationProjected benefit obligation, beginning of year

$
25,332

$
28,826Service cost


838


714Interest cost


1,804


1,946Benefits paid


(1,773
)

(5,511
)Actuarial loss (gain)


6,498


(643
)Projected benefit obligation, end of year

$
32,699

$
25,332


December 31,In thousands2002

2001Change in Plan AssetsPlan assets, beginning of year

$
17,017

$
20,901Actual loss on plan assets


(414
)

(1,944
)Employer contribution


860


3,571Benefits paid


(1,773
)

(5,511
)Plan assets, end of year

$
15,690

$
17,017Funded status

$
(17,009
)
$
(8,315
)Unrecognized transition obligation





Unrecognized prior service cost


502


594Unrecognized loss


11,652


3,416Net amount recognizedaccrued benefit cost

$
(4,855
)
$
(4,305
)Accrued benefit liability

$
(6,639
)
$
(4,305
)Intangible asset


506


Accumulated comprehensive income


1,278


$
(4,855
)
$
(4,305
)


48

---

December 31,In thousands2002

2001

2000Components of Net Periodic Benefit CostService cost

$
838

$
714

$
677Interest cost


1,804


1,946


1,715Expected return on plan assets


(1,491
)

(1,844
)

(1,671
)Amortization of unrecognized transition obligation








(34
)Amortization of unrecognized prior service cost


92


92


92Amortization of unrecognized loss


167


141


60Pension expense

$
1,410

$
1,049

$
839


The
projected benefit obligation, accumulated benefit obligation (ABO) and fair value of assets for the plan with assets less than ABO were $32,698,637, $22,309,945 and $15,689,668,
respectively at December 31, 2002 and $25,332,175, $17,507,391 and $17,017,374 at December 31, 2001.

December 31,2002

2001The assumptions used in the accounting were:Discount rate

6.75
%
7.25
%Rate of increase in compensation levels

5.00
%
5.00
%Expected long-term return of assets

9.00
%
9.00
%


Employee Savings Plan:The Company has an Employee Savings Plan, which is available to all eligible employees. Certain
employee contributions may be supplemented by the Company. Company contributions approximated $489,000 in 2002, $496,000 in 2001 and $451,000 in 2000.

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

Note 9.    Commitments and Contingencies

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

In
the ordinary course of business, and as part of the entitlement and development process, the Company is required to provide performance bonds to the County of Los Angeles and the City
of Santa Clarita to assure completion of certain public facilities. At December 31, 2002, the Company had approximately $167 million in performance bonds outstanding.

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

Note 10.    Business Segment Reporting

The Company's reportable business segments and respective accounting policies of the segments are the same as those described in
Note 2Business Segments and Summary of Significant Accounting

49

---

Policies.Management evaluates segment performance based primarily on revenues and contribution to income before allocation of incentive compensation.

Interest
income and expense are evaluated and reported on a consolidated net basis and are not allocated to the Company's business segments.

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

|                                |                             | Year Ended December 31, 2002
|------------------------------- | --------------------------- | ----------------------------
|
|Real Estate                     |                             |                             
|                                | Residential                 |                             
|                                | Industrial and commercial   |                             
|                                | Community development       |                             
|                                | Income-producing properties |                             
|                                | Valencia Water Company      |                             
|Agriculture                     |                             |                             
|Central administration          |                             |                             
|All other                       |                             |                             
|                                |                             |                             
|                                |                             |                             
|Interest and other expense, net |                             |                             
|                                |                             |                             
|Consolidated Total              |                             | $                           
|                                |                             |                             

|                                |                             | Year Ended December 31, 2001
|------------------------------- | --------------------------- | ----------------------------
|
|Real Estate                     |                             |                             
|                                | Residential                 |                             
|                                | Industrial and commercial   |                             
|                                | Community development       |                             
|                                | Income-producing properties |                             
|                                | Valencia Water Company      |                             
|Agriculture                     |                             |                             
|Central administration          |                             |                             
|All other                       |                             |                             
|                                |                             |                             
|                                |                             |                             
|Interest and other expense, net |                             |                             
|                                |                             |                             
|Consolidated Total              |                             | $                           
|                                |                             |                             

50

---



|                                |                             | Year Ended December 31, 2000
|------------------------------- | --------------------------- | ----------------------------
|
|Real Estate                     |                             |                             
|                                | Residential                 |                             
|                                | Industrial and commercial   |                             
|                                | Community development       |                             
|                                | Income-producing properties |                             
|                                | Valencia Water Company      |                             
|Agriculture                     |                             |                             
|Central administration          |                             |                             
|All other                       |                             |                             
|                                |                             |                             
|                                |                             |                             
|Interest and other expense, net |                             |                             
|                                |                             |                             
|Consolidated Total              |                             | $                           
|                                |                             |                             

All
of the Company's real estate operations are conducted on the Company's properties in north Los Angeles County. Agricultural operations are conducted on the Company's properties in
southern and central California. Accordingly, financial information based on geographic area is not presented. There were no sales by business segment to individual customers reporting more than 10%
of the Company's consolidated revenues in 2002. For 2001 and 2000, sales by business segment to an individual customer representing more than 10% of the company's consolidated revenues are as follows:

In thousands

2001

2000Industrial and Commercial

$
65,000

$
201,251


---

Note 11.    Selected Quarterly Financial Data (Unaudited)

Quarterly financial information for the Company fluctuates due to the uneven nature of real estate closing activity and the skewing of results by individual large
sales. The following is a summary of selected quarterly financial data for 2002 and 2001:

|                                       |  | Quarter
|-------------------------------------- |  | -------
|
|
|
|Revenues                               |  | $      
|Operating income                       |  |        
|Net income                             |  |        
|Net income per unitbasic*             |  |        
|Net income per unitassuming dilution* |  |        

---

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

None

51

---

PART III

Item 10.    Directors and Executive Officers of the Company

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

Newhall
Management Limited Partnership has exclusive management and control of the affairs of the Partnership and shares in Partnership income and losses on the basis of the number of
Partnership units owned by it. Newhall Management Corporation is the managing general partner of Newhall Management Limited Partnership, and makes all decisions and takes all action deemed by it
necessary or appropriate to conduct the business and affairs of Newhall Management Limited Partnership and, therefore, of the Partnership.

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

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

Gary
M. Cusumano, age 59, was appointed President and Chief Executive Officer of the Corporation in March 2001, and previously served as President and Chief Operating Officer of
the Corporation and the former managing general partner from 1989 to March 2001. Mr. Cusumano has served as a director of the Corporation since 1995 and as a General Partner of Newhall
General Partnership since 1987. Mr. Cusumano is a director of Henry Mayo Newhall Memorial Hospital, California Chamber of Commerce and the California Business Roundtable.

Thomas
V. McKernan, Jr., age 58, has served as a director of the Corporation since 1994. Mr. McKernan has been President and Chief Executive Officer of the Automobile Club of
Southern California since 1991. Mr. McKernan also serves as President and CEO of four companies affiliated with The Automobile Club of Southern California, namely: Automobile Club of Southern
California Life Insurance Company, AAA Texas, AAA New Mexico and AAA Hawaii. He is a director of Blue Shield of California, the American Automobile Association, Payden & Rygel Investment Group,
Forest Lawn Memorial Park, California Chamber of Commerce, Los Angeles Area Chamber of Commerce, Orthopaedic Hospital, California Business Roundtable, Ramona Girls School and Los Angeles Police
Foundation.

Henry
K. Newhall, age 64, has served as a director of the Corporation, the former managing general partner and the predecessor corporation, respectively, since 1982. Dr. Newhall
retired in 1998 as General Manager, Technology, Oronite Additives Division of Chevron Chemical Company. He served in various managerial and consulting positions with Chevron since 1971.

Jane
Newhall, age 89, has served as a director of the Corporation, the former managing general partner and the predecessor corporation, respectively, since 1960. Ms. Newhall, a
retired private investor, is a director of the Henry Mayo Newhall Foundation. She is a life trustee (inactive) of Mills College, the San Francisco Theological Seminary, and the Graduate Theological
Union.

52

---

Peter
T. Pope, age 68, has served as a director of the Corporation since 1992. Mr. Pope served as Chairman of Pope & Talbot, Inc. from 1990 to 2000 and as Chief
Executive Officer from 1971 until his retirement in 1999. He is a director and general partner of Pope Resources, and a director of Pope & Talbot, Inc.

Carl
E. Reichardt, age 71, has served as a director of the Corporation, the former managing general partner and the predecessor corporation, respectively, since 1980.
Mr. Reichardt was Chairman of the Board of Directors and Chief Executive Officer of Wells Fargo & Company and Wells Fargo Bank, N.A. from 1983 until 1994 and a director until 1998. He is
a director and Vice Chairman of Ford Motor Company. He also is a director of The Irvine Company, HCA Inc., PG&E Corporation, ConAgra Foods Inc. and McKesson, Inc.

Thomas
C. Sutton, age 60, has served as a director of the Corporation since 1991. He has been Chairman of the Board and Chief Executive Officer of Pacific Life Insurance Company since
1990. Mr. Sutton is a director of Pacific Life Insurance Co. (and related companies), Edison International, The Irvine Company, Association of California Life Insurance Companies, American
Council of Life Insurance, California Chamber of Commerce and Public Policy Institute of California.

Barry
Lawson Williams, age 58, has served as a director of the Corporation since 1996. Mr. Williams served as President and Chief Executive Officer of The American Management
Association International from November 2000 to June 2001. Mr. Williams also has been President of Williams Pacific Ventures, Inc., a venture capital consulting and
business mediation firm that he founded, and from 1987 until mid-2002 a general partner of WDG Ventures Ltd., a real estate development fund. Mr. Williams is a director of
PG&E Corporation, CH2M Hill, Ltd., Simpson Manufacturing Company, R.H. Donnelly & Co., USA Education, Inc. (Sallie Mae), Synavant Inc. and Kaiser Permanente. He is a
trustee of Northwestern Mutual Life Insurance Company.

Ezra
K. Zilkha, age 77, has served as a director of the Corporation, the former managing general partner and the predecessor corporation, respectively, since 1977. Since 1956,
Mr. Zilkha has been President of Zilkha & Sons, Inc., a private investment company. Mr. Zilkha has been President of 3555 Intermediate Corporation since 1991. He is a
Trustee of the International Center for the Disabled and The American Society of the French Legion of Honor, Trustee Emeritus of Wesleyan University and an Honorary Trustee of the Brookings
Institution.

Each
of the shareholder-directors may be contacted at the principal executive offices of the Partnership and is a citizen of the United States. The term of office for each director is
one year.

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

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

The
limited partnership agreement (the "Partnership Agreement") of the Partnership requires the general partners to own at least one percent (1%) of the total number of Partnership units
outstanding at all times. In order to meet this 1% requirement, the shareholder-directors had originally contributed
Partnership units as capital to the former managing general partner. The determination as to how many Partnership units each shareholder-director would contribute was based upon the shareholdings of
the

53

---

shareholder-director in the predecessor corporation and his or her ability to contribute such Partnership units in order that the general partners would own at least 1% of the total number of
Partnership units outstanding at all times.

Messrs. Henry
Newhall and Zilkha each effectively have contributed to Newhall Management Limited Partnership a total of 72,000 Partnership units. Ms. Newhall effectively
has contributed to Newhall Management Limited Partnership a total of 71,650 Partnership units. Mr. Cusumano effectively has contributed to Newhall Management Limited Partnership a total of
66,020 Partnership units. Mr. Thomas E. Dierckman, Senior Vice President of the Corporation, effectively has contributed 20 Partnership units to Newhall Management Limited Partnership.
Messrs. Reichardt, Pope, Sutton, McKernan and Williams each effectively have contributed to Newhall Management Limited Partnership a total of 2,000 Partnership units. The Partnership units
contributed to Newhall Management Limited Partnership total 291,690 or 1.24% of the total number of Partnership units outstanding at December 31, 2002.

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

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

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

The
shareholders' agreement expires if Newhall Management Corporation ceases to serve as the managing general partner of the managing general partner of the Partnership, or Newhall
Management

54

---

Limited Partnership ceases to be the managing general partner of the Partnership, if all parties to the shareholders' agreement consent to its termination, or with respect to any individual
shareholder, upon the repurchase of all the shareholder's shares.

The
term of the voting trust is limited by law to 10 years, but a party to the voting trust will be deemed to have resigned as a director of the Corporation and will have to sell
his shares, subject to repurchase by the Corporation, unless, at the times provided in the voting trust agreement, the party re-executes and renews the voting trust for the purpose of
keeping it continually in effect. In July 2000, the shareholder-directors extended the voting trust agreement for an additional 10 years. The voting trust agreement terminates if Newhall
Management Corporation ceases to serve as a general partner of the managing general partner of the Partnership, or Newhall Management Limited Partnership ceases to be the managing general partner of
the Partnership, or with respect to any individual shareholder if a shareholder no longer owns any shares.

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

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

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

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

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

Newhall
General Partnership, a California general partnership, is a general partner for the purposes of continuing the business of the Partnership and serving as an interim managing
general partner if Newhall Management Limited Partnership or its successor ceases to serve as managing

55

---

general partner. So long as Newhall Management Limited Partnership or its successor remains as managing general partner, Newhall General Partnership will have no right to take part in the management
and control of the affairs of the Partnership.

The
general partners of Newhall General Partnership are Newhall Management Limited Partnership, the chief executive officer of Newhall Management Corporation and another officer or
director of Newhall Management Corporation selected from time to time by the board of directors of Newhall Management Corporation. Gary M. Cusumano and Thomas E. Dierckman are general partners of
Newhall General Partnership. For as long as Newhall Management Limited Partnership serves as a general partner of the Partnership, Newhall Management Limited Partnership shall serve as a general
partner of Newhall General Partnership and the individual general partners of Newhall General Partnership shall be the chief executive officer of Newhall Management Corporation and another officer or
director selected by the board of directors of Newhall Management Corporation.

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

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

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

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

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

56

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

Executive Officers of the Corporation

|                                                                                                                                            |  | Age |  | Date of
Office              
|------------------------------------------------------------------------------------------------------------------------------------------- |  | --- |  | ----------------------------
|Gary M. CusumanoPresident and Chief Executive Officer
President and Chief Operating Officer                                                 |  | 59  |  | 03/01
07/89                 
|Thomas E. DierckmanSenior Vice PresidentValencia Division
Senior Vice PresidentCommercial and Industrial, Valencia Division               |  | 54  |  | 03/01
09/94                 
|Stuart R. MorkSenior Vice President and Chief Financial Officer (1)
Vice President and Chief Financial Officer                              |  | 50  |  | 01/96-03/03
01/95           
|Daniel N. BryantVice PresidentAsset Management
DirectorAsset Management                                                                   |  | 43  |  | 01/98
07/96                 
|Kevin C. FarrVice PresidentResidential, Valencia Division
Executive Vice PresidentValencia Company
Senior Vice PresidentValencia Company |  | 42  |  | 01/01
09/99
03/98           
|Donald L. KimballVice President and Chief Financial Officer (interim)(2)
Vice PresidentFinance and Controller
Vice PresidentController    |  | 45  |  | 03/03
01/97
07/94           
|Margaret M. LaufferVice PresidentMarketing and Communications
Vice PresidentCorporate Communications                                      |  | 43  |  | 12/00
12/94                 
|Ross J. PistoneVice PresidentOperations
Senior Vice PresidentValencia Company                                                             |  | 47  |  | 01/98
12/95                 
|Steven D. ZimmerVice PresidentNewhall Ranch Division
PartnerRupp, Holmberg & Zimmer                                                       |  | 55  |  | 07/99
01/92-07/99           
|Edward C. GiermannSecretary and General Counsel
PartnerSmiland & Khachigian
Vice President, Secretary and General CounselJ.G. Boswell Co. |  | 55  |  | 10/02
10/00-06/02
9/81-10/00

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

57

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Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Corporation's executive officers and directors, the general partners, and
persons who own more than ten percent of the Company's Partnership units, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. The Company assists its
executive officers', directors' and general partners' filing of their Section 16(a) reports and retains a copy of the forms filed. Based upon our review of copies of the reports and on written
statements from our executive officers, directors and general partners, the Company believes that all such forms were filed on a timely basis by the executive officers, directors and general partners
during 2002 except once, in September 2002 when (i) in regard to an automatic transaction for all its reporting officers (except Vice PresidentMarketing and Communications
and the Secretary and General Counsel) and directors, Forms 4 for them applicable to the automatic transaction were filed after the new Sarbanes-Oxley Act filing deadline and (ii) in one
instance, with regard to a non-automatic transaction for the reporting officers (except the Secretary and General Counsel), Forms 4 were filed after the new Sarbanes-Oxley Act filing
deadline.

Item 11.    Executive Compensation

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

Summary Compensation Table

|                                                                |  |                |  |   |                         |  |   |                         |  | Long Term Compensation |                      | 
|--------------------------------------------------------------- |  | -------------- |  | - | ----------------------- |  | - | ----------------------- |  | ---------------------- | -------------------- | 
|
|
|Gary M. CusumanoPresident and Chief Executive Officer           |  | 2002
2001
2000 |  | $ | 488,100
410,200
336,000 |  | $ | 590,700
823,934
543,200 |  | $                      | 68,156
66,000
66,500 | 
|Thomas E. DierckmanSenior Vice President                        |  | 2002
2001
2000 |  |   | 245,600
251,400
271,000 |  |   | 185,318
285,600
286,650 |  |                        | 65,242
50,513
6,050  | 
|Stuart R. MorkSenior Vice President and Chief Financial Officer |  | 2002
2001
2000 |  |   | 309,600
298,100
275,000 |  |   | 185,318
259,350
254,150 |  |                        | 1,823
2,747
600      | 
|Ross J. PistoneVice President                                   |  | 2002
2001
2000 |  |   | 174,400
159,200
150,000 |  |   | 90,000
110,656
108,045  |  |                        | 114                  | 
|Steven D. ZimmerVice President                                  |  | 2002
2001
2000 |  |   | 220,700
199,200
190,000 |  |   | 107,604
138,220
123,165 |  |                        | 3,606                | 

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Option / SAR Grants in Last Fiscal Year

|                    |  | Individual Grants |  |   
|------------------- |  | ----------------- |  | --
|
|
|Gary M. Cusumano    |  | 80,000            |  | 16
|Thomas E. Dierckman |  | 36,000            |  | 7 
|Stuart R. Mork      |  | 36,000            |  | 7 
|Ross J. Pistone     |  | 16,000            |  | 3 
|Steven D. Zimmer    |  | 16,000            |  | 3 

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Aggregated Option / SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option / SAR Values

|                    |       |       |        |   |         | Number of
Securities Underlying
Unexercised Options/SARs
at Fiscal Year-End |         |         |         |        
|------------------- | ----- | ----- | ------ | - | ------- | --------------------------------------------------------------------------- | ------- | ------- | ------- | -------
|
|
|
|Gary M. Cusumano    |       | 8,382 |        | $ | 277,875 |                                                                             | 173,167 |         | 113,333 |        
|Thomas E. Dierckman |       | 5,597 |        |   | 186,000 |                                                                             | 122,333 |         | 62,667  |        
|Stuart R. Mork      |       | 3,353 |        |   | 111,150 |                                                                             | 124,333 |         | 62,667  |        
|Ross J. Pistone     |       |      |        |   |        |                                                                             | 48,350  |         | 39,750  |        
|Steven D. Zimmer    |       |      |        |   |        |                                                                             | 14,250  |         | 36,750  |        
|                    |       |       |        |   |         |                                                                             |         |         |         |        
|                    | Total |       | 17,332 |   | $       | 575,025                                                                     |         | 482,433 |         | 315,167
|                    |       |       |        |   |         |                                                                             |         |         |         |        

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Employee Benefit Plans

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

Retirement Plans

The Newhall Land and Farming Company Retirement Plan was amended and restated January 1, 2002 to conform to changes required or permitted under the
Economic Growth and Tax Relief Reconciliation Act of 2001. The Internal Revenue Service ruled favorably on the changes June 10, 2002.

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

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

|         |  | Years of Service
|-------- |  | ----------------
|
|
|$125,000 |  | $               
|200,000  |  |                 
|275,000  |  |                 
|350,000  |  |                 
|425,000  |  |                 
|450,000  |  |                 
|500,000  |  |                 
|550,000  |  |                 
|600,000  |  |                 
|750,000  |  |                 
|800,000  |  |                 
|850,000  |  |                 
|900,000  |  |                 
|975,000  |  |                 

Credited
years of service as of December 31, 2002 (to the nearest whole year) and average annual compensation for the highest five years of the last ten years are as follows:
33 years and $951,000 for Mr. Cusumano; 20 years and $490,000 for Mr. Dierckman; 15 years and $501,000 for Mr. Mork; 16 years and $227,000 for
Mr. Pistone and 4 years and $209,000 for Mr. Zimmer.

Retention and Change of Control Severance Programs

The Partnership has entered into severance agreements with Messrs. Cusumano, Dierckman, Mork, Pistone, Zimmer, other vice presidents and the secretary,
which agreements provide benefits in the event of a "change of control." Under the provisions of the severance agreements, a "change of control" is deemed to have occurred when (i) any "person"
(other than a trustee or similar person holding securities under an employee benefit plan of the Partnership, or an entity owned by the unitholders in substantially the same proportions as their
ownership of units) becomes the beneficial owner of 25% or more of the total voting power represented by the Partnership's then outstanding voting securities, (ii) Newhall Management
Corporation is removed as managing general partner of Newhall Management Limited Partnership, (iii) the holders of the voting securities of the Partnership approve a merger or consolidation of
the Partnership with any other entity, other than a merger or consolidation which would result in the voting securities of the Partnership outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 75% of the total voting power represented by the voting securities of the Partnership or
such surviving entity outstanding immediately after such merger or consolidation, or (iv) a plan of complete liquidation of the Partnership is adopted or the holders of the voting securities of
the Partnership approve an agreement for the sale or disposition by the Partnership (in one transaction or a series of transactions) of all or substantially all the Partnership's assets. Entitlement
to benefits arises if, within two years following a change of control, the executive officer's employment is terminated or if he or she elects to terminate his or her employment following action by
the Partnership which results in (i) a reduction in salary or other benefits, (ii) change in location of employment (iii) a change in position, duties, responsibilities or status
inconsistent with the executive officer's prior position or a reduction in responsibilities, duties, or offices as in effect immediately before the change in control, or (iv) the failure of the
Partnership to obtain express assumption by any successor of the Partnership's obligations under the severance agreement.

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

Effective
March 2001, the Partnership entered into retention agreements with Messrs. Cusumano, Dierckman and Mork, which agreements provide severance benefits in the event
the respective executive's employment is involuntarily terminated without cause and which termination did not arise from a change of control described above. Benefits payable to Mr. Cusumano
under the retention agreement consist of (i) payment in a single lump sum equal to three times his then current base salary (including general partner fees) on the termination date,
(ii) payment in a single lump sum equal to three times the average of the bonus payments for the three years preceding the termination date, and (iii) immediate vesting of unit options
and other unit-based rights or compensation. In the event the involuntary without cause termination occurs in the last two calendar quarters, a pro-rated bonus will be payable
by the Partnership at the same time and under the same terms as the Partnership's annual incentive bonuses for that year. The benefits payable to Messrs. Dierckman and Mork are similar to
Mr. Cusumano's except that base salary and bonus lump sum amounts would be equal to two times their respective base salary and three-year average bonus. Benefits payable under the
retention agreements are in lieu of any severance benefits under the change of control severance agreement described above, or the Partnership's general severance policy.

In
February 2003, Mr. Mork announced his resignation as Senior Vice President and Chief Financial Officer effective March 1, 2003. No disagreements about accounting
or reporting matters, or the Company's ability to comply with the provisions of the Sarbanes-Oxley Act of 2002 or related Securities and Exchange Commission and New York Stock Exchange regulations and
listing requirements attended Mr. Mork's resignation. In conjunction with his resignation, Mr. Mork and the Partnership entered into a severance agreement (filed as an Exhibit to the
Annual Report on Form 10-K). This agreement terminates, supersedes and is in lieu of any benefits payable under the change of control agreement and the retention agreement discussed
above. Benefits provided under the severance agreement are comparable to those provided in the change in control and retention agreements.

Compensation of the Directors

The Partnership Agreement provides that the compensation of the general partners and their partners, directors, officers and employees shall be determined by
Newhall Management Limited Partnership. Both the Compensation Committee and the Nominating/Corporate Governance Committee of the Board of Directors of Newhall Management Corporation, the managing
general partner of Newhall Management Limited Partnership, have been granted authority by the Board of Directors to determine
certain compensation issues. Non-employee members of the Board receive annual retainer fees of $24,000 for serving on the Board, $2,000 for serving on the Audit Committee

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and $1,000 for serving on any other committee of the Board. In addition, non-employee directors receive a fee of $1,000 for attending each meeting of the Board or committee of which they
are a member. Committee chairpersons receive a fee of $500 in addition to the regular meeting fee for each committee meeting they conduct. Employees serving on the Board of Directors do not receive
directors' fees. Directors' compensation may be deferred until separation from the Board. Deferred amounts earn interest at the Wells Fargo Bank prime rate. Members of the Board of Directors will also
receive reimbursement for travel and other expenses related to attendance at meetings of the Board of Directors and of the committees. In addition, the Partnership Agreement requires the Partnership
to reimburse Newhall Management Limited Partnership for any federal or California income taxes imposed upon the managing general partner or its managing general partner as a result of its activities
as managing general partner. Under the terms of the 1995 Option/Award Plan and the terms of the 2002 Equity Compensation Plan each non-employee Board member may elect to have all or any
portion of his or her annual retainer fees paid in Partnership units or in options thereon instead of cash.

The
1995 Option/Award Plan provided and the 2002 Equity Compensation Plan provides each non-employee director who served on the Board on January 18, 1995, and each
subsequent newly elected or appointed non-employee director, with a non-statutory option ("Automatic Option") to purchase 1,500 depositary units. On the third Tuesday of July
of each year that occurs after January 18, 1995, each continuing non-employee director will automatically receive an Automatic Option to purchase 500 Partnership units. Each
Automatic Option vests immediately and has a term of 10 years. Generally, the non-employee director may exercise his or her option for a period of 3 months after termination
of service as a non-employee director for any reason other than death or "retirement," 12 months after the date of death and 36 months after the date of "retirement."
"Retirement" means the first day the non-employee director ceases to serve as a non-employee director after serving as a non-employee director for at least five
years.

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

Compensation Committee Interlocks and Insider Participation

In June 1994, Valencia Water Company, a wholly-owned subsidiary of the Company, borrowed $11 million from Pacific Life Insurance Company at a rate
of 8% per annum. The terms of the loan require semi-annual interest payments with principal due at maturity. Interest payments for the year ended December 31, 2002 totaled $880,000.
In addition, in 1994 the Company acquired a variable life insurance policy for Mr. Cusumano with a face amount of approximately $1.5 million from Pacific Life. The policy for Gary M.
Cusumano remains in force. The annual premium cost in 2002 was $50,000. The Company will not fund the policy in 2003. Thomas C. Sutton, a director of the Corporation, is Chairman of the Board and
Chief Executive Officer of Pacific Life Insurance Company.

Mr. Cusumano,
President and CEO of the Company, holds investment interests in the amount of $7,500 in each of VTC Hotel Company and TP Golf Company. VTC Hotel Company leases the
Hyatt Valencia and Santa Clarita Conference Center from the Company and has an agreement with Hyatt Hotel Corporation to operate the hotel and related facilities. TP Golf Company is a joint venture
partner in WR Golf Company LLC, the operator of the TPC Golf Course, which is located within the Company's Westridge development.

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

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Report of the Compensation Committee of the Board of Directors of Newhall Management Corporation

Compensation Committee Charter

The Compensation Committee, which is comprised of independent directors, evaluates the performance of the Chief Executive Officer, determines or approves
compensation of all executive officers of the Company and reviews management development issues. It has regularly scheduled meetings two times a year, and meets at other times as appropriate. During
2002, the Committee met two (2) times.

Senior Management Compensation Philosophy

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



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

Base Salary Compensation

The base salary for each executive officer is determined on the basis of an evaluation of the responsibilities of each position compared to other positions in the
Company and to base salary levels in effect for comparable positions at the Company's principal competitors for executive talent. In addition, the qualifications of the executive officer, including
training and experience, is considered in determining base salary. Salaries are reviewed periodically and adjustments may be made, as appropriate, to each executive officer's base salary. External
salary data provided to the Committee by independent compensation survey and consulting firms indicate that salaries for 2002 generally were at median level.

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Annual Merit and Incentive Compensation (Bonuses)

For 2002, the annual bonuses paid under the Company's Executive Incentive Plan were determined on the basis of the Company's earnings, the net cash generated for
unit repurchases and attainment of individual goals. Target earnings, target net cash flow generation and individual goals were developed at the beginning of the year. Target bonuses are determined as
percentages of base salaries for each management group based upon ability to influence the success of the Company and are generally set to produce bonuses comparable to other real estate companies
over a period of time. At the end of the year, bonuses were determined by utilizing the percentages of Company and individual goals achieved as compared to the Company and individual goals determined
at the beginning of the year. The aggregate amount of such incentive bonuses may not exceed 7% of the Company's net income after deducting the incentive awards. The target bonuses (except for
Mr. Cusumano's bonus) are recommended by the Company's Chief Executive Officer, Mr. Cusumano, and approved by the Compensation Committee and the Board of Directors.

Senior
executives are paid a portion of their current year's bonus in Partnership units until they reach their unit ownership guidelines described below. Additionally, any manager may
elect to receive all or any part of his or her annual bonus in Partnership units and to defer receipt of such Partnership units for up to five (5) years.

The
total of the bonuses paid for 2002 was $2.88 million (or 7.0% of 2002 income after deducting bonuses), versus $4.02 million in 2001 (or 4.4% of income after deducting
bonuses).

The
incentive targets for 2002 were focused on net cash generation for the Company's unit repurchase program, the same focus as for 2001, but a change from the prior years' targets that
focused incentives on the Company's earnings. For purposes of the Incentive Plan, "net cash generation" included cash from all sources including operations, land sales and asset sales, minus all uses
of cash, including operating expenses, infrastructure and inventory expenditures, principal reductions required by asset sales, Partnership distributions and capital expenditures. Approximately 570%
of the targeted "net cash generation" was achieved for 2002.

Long-Term Incentive Compensation

The Committee endorses the view that equity ownership of the Company aligns management's and unitholders' interests and thereby enhances unitholders' value. The
equity component of long-term incentive compensation includes unit options, appreciation rights, restricted units, unit rights and bonuses paid in Partnership units (described above) under
the Company's: (a) 1995 Option/Award Plan and (b) 2002 Equity Compensation Plan (which was approved by the Board of Directors in 2002 and which supersedes the 1995 Plan). Option awards
are generally made at mid-year to key management personnel who are in positions to make substantial contributions to the long-term success of the Company. These awards vest and
are expected to grow in value over time and for that reason represent compensation which is attributable to service over a period of up to ten years. This focuses attention on managing the Company
from the perspective of an owner with an equity stake in the business.

The
size of the unit options granted to each executive officer is based on the aggregate exercise price. Generally it is set at a multiple of salary which the Committee deems appropriate
in order to create a meaningful opportunity for ownership based upon the individual's current position with the Company. The unit options granted also take into account comparable awards to
individuals in similar positions in the industry, as reflected in external surveys, and the individual's potential for future responsibility and promotion over the option term.

The
Company adopted unit ownership guidelines for senior executives, which encourage senior executives to own units having a market value of at least 50% of base salary. As an inducement
to purchase Partnership units, the Company offers one unit right for every five units purchased. A unit

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right entitles the recipient to receive one Partnership unit for each unit right. Historically, unit rights vested at the rate of 20% a year over a five-year period. Unit rights granted
after July 2000 vest at the rate of 331/3% per year over a three-year period.

In
November 1997, a special grant of premium price options was made to the Company's senior executive officers to provide them additional incentive to deliver
near-term, substantial price growth in the outstanding Partnership units and to enhance their incentive compensation to be more comparable with that of other publicly-traded real estate
companies. The options were granted in two tranches, both of which were exercisable in three years provided certain price performance objectives were met. The first tranche vesting requirements
provided that the optioned units granted in the tranche would vest if during the three-year period commencing on the date of grant: 1) the unit market price of the Partnership units
increased by 25% from the date of grant (to $31.30 per unit) and that unit market price was sustained or exceeded for at least ten of twenty consecutive trading days; or 2) total return on a
Partnership unit equaled or exceeded the 75th percentile of shares of a peer group of other publicly-traded real estate companies. The first tranche vested during 1998 because the price
requirement was met. The second tranche would have vested if: 1) the unit market price of the Partnership units increased by 331/3% from the date of grant (to $33.39 per unit)
and was sustained or exceeded for at least ten of twenty consecutive trading days; or 2) met the total return requirement previously described. Neither the unit price requirement nor the total
return requirement for the second tranche were accomplished during the requisite three-year period. Consequently, the second tranche premium price
options expired. The first tranche of the premium price options that vested in 1998 expired November 19, 2002. With the exception of 200,313 options exercised by former Chief Executive Officer,
Thomas L. Lee in the 2002 second quarter, no first tranche options were exercised because the closing price on the expiration date was not greater than $31.30 per unit.

The
premium price options were intended to replace market price options for three years. Consequently, no options were granted to the senior executive officers during the subsequent
three-year period. At the end of the three-year period, the Compensation Committee requested an independent compensation consulting firm to assess senior executive
compensation, including long-term incentive compensation, as compared to other publicly-held real estate companies. The assessment determined that senior executive total
compensation generally was below the median for the Company's competitors. Consequently, in November 2000 the Committee granted new premium price options to four senior executive officers at an
exercise price of $28.00, which was approximately 21.5% above the then current unit market price. The options vest at a rate of 331/3% per year commencing on the first anniversary date
of the grant and will expire five years following the grant date.

In
2001, the Committee requested an independent compensation consulting firm to generally assess senior executive long-term incentive compensation as compared to other real
estate companies. The assessment indicated the Company's long-term incentive compensation paid to senior executives was below median levels for other real estate companies. The assessment
also indicated the prevalence of premium price option grants have declined; options are not the exclusive form of long-term incentive compensation; and several other companies have
utilized restricted stock to provide balance to their long-term incentive compensation packages. Consequently, in October 2001 the Committee granted restricted units to the three
senior executive officers, which grants were intended to make the respective executive's long-term incentive compensation comparable to the median-level long-term incentive
compensation for comparable executive positions at other real estate companies. The restricted units vest 50% on the third anniversary of the grant date and 50% on the fourth anniversary of the grant
date.

Also
in 2001, the Committee adopted a retention incentive program for the executive officers and certain other officers and managers that is intended to retain and incent the employees
to achieve the Company's key objectives over the next several years. The benefit payable under the program will be a cash payment equal to the respective employee's annual base salary on the "trigger
date," but payable

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in two equal installments. The first installment (50% of base salary) would be paid as soon as practicable following the "trigger date," and the second installment would be payable one year after the
"trigger date." The "trigger date" is deemed to be the achievement of certain specified long-term Company goals. The Compensation Committee has the discretion in determining whether the
goals have been achieved.

The
Newhall Land and Farming Company 2002 Equity Compensation Plan was implemented September 1, 2002, to enable the Company to offer options, appreciation rights, restricted units
and unit rights ("Awards") to employees of the Partnership and any affiliates thereof as an incentive for them to remain in the service of the Company (or its affiliated entities). In addition, the
Plan provides for
automatic grants to non-employee members of the Board of Directors of the managing general partner or its managing general partner.

The
2002 Plan became effective and superseded The Newhall Land and Farming Company 1995 Option/Award Plan, as amended, on September 1, 2002. Awards granted under the 1995 Plan and
The Newhall Land and Farming Company Option, Appreciation Rights and Restricted Units Plan, as amended and restated (together with the 1995 Plan, the "Prior Plans"), will continue in accordance with
the terms of the agreements evidencing such Awards and the Prior Plans. No further Awards will be granted under the Prior Plans.

Chief Executive Officer Compensation

Mr. Cusumano's base salary was $488,100 for 2002. In addition, during 2002 he was paid general partner fees of $60,000 for managing Newhall General
Partnership, a general partner of the Company. Mr. Cusumano also was paid a bonus for 2002 of $590,700 for total "cash" compensation of $1,139,300 for 2002. Mr. Cusumano's 2002 bonus was
approximately 215% of his target bonus, which was approximately 50% of his base compensation (including general partner and director fees) pursuant to the Company's Executive Incentive Plan (see
description of Annual Merit and Incentive Compensation (Bonuses)). As previously described, targeted net cash generation was determined at the beginning of the year to incent management to generate
"net cash" for the Company's unit repurchase program. Mr. Cusumano's targeted incentive bonus was dependent entirely on the Company's net cash generation during the year. The calculation to
determine the amount of the bonus earned was based entirely on the Company's achievement of targeted net cash generation, which net cash substantially exceeded the target. However, the amount actually
paid was reduced due to limits (based on the Company's earnings) in the Executive Incentive Plan.

Mr. Cusumano
also received an option grant of 80,000 units pursuant to the Company's 1995 Option/Award Plan. The benefits of this grant, as well as previously granted premium
price and market price options, were expected to be realized over the next three to five years during which Mr. Cusumano's strategic initiatives are expected to yield benefits to the Company's
investors.

Section 162 Limit

Section 162(m) of the Internal Revenue Code limits federal income tax deductions for compensation paid to the Chief Executive Officer and other highly
compensated officers of a public company to $1 million per year, but contains an exception for performance-based compensation that satisfies certain conditions. The Company has been advised
that Section 162(m) does not apply to limited partnerships such as the Company.

Compensation
Committee of the Board of Directors of Newhall Management Corporation:



The
preceding Compensation Committee Report and the following Stock Price Performance graphs shall not be deemed incorporated by reference into any filing under the Securities Act of
1933 or under the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under such
Acts.

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The Newhall Land and Farming Company
Stock Performance Analysis

Five-Year Total Return

GRAPHIC

Ten-Year Total Return

GRAPHIC

Assumes
$100 invested on December 31, 1997 for the 5-year graph and December 31, 1992 for the 10-year graph. Total return includes reinvestment of
dividends. Returns are compounded annually.

---

68

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Item 12.    Security Ownership of Certain Beneficial Owners and Management

Directors and Officers

The following table sets forth the number of units beneficially owned by each director of Newhall Management Corporation, each of the Company's five highest paid
executive officers, and all directors and officers as a group as of February 28, 2003.

Name

Amount and Nature
of Beneficial Ownership

Percent
of Class(%)Gary M. Cusumano

358,395
(1)(2)(3)(5)
1.53Thomas E. Dierckman

176,623
(1)(2)(3)(5)(6)
*Thomas V. McKernan, Jr.

21,073
(1)(3)(4)
*Stuart R. Mork

162,876
(2)(3)(5)(6)
*Henry K. Newhall

324,333
(1)(3)(4)(7)
1.38Jane Newhall

455,878
(1)(3)(4)
1.95Ross J. Pistone

57,371
(3)(5)(6)
*Peter T. Pope

32,246
(1)(3)(4)
*Carl E. Reichardt

99,329
(1)(3)(4)(8)
*Thomas C. Sutton

22,039
(1)(3)(4)(9)
*Barry Lawson Williams

12,921
(1)(3)(4)
*Ezra K. Zilkha

1,235,934
(1)(3)(4)(10)
5.27Steven D. Zimmer

25,099
(3)(5)
*All directors and officers as a group (20 persons)

3,199,475
(11)
13.65


---

69

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

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

70

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Certain Unitholders

The following table sets forth information about unitholders who beneficially own more than 5% of outstanding Partnership units as of December 31, 2002.

Name and Address

Number of Units
Beneficially Owned

Percent
Of ClassState Farm Mutual Automobile
Insurance Company, and
related entities(a)
One State Farm Plaza
Bloomington, Illinois 61710-0001

3,400,758

14.46
%Highfields Capital Management LP(b)
Highfields GP LLC
Jonathon S. Jacobsen
Richard L. Grubman
Highfields Capital II LP
c/o Highfields Capital Management LP
200 Clarendon Street
Boston, Massachusetts 02117

2,534,100

10.78
%Leon G. Cooperman(c)
c/o Omega Associates, LLC
88 Pine Street, 31st Floor
New York, New York 10005

2,028,900

8.63
%Ezra K. Zilkha(d)
c/o Zilkha & Sons, Inc.
767 Fifth Avenue
New York, New York 10153

1,235,934

5.26
%


---

71

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The
following table sets forth certain information regarding the Company's equity compensation plans as of December 31, 2002. For information regarding the significant features of
the Company's plans, refer to Note 8 of the Notes to Consolidated Financial Statements section in this Annual Report.

|Plan Category                                         |  | Number of partnerhip units to be issued upon exercise of outstanding options, warrants and rights
(a) |  | Weighted-average exercise price of outstanding options, warrants and rights
(b) |       | Number of partnership units remaining available for future issuance under equity compensation plans (excluding partnership units reflected in column (a))
(c) |          
|----------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------- | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------
|Equity compensation plans approved by unitholders     |  |                                                                                                      |  |                                                                                 |      |                                                                                                                                                               |         
|                                                      |  |                                                                                                       |  |                                                                                 |       |                                                                                                                                                               |          
|Equity compensation plans not approved by unitholders |  | 2,604,937                                                                                             |  | $                                                                               | 25.71 |                                                                                                                                                               | 1,918,631
|                                                      |  |                                                                                                       |  |                                                                                 |       |                                                                                                                                                               |          
|Total                                                 |  | 2,604,937                                                                                             |  | $                                                                               | 25.71 |                                                                                                                                                               | 1,918,631
|                                                      |  |                                                                                                       |  |                                                                                 |       |                                                                                                                                                               |          

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Item 13.    Certain Relationships and Related Transactions

Barry Lawson Williams, director of the Corporation, also is a director of CH2M Hill, Ltd. and Kaiser Permanente. For the year ended December 31,
2002, the Company paid to CH2M Hill, Ltd. $1,112,000 for consulting and engineering services rendered in the Company's community development planning, and paid to Kaiser Foundation Health
$227,000 in employee health insurance premiums. The Company expects that payments to CH2M Hill in 2003 will be comparable to 2002 where as payments to Kaiser Foundation Health are expected to be
higher in 2003 due to increasing health insurance premiums.

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

For
additional related party information see the section entitled "Compensation Committee Interlocks and Insider Participation" underItem
11"Executive Compensation."

Independent Accountants

During the past several years, the Securities and Exchange Commission has promulgated rules governing independence of accountants and disclosure requirements
applicable to certain public companies. The disclosure requirements require public companies to provide information concerning the company's board of directors, audit committee and its independent
accountants in the company's proxy statement sent to its shareholders. The Company, as a partnership, does not provide an annual proxy statement to its holder of its partnership units. Consequently,
the Company is not required to provide the information to its unitholders. However, the Company is providing the information voluntarily.

Audit Committee Report

In accordance with its written charter, the Newhall Management Corporation Board of Directors Audit Committee's (the "Audit Committee" or the "Committee) primary
function is to assist the Board of Directors in fulfilling its oversight responsibilities by reviewing the Company's financial information, the Company's systems of internal controls and audit and
financial reporting processes. The Committee was comprised of Messrs. McKernan, Newhall, Sutton and Williams. Mr. Sutton served as chairman of

72

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the Committee. Each of the members of the Audit Committee is independent as determined by the Board of Directors pursuant to the listing standards of the New York Stock Exchange.

Management
is responsible for the Company's financial reporting process including its system of internal control, and for the preparation of consolidated financial statements in
accordance with generally accepted accounting principles. The Company's independent accountants are responsible for auditing those financial statements. The Committee's responsibility is to monitor
and review these processes. It is not our duty or our responsibility to conduct auditing or accounting reviews or procedures. The members of the Audit Committee are not and may not represent
themselves to be or to serve as, accountants or accountants by profession or experts in the fields of accounting or auditing. Therefore, the Committee members have relied, without independent
verification, on management's representation that the financial statements have been prepared with integrity and objectivity and in conformity with accounting principles generally accepted in the
United States of America and on the representations of the Company's independent accountants included in their report on the Company's financial statements. The Committee's oversight does not provide
us with an independent basis to determine that management has maintained appropriate accounting and financial reporting principles or policies, or appropriate internal controls and procedures designed
to assure compliance with accounting standards and applicable laws and regulations. Furthermore, the Committee's considerations and discussions with management and the independent accountants do not
assure that the Company's financial statements are presented in accordance with generally accepted accounting principles, that the audit of our Company's financial statements has been carried out in
accordance with generally accepted auditing standards or that the Company's independent accountants are in fact "independent."

In
this context, the Audit Committee has reviewed and discussed with management and the independent accountants the Company's audited financial statements for the year ended
December 31, 2002. Management represented to the Audit Committee that the Company's financial statements were prepared in accordance with generally accepted accounting principles. The Committee
has discussed with the independent accountants the matters required to be discussed by the Statement of Auditing Standards No. 61,Communication With Audit
Committees.

The
Company's independent accountants provided to the Audit Committee the written disclosures required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees,
and the Audit Committee discussed with the independent accountants their independence from the Company
and its management.

Based
on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2002, to be filed with the Securities and Exchange Commission.

This
report is respectfully submitted by the members of the Audit Committee of the Board of Directors of Newhall Management Corporation:

Thomas
C. Sutton, Chairman
Thomas V. McKernan, Jr.
Henry K. Newhall
Barry Lawson Williams

The
preceding Audit Committee Report shall not be deemed incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act of 1934, except to the extent that
the Company incorporates it by reference, and shall not otherwise be deemed filed under such Acts.

73

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Independent Accountant Fees

The Audit Committee received the following information concerning the fees paid to the Company's independent accountants for services rendered for the year ended
December 31, 2002, and has
considered whether the provision of these services is compatible with maintaining the independence of the independent accountants:

(in $000)Audit Fees

$
210
(a)Audit-Related Fees


19
(b)Tax Fees


12
(c)All Other Fees


13
(d)


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Item 14.    Controls and Procedures

Within 90 days prior to the date of this report, an evaluation was performed under the supervision and with the participation of the Company's management,
including the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the Company's disclosure controls and procedures. Based on that evaluation, the Company's management, including the Chief Executive Officer and Chief
Financial Officer, concluded that the Company's disclosure controls and procedures were effective. There have been no significant changes in the Company's internal controls or in other factors that
could significantly affect internal controls subsequent to the date of their evaluation.

74

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PART IV

Item 15.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K

|(a)    Documents filed with this report:
|----------------------------------------
|1.                                      
|2.                                      
|3.                                      
|                                        
|                                        
|                                        
|*                                       
|*                                       
|*                                       
|*                                       
|*                                       
|*                                       
|*                                       
|                                        

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|  |  | (h) | Form of Indemnification Agreement between the Partnership and its General Partners and the general partners, partners, shareholders, officers and directors of its General Partners, or of the Managing General Partner of the Managing General Partner,
as amended, incorporated by reference to Exhibit 28(g) to the Company's report on Form 8-K filed December 11, 1990 (Commission File Number 1-8885).
|- |  | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |  | (i) | Tax Payment and Tax Benefit Reimbursement Agreement incorporated by reference to Exhibit 28(f) to the Company's report on Form 8-K filed December 11, 1990 (Commission File Number 1-8885).                                                                                                                                                                                                                 
|* |  | (j) | The Newhall Land and Farming Company Deferred Cash Bonus Plan incorporated by reference to Exhibit 10(l) of the Company's Annual Report on Form 10-K for the year ended December 31, 1990 (Commission File Number 1-8885).                                                                                                                                                                                  
|* |  | (k) | Form of award issued under The Newhall Land and Farming Company Deferred Cash Bonus Plan incorporated by reference to Exhibit 10(m) of the Company's Annual Report on Form 10-K for the year ended December 31, 1990 (Commission File
Number 1-8885).                                                                                                                                                       
|* |  | (l) | The Newhall Land and Farming Company Employee Savings Restoration Plan As Amended Effective January 1, 1999, incorporated by reference to Exhibit 10(d) of the Company's Report on Form 10-Q for the quarter ended September 30, 1998
(Commission File Number 1-8885).                                                                                                                                      
|* |  | (m) | The Newhall Land and Farming Company Pension Restoration Plan (As amended through July 15, 1998) incorporated by reference to Exhibit 10(c) of the Company's Report on Form 10-Q for the quarter ended September 30, 1998 (Commission
File Number 1-8885).                                                                                                                                                  
|  |  | (n) | Trust Agreement dated January 15, 1992 between the Partnership and Newhall Management Corporation incorporated by reference to Exhibit 10(p) to the Company's Annual Report on Form 10-K for the year ended December 31, 1991
(Commission File Number 1-8885).                                                                                                                                              
|  |  | (o) | The Newhall Land and Farming Company Employee Unit Purchase Plan incorporated by reference to the Company's Registration Statement on Form S-8 dated May 24, 1994 (Commission File Number 33-53767).                                                                                                                                                                                                        
|* |  | (p) | Amendment No. 1 to The Newhall Land and Farming Company Retirement Plan incorporated by reference to Exhibit 10(r) of the Company's Annual Report on Form 10-K for the year ended December 31, 1994 (Commission File Number
1-8885).                                                                                                                                                                        
|  |  | (q) | The Newhall Land and Farming Company Deferred Equity and Compensation Plan for Outside Directors incorporated by reference to the Company's Registration Statement on Form S-8 dated November 1, 1996 (Commission File Number
333-15303).                                                                                                                                                                   
|* |  | (r) | Amendment No. 2 to The Newhall Land and Farming Company Retirement Plan dated August 1, 1996 incorporated by reference to Exhibit 10(r) the Company's Annual Report on Form 10-K for the year ended December 31, 1996 (Commission
File Number 1-8885).                                                                                                                                                      
|* |  | (s) | Amendment No. 3 to The Newhall Land and Farming Company Retirement Plan dated July 15, 1998, incorporated by reference to Exhibit 10(a) of the Company's Report on Form 10-Q for the quarter ended September 30, 1998 (Commission
File Number 1-8885).                                                                                                                                                      
|* |  | (t) | Amendment No. 1 to The Newhall Land and Farming Supplemental Executive Retirement Plan dated January 15, 1997 incorporated by reference to Exhibit 10(t) of the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 (Commission File Number 1-8885).                                                                                                                                  
|  |  |     |                                                                                                                                                                                                                                                                                                                                                                                                             

76

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|* |  | (u)  | First Amendment to The Newhall Land and Farming Company 1995 Option/Award Plan dated November 19, 1997 incorporated by reference to Exhibit 10(v) of the Company's Annual Report on Form 10-K for the year ended December 31,
1997 (Commission File Number 1-8885).             
|- |  | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* |  | (v)  | Form of award for premium price options granted under The Newhall Land and Farming Company 1995 Option/Award Plan incorporated by reference to Exhibit 10(w) of the Company's Annual Report on Form 10-K for the year ended December 31,
1997 (Commission File Number 1-8885).  
|* |  | (w)  | Amendment No. 2 to The Newhall Land and Farming Company Savings Plan dated July 15, 1998, incorporated by reference to Exhibit 10(b) the Company's Report on Form 10-Q for the quarter ended September 30, 1998 (Commission File
Number 1-8885).                                
|  |  | (x)  | Valencia Marketplace Purchase and Sale Agreement dated January 7, 1998 and subsequent First, Second, Third and Fourth Amendments incorporated by reference to Exhibit 10 the Company's Report on Form 10-Q for the quarter ended
March 31, 1998 (Commission File Number 1-8885).
|  |  | (y)  | Fifth Amendment dated May 29, 1998 to the Valencia Marketplace Purchase and Sale Agreement incorporated by reference to the Company's Report on Form 8-K filed June 19, 1998 (File Number 1-8885).                                                                              
|* |  | (z)  | Amendment Number One Effective January 1, 1999 to Newhall Executive Incentive Plan (as amended July 11, 1990) incorporated by reference to Exhibit 10 of the Company's Report on Form 10-Q for the quarter ended March 31, 1999
(Commission File Number 1-8885).                
|* |  | (aa) | Amendment No. 4 to the Newhall Land and Farming Company Retirement Plan dated July 21, 1999 incorporated by reference to Exhibit 10 of the Company's Report on Form 10-Q for the quarter ended June 30, 1999 (Commission File
Number 1-8885).                                   
|* |  | (ab) | Second Amendment to The Newhall Land and Farming Company 1995 Option/Award Plan adopted as of July 15, 1998 incorporated by reference to Exhibit 10(a) of the Company's Report on Form 10-Q for the quarter ended June 30, 1999
(Commission File Number 1-8885).                
|* |  | (ac) | Amendment No. 3 to The Newhall Land and Farming Company Employee Savings Plan, incorporated by reference to Exhibit 10 (a) of the Company's report on Form 10-Q for the quarter ended September 30, 2000 (Commission File Number
1-8885.)                                       
|* |  | (ad) | The Newhall Land and Farming Company Employee Savings Restoration Plan (As Amended and Restated Effective July 19, 2000), incorporated by reference to Exhibit 10(b) of the Company's Form 10-Q for the quarter ended September 30,
2000 (Commission File Number 1-8885).       
|* |  | (ae) | Severance and Consulting Agreement incorporated by reference to Exhibit 10 of the Company's report on Form 10-Q for the quarter ended March 31, 2001 (Commission File Number 1-8885).                                                                                           
|* |  | (af) | Amendment No. 5 to The Newhall Land and Farming Company Retirement Plan (Restatement Effective January 1, 1989) incorporated by reference to Exhibit 10(a) of the Company's report on Form 10-Q for the quarter ended June 30,
2001 (Commission File Number 1-8885).            
|* |  | (ag) | Amendment No. 4 to The Newhall Land and Farming Company Employee Savings Plan incorporated by reference to Exhibit 10(b) of the Company's report on Form 10-Q for the quarter ended June 30, 2001 (Commission File Number
1-8885).                                              
|  |  |      |                                                                                                                                                                                                                                                                                 

77

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|* |  | (ah)  | Retention Agreement effective March 31, 2001 between The Newhall Land and Farming Company and Gary M. Cusumano incorporated by reference to Exhibit 10 (a) of the Company's report on Form 10-Q for the quarter ended
September 30, 2001 (Commission File Number 1-8885).                                     
|- |  | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* |  | (ai)  | Retention Agreement effective March 31, 2001 between The Newhall Land and Farming Company and Thomas E. Dierckman incorporated by reference to Exhibit 10 (b) of the Company's report on Form 10-Q for the quarter ended
September 30, 2001 (Commission File Number 1-8885).                                  
|* |  | (aj)  | Retention Agreement effective March 31, 2001 between The Newhall Land and Farming Company and Stuart R. Mork incorporated by reference to Exhibit 10 (c) of the Company's report on Form 10-Q for the quarter ended September 30,
2001 (Commission File Number 1-8885).                                       
|* |  | (ak)  | Amendment No. 5 to The Newhall Land and Farming Company Employee Savings Plan incorporated by reference to Exhibit 10 (a) of the Company's report on Form 10-Q for the quarter ended March 31, 2002 (Commission File Number
1-8885).                                                                          
|* |  | (al)  | Amendment No. 6 to The Newhall Land and Farming Company Retirement Plan incorporated by reference to Exhibit 10 (b) of the Company's report on Form 10-Q for the quarter ended March 31, 2002 (Commission File Number
1-8885).                                                                                
|* |  | (am)  | The Newhall Land and Farming Company Retirement Plan (Restatement effective January 1, 2002) incorporated by reference to Exhibit 10 (a) of the Company's report on Form 10-Q for the quarter ended June 30, 2002 (Commission
File Number 1-8885).                                                            
|* |  | (an)  | The Newhall Land and Farming Company Employee Savings Plan (Restated effective January 1, 2002) incorporated by reference to Exhibit 10 (a) of the Company's report on Form 10-Q for the quarter ended September 30, 2002
(Commission File Number 1-8885).                                                    
|* |  | (ao)  | The Newhall Land and Farming Company 2002 Equity Compensation Plan and Related Form of Agreements incorporated by reference to the Company's Registration Statement on Form S-8 dated September 10, 2002 (Commission File Number
333-99381).                                                                  
|* |  | (ap)  | Severance Agreement between The Newhall Land and Farming Company and Stuart R. Mork effective as of March 1, 2003                                                                                                                                                                                             
|  |  | 11    | Computation of earnings per unit                                                                                                                                                                                                                                                                              
|  |  | 21    | Subsidiaries of the Registrant                                                                                                                                                                                                                                                                                
|  |  | 23(a) | Independent Auditors' Consent                                                                                                                                                                                                                                                                                 
|  |  | (b)   | Independent Auditors' Consent                                                                                                                                                                                                                                                                                 
|  |  | 99(a) | Articles of Incorporation of Newhall Management Corporation, as amended, incorporated by reference to Exhibit 28(b) to the Com- pany's report on Form 8-K filed December 11, 1990 (Commission File Number 1-8885).                                                                                            
|  |  | (b)   | Bylaws of Newhall Management Corporation incorporated by reference to Exhibit 99 (e) to the Company's report on Form 10-Q for the quarter ended June 30, 2000 (Commission File Number 1-8885).                                                                                                                
|  |  | (c)   | Amended and Restated Shareholders' Agreement between Newhall Management Corporation, its shareholders and the Newhall Management Corporation Voting Trust incorporated by reference to Exhibit 99(a) to the Company's report on Form 10-Q for
the quarter ended June 30, 2000 (Commission File Number 1-8885).
|  |  |       |                                                                                                                                                                                                                                                                                                               

78

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| |  | (d) | Extension Agreement to Voting Trust Agreement between Newhall Management Corporation, the Trustee, and the individual shareholders of Newhall Management Corporation, incorporated by reference to Exhibit 99(b) of the Company's report on
Form 10-Q for the quarter ended June 30, 2000 (Commission File Number 1-8885).                                                                                                                               
| |  | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | (e) | Voting Trust Agreement between Newhall Management Corporation, the Trustee, and the individual shareholders of Newhall Management Corporation incorporated by reference to Exhibit 28(e) of the Company's report on Form 8-K filed
December 11, 1990 (Commission File Number 1-8885).                                                                                                                                                                    
| |  | (f) | Partnership Agreement of Newhall General Partnership incorporated by reference to Exhibit 28(e) to Registrant's Registration Statement on Form S-14 filed August 24, 1984, and the Certificate of Amendment of Partnership Agreement of
Newhall General Partnership, dated November 14, 1990 incorporated by reference to Exhibit 28(e) of the Company's Annual Report on Form 10-K for the year ended December 31, 1990 (Commission File Number 1-8885).
| |  | (g) | Limited Partnership Agreement of Newhall Management Limited Partnership, incorporated by reference to Exhibit 28(a) to the Company's report on Form 8-K filed December 11, 1990 (Commission File Number 1-8885).                                                                                                                                                                                                                                         
| |  | (h) | Amendment Number One to Limited Partnership Agreement of Newhall Management Limited Partnership incorporated by reference to Exhibit 99 (c) of the Company's report of Form 10-Q for the quarter ended June 30, 2000 (Commission File
Number 1-8885).                                                                                                                                                                                                    
| |  | (i) | Second Amendment to Partnership Agreement of Newhall General Partnership, incorporated by reference to Exhibit 99 (d) of the Company's report on Form 10-Q for the quarter ended June 30, 2000 (Commission File Number
1-8885).                                                                                                                                                                                                                          
| |  | (j) | Amended and Restated Partnership Agreement of Newhall General Partnership incorporated by reference to Exhibit 99 of the Com- pany's report on Form 10-Q for the quarter ended March 31, 2001 (Commission File Number 1-8885).                                                                                                                                                                                                                           
| |  | (k) | Newhall Management Corporation Audit Committee of the Board of Directors Charter (as amended and restated May 17, 2000)                                                                                                                                                                                                                                                                                                                                  
| |  | (l) | Certification of Principal Executive Officer incorporated by reference to Exhibit 99 (a) of the Company's report on Form 10-Q for the quarter ended June 30, 2002 (Commission File Number 1-8885).                                                                                                                                                                                                                                                       
| |  | (m) | Certification of Principal Financial Officer incorporated by reference to Exhibit 99 (b) of the Company's report on Form 10-Q for the quarter ended June 30, 2002 (Commission File Number 1-8885).                                                                                                                                                                                                                                                       
| |  | (n) | Certification of Principal Executive Officer incorporated by reference to Exhibit 99 (a) of the Company's report on Form 10-Q for the quarter ended September 30, 2002 (Commission File Number 1-8885).                                                                                                                                                                                                                                                  
| |  | (o) | Certification of Principal Financial Officer incorporated by reference to Exhibit 99 (b) of the Company's report on Form 10-Q for the quarter ended September 30, 2002 (Commission File Number 1-8885).                                                                                                                                                                                                                                                  
| |  | (p) | Certification of Principal Executive Officer of the Company's Annual Report on Form 10-K for the year ended December 31, 2002                                                                                                                                                                                                                                                                                                                            
| |  |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                          

79

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| |  | (q) | Certification of Principal Financial Officer of the Company's Annual Report on Form 10-K for the year ended December 31, 2002
| |  | --- | -----------------------------------------------------------------------------------------------------------------------------

---

|Item Reported                                                                                                                                                                                                                                                                 |  | Date of Report   
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------
|A news release issued by the Company on February 12, 2003 concerning the resignation of Stuart R. Mork, Senior VicePresident and Chief Financial Officer, and the appointment of Donald L. Kimball, Vice
PresidentFinance and Controller, as acting chief financial officer. |  | February 12, 2003
|A news release issued by the Company on February 28, 2003 announcing that the West Creek ruling has been received and the Company has resolved spineflower and streambed issues.                                                                                              |  | February 28, 2003

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Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

|                     |  | THE NEWHALL LAND AND FARMING COMPANY
(a California Limited Partnership)
Registrant
|-------------------- |  | ----------------------------------------------------------------------------------
|                     |  | By                                                                                
|                     |  | By                                                                                
|Date: March 24, 2003 |  | By                                                                                

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

|Date: March 24, 2003 |  |  |  | /s/GARY M. CUSUMANOGary M. Cusumano
President and Chief Executive Officer
Newhall Management Corporation
(Principal Executive Officer)                 
|-------------------- |  |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------
|Date: March 24, 2003 |  |  |  | /s/DONALD L. KIMBALLDonald L. Kimball
Vice President and Chief Financial Officer (interim)
Newhall Management Corporation
(Principal Financial Officer)
|Date: March 24, 2003 |  |  |  | /s/VICKI M. STILLERVicki M. Stiller
Controller (interim)
Newhall Management Corporation
(Principal Accounting Officer)                                 

Directors of Newhall Management Corporation:

|Date: March 24, 2003 |  |  |  | /s/GARY M. CUSUMANOGary M. Cusumano              
|-------------------- |  |  |  | -------------------------------------------------
|Date: March 24, 2003 |  |  |  | /s/THOMAS V. MCKERNAN, JR.Thomas V. McKernan, Jr.
|Date: March 24, 2003 |  |  |  | /s/HENRY K. NEWHALLHenry K. Newhall              
|Date: March 24, 2003 |  |  |  | /s/JANE NEWHALLJane Newhall                      

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|Date: March 24, 2003 |  |  |  | /s/PETER T. POPEPeter T. Pope                
|-------------------- |  |  |  | ---------------------------------------------
|Date: March 24, 2003 |  |  |  | /s/CARL E. REICHARDTCarl E. Reichardt        
|Date: March 24, 2003 |  |  |  | /s/THOMAS C. SUTTONThomas C. Sutton          
|Date: March 24, 2003 |  |  |  | /s/BARRY LAWSON WILLIAMSBarry Lawson Williams
|Date: March 24, 2003 |  |  |  | /s/EZRA K. ZILKHAEzra K. Zilkha              

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Certification of Annual Report By Principal Executive Officer Pursuant to
Exchange Act Rules 13a-14 and 15d-14

I, Gary M. Cusumano, President and Chief Executive Officer of Newhall Management Corporation (Principal Executive Officer), certify that:

1.    I
have reviewed this annual report on Form 10-K of The Newhall Land and Farming Company;

2.    Based
on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.    Based
on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.    The
registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and have:



5.    The
registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent functions):



6.    The
registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

|Date: March 24, 2003 |  | 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                                                                                
|                     |  | /S/ GARY M. CUSUMANOGary M. Cusumano, President and Chief Executive Officer of Newhall Management Corporation
(Principal Executive Officer)

83

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Certification of Annual Report By Principal Financial Officer Pursuant to
Exchange Act Rules 13a-14 and 15d-14

I, Donald L. Kimball, Vice President and Chief Financial Officer (interim) of Newhall Management Corporation, (Principal Financial Officer), certify that:

1.    I
have reviewed this annual report on Form 10-K of The Newhall Land and Farming Company;

2.    Based
on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.    Based
on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.    The
registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and have:



5.    The
registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent functions):



6.    The
registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

|Date: March 24, 2003 |  | 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                                                                                                 
|                     |  | /S/ DONALD L. KIMBALLDonald L. Kimball, Vice President and Chief Financial Officer (interim) of Newhall Management Corporation
(Principal Financial Officer)

84

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The Newhall Land and Farming Company

Schedule IIIReal Estate and Accumulated Depreciation

December 31, 2002

(Dollars in thousands)

|                                             |  |   |        |   |   |        |  |   |         | Gross Amount at Which Carried
at December 31, 2002 (C) |   |        |   |   |        | 
|-------------------------------------------- |  | - | ------ | - | - | ------ |  | - | ------- | ------------------------------------------------------ | - | ------ | - | - | ------ | 
|
|
|
|OPERATING PROPERTIES                         |  |   |        |   |   |        |  |   |         |                                                        |   |        |   |   |        | 
|Shopping Centers                             |  |   |        |   |   |        |  |   |         |                                                        |   |        |   |   |        | 
|Valencia Town Center                         |  | $ | 14,198 |   | $ | 22,136 |  | $ | 41,425  |                                                        | $ | 7,449  |   | $ | 22,136 | 
|Valencia Town CenterRing Road               |  |   |        |   |   | 804    |  |   | 14,214  |                                                        |   | 1,373  |   |   | 804    | 
|River Oaks                                   |  |   | (A     | ) |   | 2,354  |  |   | 5,302   |                                                        |   | 834    |   |   | 2,354  | 
|NorthPark Village Square                     |  |   | (A     | ) |   | 2,701  |  |   | 7,398   |                                                        |   | (159   | ) |   | 2,701  | 
|Hotel                                        |  |   |        |   |   |        |  |   |         |                                                        |   |        |   |   |        | 
|Valencia Hilton Garden Inn (B)               |  |   |        |   |   |       |  |   |        |                                                        |   |       |   |   |       | 
|Hyatt Valencia Hotel and Conference Center   |  |   |        |   |   | 2,131  |  |   | 37,497  |                                                        |   | 258    |   |   | 2,131  | 
|Office and Mixed Use Projects                |  |   |        |   |   |        |  |   |         |                                                        |   |        |   |   |        | 
|Valencia Entertainment Center                |  |   |        |   |   | 2,305  |  |   | 21,148  |                                                        |   | 29     |   |   | 2,305  | 
|Valencia Entertainment CenterSouth          |  |   |        |   |   | 34     |  |   | 6,077   |                                                        |   | 410    |   |   | 34     | 
|Single Tenant Facilities                     |  |   |        |   |   |        |  |   |         |                                                        |   |        |   |   |        | 
|Retail StoreTrader Joe's                    |  |   |        |   |   | 269    |  |   | 547     |                                                        |   |       |   |   | 269    | 
|Spectrum Health Club                         |  |   |        |   |   | 1,000  |  |   | 6,156   |                                                        |   |       |   |   | 1,000  | 
|RestaurantEl Torito                         |  |   |        |   |   | 248    |  |   | 802     |                                                        |   |       |   |   | 248    | 
|RestaurantHamburger Hamlet                  |  |   |        |   |   | 460    |  |   | 661     |                                                        |   |       |   |   | 460    | 
|RestaurantRed Lobster                       |  |   |        |   |   | 134    |  |   |        |                                                        |   |       |   |   | 134    | 
|RestaurantWendy's                           |  |   |        |   |   | 91     |  |   | 300     |                                                        |   |       |   |   | 91     | 
|Other Properties and Land                    |  |   |        |   |   |        |  |   |         |                                                        |   |        |   |   |        | 
|Under Lease                                  |  |   |        |   |   | 1,933  |  |   | 1,264   |                                                        |   | 27     |   |   | 1,933  | 
|                                             |  |   |        |   |   |        |  |   |         |                                                        |   |        |   |   |        | 
|TOTAL OPERATING PROPERTIES                   |  |   | 14,198 |   |   | 36,600 |  |   | 142,791 |                                                        |   | 10,221 |   |   | 36,600 | 
|                                             |  |   |        |   |   |        |  |   |         |                                                        |   |        |   |   |        | 
|PROPERTIES UNDER DEVELOPMENT                 |  |   |        |   |   |        |  |   |         |                                                        |   |        |   |   |        | 
|TPC at Valencia Golf Course                  |  |   |        |   |   |        |  |   | 13,518  |                                                        |   |        |   |   |        | 
|Preconstruction costsvarious other projects |  |   |        |   |   |       |  |   | 868     |                                                        |   |       |   |   |       | 
|                                             |  |   |        |   |   |        |  |   |         |                                                        |   |        |   |   |        | 
|TOTAL PROPERTIES UNDER DEVELOPMENT           |  |   |       |   |   |       |  |   | 14,386  |                                                        |   |       |   |   |       | 
|                                             |  |   |        |   |   |        |  |   |         |                                                        |   |        |   |   |        | 
|TOTAL                                        |  | $ | 14,198 |   | $ | 36,600 |  | $ | 157,177 |                                                        | $ | 10,221 |   | $ | 36,600 | 
|                                             |  |   |        |   |   |        |  |   |         |                                                        |   |        |   |   |        | 

85

---



2002

2001

2000Balance at beginning of period

$
188,120

$
193,800

$
328,969Additions:Cash expenditures


19,127


13,678


27,441Deletions:Cost of real estate sold


(2,771
)

(17,247
)

(161,343
)Other


(478
)

(2,111
)

(1,267
)Balance at end of period

$
203,998

$
188,120

$
193,800


2002

2001

2000Balance at beginning of period

$
37,188

$
33,295

$
47,909Additions:Charged to expense


7,270


7,689


10,272Deletions:Cost of real estate sold


(398
)

(3,450
)

(24,886
)Other


(33
)

(346
)Balance at end of period

$
44,027

$
37,188

$
33,295


86

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THE NEWHALL LAND AND FARMING COMPANY

INDEX TO EXHIBITS

Item 15 (a) 3

|Exhibit
Number |  | Description                                                                                                                  
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------
|10(ap)         |  | Severance Agreement between The Newhall Land and Farming Company and Stuart R. Mork effective as of March 1, 2003            
|11             |  | Computation of earnings per unit                                                                                             
|21             |  | Subsidiaries of the Registrant                                                                                               
|23(a)          |  | Independent Auditors' Consent                                                                                                
|23(b)          |  | Independent Auditors' Consent                                                                                                
|99(p)          |  | Certification of Principal Executive Officer of the Company's Annual Report on Form 10-K for the year ended December 31, 2002
|99(q)          |  | Certification of Principal Financial Officer of the Company's Annual Report on Form 10-K for the year ended December 31, 2002

87

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