SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

                  Annual Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

For the Fiscal Year Ended                               Commission File Number
    December 31, 2002                                          0-24906

                        LARCHDALE OWNERSHIP COMPANY, LTD.
                       ----------------------------------
             (Exact name of registrant as specified in its charter)


         California                                         95-3932760
-------------------------------                        -----------------
(State or other jurisdiction of                         (I.R.S. Employer
incorporation or organization)                         Identification No.)

   6355 Topanga Canyon Boulevard, Suite 435, Woodland Hills, California 91367
               --------------------------------------------------
               (Address of principal executive offices) (Zip code)

                                 (818) 346-0509
                                ----------------
               Registrant's telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

                  None

Securities registered pursuant to Section 12(g) of the Act:

                  Units of Limited Partnership Interest

     Indicate  by  checkmark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                                               YES [ x ]     NO [   ]

As of March 15, 2003,  the  aggregate  market value (as computed by reference to
the price at which the securities  were sold) of the voting  securities  held by
non-affiliates of the registrant was $3,177,628.


<PAGE>

ITEM 1.           BUSINESS.
                  --------

     Larchdale Ownership Company, Ltd. (the Partnership) is a California limited
partnership  formed in June 1984.  Effective  December  31,  1994,  the  general
partner is LMH Realty,  Inc., a California  corporation which is wholly owned by
L. Mark Hammerschmitt,  the President of Preferred  Financial  Corporation whose
business address and telephone number are those of the Partnership: 6355 Topanga
Canyon Boulevard,  Suite 435, Woodland Hills,  California 91367, (818) 346-0509.
See Item 4.

     The Partnership was formed to acquire, operate, and hold for investment the
Larchdale Woods  Apartments  located at 13178 Larchdale Road,  Laurel,  Maryland
(the Property).

     The Partnership has retained Preferred Financial Corporation,  an affiliate
of the general partner, as Property Manager to conduct the day-to-day operations
of the Property and the Partnership. Preferred Financial Corporation employs all
personnel supplying  management  services to the Partnership,  of which nine (9)
people are employed full-time at the Property location.

ITEM 2.           PROPERTY.
                  --------

LARCHDALE WOODS APARTMENT COMPLEX
---------------------------------

     On June 29, 1984, the Partnership  purchased the Larchdale Woods Apartments
from an  unrelated  third  party.  Larchdale  Woods is a 526  unit  multi-family
apartment  building  located on 40.09 acres of wooded  land with two lakes.  The
apartment  complex was  constructed  in 1967.  The exterior of the  buildings is
brick construction with vertical wood siding over wood frame, supported by block
foundation  walls.  The Property has 41 garden  apartment  buildings of which 16
have three  stories and 25 have four  stories.  The complex  consists of 371 one
bedroom/one  bath, 102 two bedroom/one bath, and 53 three bedroom/one and a half
bath apartments.

     Property amenities include expansive landscaped grounds with two playground
areas, an outdoor  Olympic-sized pool and cabana, and laundry facilities in each
building.

ITEM 3.           LEGAL PROCEEDINGS.
                  -----------------

     The  Partnership  has,  from time to time,  been a party to  various  legal
proceedings  consisting of routine  litigation  incidental to its business,  but
believes that any potential  liabilities  resulting from these  proceedings  are
adequately covered by insurance or are otherwise immaterial.

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

     Under terms of a  Solicitation  of Consents  dated  November 10, 1994,  the
limited  partners  authorized  the  addition of LMH Realty,  Inc.,  a California
corporation  which is wholly owned by L. Mark  Hammerschmitt,  the  President of
Preferred Financial Corporation,  as the new general partner of the Partnership.
The previous  general  partners,  Alex  Gershunoff and Lawrence M. Silk,  became
limited  partners  of the  Partnership  with  no  management  authority  for the
Partnership.

                                       -2-
<PAGE>

In addition,  the limited  partners  authorized  the payment of a deferred asset
management fee to LMH Realty,  Inc.,  payable upon the sale of the Property as a
management incentive, equal to 1.5% of the sales price.

Both proposals were effective as of December 31, 1994 (the "Admission Date").

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

     There currently is no established public market for the limited partnership
units of  Larchdale  Ownership  Company,  Ltd.,  nor is such a market  likely to
develop in the future.

     There has been no  distribution  of cash to the unit holders,  and there is
not expected to be a cash distribution  until the Partnership has available cash
from operations on a regular basis.


ITEM 6.           SELECTED FINANCIAL DATA.
                  -----------------------

                                   Year Ended      Year Ended      Year Ended
                                   December 31,    December 31,    December 31,
                                      2002            2001            2000
                                   -----------     -----------     ----------

Revenue                            $ 4,361,033     $ 4,146,351     $ 3,642,710
Net Income (loss)                  $   133,443     $  (301,496)    $(1,478,071)
Per limited partnership interest   $         4     $        (9)    $       (42)
Total assets                       $ 2,520,103     $ 2,932,406     $ 3,328,285
Long-term obligations              $13,208,318     $13,374,012     $13,526,704



















                                       -3-
<PAGE>

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

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

     The  Partnership's   primary  source  of  liquidity  has  been  funds  from
operations,  proceeds  from the  initial  capitalization,  and the  exercise  of
warrants in 1986 and 1987. With the completion of the 1987 warrant offering, the
Partnership is fully capitalized. Future capital requirements are expected to be
primarily provided by operations.

     On November 10, 1986,  the  Partnership  obtained a new loan of $12,750,000
from an institutional  third-party lender. The note bears interest at a variable
rate of 225 basis points over the 11th  District  Federal Home Loan Bank cost of
funds, with a floor of 10%.

     In May 1992, the Partnership  completed a modification of the payment terms
of the loan for a one-year  period  commencing  with the  payment due January 1,
1992. Under the terms of the  modification,  monthly interest only payments were
made at the reduced rate of 5%, with the difference between interest at the full
rate and the reduced payment rate added to the principal  amount of the loan. In
addition,  payments for property taxes were impounded by the lender on a monthly
basis.  After the end of the modification  period,  the Partnership made partial
monthly  payments  until April 6, 1993 when  payment in full of past due amounts
was made and the loan reverted to its unmodified terms.

     In May 1994, the  Partnership  completed a second  modification of the loan
payment terms for a one-year  period  commencing on November 1, 1993.  Under the
terms of the second  modification,  monthly  interest only payments were paid at
the reduced rate of 9%, with the difference between interest at the full rate of
10% and the reduced  payment rate added to the principal  amount of the loan. In
addition,  payments for property taxes were impounded by the lender on a monthly
basis.  In March 1995,  the  modification  was  extended  for a one-year  period
commencing on November 1, 1994.

     Starting with the payment due on November 1, 1995, the modification expired
and  monthly  payments  at  the  full  rate  of 10%  per  annum  plus  principal
amortization  were required under the original terms of the note.  However,  the
lender continued to bill the Partnership under the terms of the modification and
the Partnership paid the amounts as billed. The Partnership contacted the lender
in September  1996 to initiate  negotiations  to resolve the billing  disparity,
which had  accumulated  to $281,000 and the  problems of the property  taxes due
starting in September  1996 and the deferred  maintenance  of the  property.  In
December 1996, the lender agreed to accept $11,800,000 as payment in full on its
loan under the conditions,  among others,  that payment be received before April
15, 1997,  that the property  taxes be paid, and that the loan be purchased by a
third party  independent of the  Partnership.  The purchase price was reduced by
the principal  portion of the monthly payments made from January 1, 1997 through
the purchase date.  The property taxes were paid by the  Partnership in December
1996.

     On February 28, 1997,  the  Partnership  completed the  refinancing  of the
property  and paid off the  existing  loan,  which had a balance  at  closing of
$13,245,725  with a cash payment of $11,767,496  for a gain of  $1,481,229.  The
Partnership paid a fee of $50,000 to a third party to purchase the existing loan
from the lender and  subsequently  sell the loan to the Partnership and a fee of
$25,213 to a consultant  for  assistance in making the initial  contact with the
appropriate lender  representative.  In addition,  the Partnership paid a fee of
$140,602 to the general partner,  LMH Realty, Inc., equal to 10% of the net gain

                                       -4-
<PAGE>

of $1,406,016 for success in the  negotiating of the loan discount and arranging
the third party purchase of the loan. The  Partnership  recognized the remaining
gain of $1,265,414 in 1997.

     The loan was purchased and the refinancing  completed with funds from a new
loan to the  Partnership  of $14,000,000 at 8.20% per annum maturing on March 1,
2007 with monthly principal and interest  payments of $104,686.  The Partnership
paid  fees to the  lender  and  loan  broker  of  $280,000,  loan  costs,  title
insurance,  transfer  taxes and recording fees of $50,996,  and estimated  legal
fees of $25,000.  The new loan provided for reserves for the initial two monthly
payments,  property  taxes and  insurance.  In  addition,  the new lender held a
reserve of $493,000 for deferred property  maintenance  items. After the payment
of $11,767,496 to the prior lender,  the Partnership  received net proceeds from
the refinancing of $1,316,015.

     In September 1997, the Partnership completed the pay off of advances due to
an  affiliate  of the  general  partner of  $664,596  plus  accrued  interest of
$430,295.

     As of the date of this Report, the Partnership does not foresee any trends,
demands,  commitments,  events, or uncertainties  which are reasonably likely to
result in a material increase or decrease in the Partnership's liquidity.

RESULTS OF OPERATIONS.
---------------------

     The rental  market has  remained  stable  and  positive  past the events of
September  11,  2001  through  the full  year of 2002  with  rental  collections
increasing  by 5.2% over 2001.  However,  the  year-to-year  comparisons  in the
future will be less  dramatic as the rate of  operational  recovery  levels off.
Vacancies  have begun to  increase  as tenants  purchase  homes at low  mortgage
interest rates.

     Depreciation  costs decreased as a result of the original  purchase cost of
the property becoming fully depreciated during 2002.

     Repairs and maintenance costs increased in 2002 over 2001 primarily because
of a greater number of apartments requiring carpet replacement compared with the
prior period and higher tenant turnover.

     Insurance costs increased because of substantially higher premiums for fire
and property  insurance  during 2002.  Insurance  costs are expected to increase
further during 2003.

     In December 2002,  accumulated cash flow from operations was used to reduce
the principal amount due on the advance from an affiliate of the general partner
from  $1,335,000 to $1,100,000  and to pay accrued  interest due at December 31,
2002 of  $320,400.  The  Partnership  is expected to  commence  regular  monthly
interest payments due on the advance in 2003.

     Rental operations continued to improve with rental collections for the full
year 2001 up by 13.8% over the comparable  period in 2000. The rental market has
remained  stable and  positive  past the events of  September  11, 2001 into the
first quarter of 2002. However, the year-to-year  comparisons in the future will
be less dramatic as the rate of operational recovery levels off.

                                       -5-
<PAGE>

     The  foundation  repairs  to  the  sixth  Larchdale  building  as  well  as
property-wide  surface runoff  drainage  improvements  have been  completed.  In
addition, the complete overhaul of the pool, including decking and plumbing, has
also been completed and the pool is now a positive amenity for the property. The
building  roofs  have  required  only minor  repairs  and,  therefore,  the roof
replacement program has been postponed in order to conserve cash.

     The biannual county inspection and licensing fee was paid during the second
quarter of 2001.

     The improved operating performance of the property provided the partnership
with sufficient cash flow to pay all obligations  without additional advances in
2001 from an  affiliate  of the general  partner  which  remains at  $1,335,000.
Accrued  interest due on these  advances at 12% per annum  through  December 31,
2000 was paid by the partnership in October 2001. However,  the accrued interest
for 2001 of $160,200 has not yet been paid.

     Rental operations continued to improve with rental collections for the full
year of 2000 increasing by approximately 13.2% over 1999.

     The foundation  repair to the five  buildings in the apartment  property as
well as the repairs to the interiors of the apartment units was completed at the
end of December 2000. These repairs have primarily been paid for by funds loaned
to the Partnership by an affiliate of the general partner  totaling  $982,000 in
2000,  bringing the total loans from the  affiliate to $1,335,000 as of December
31, 2001.

     A sixth  Larchdale  building that the  structural  engineer had thought was
stabilized has now shifted causing damage that will require repairs estimated to
cost  $150,000  and were  commenced  in April  2001.  Additional  costs for roof
repairs and to redo the pool to meet the County's  requirement  for a dual drain
system makes it unlikely that the  Partnership  will be able to repay any of the
affiliate's loans in 2002.

ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
                  -------------------------------------------

     The Financial  Statements and Schedules listed in the accompanying Index to
Financial Statements are incorporated herein and filed as part of this Report.

ITEM 9.           DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
                  ----------------------------------------------------

     None.

ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS.
                  --------------------------------

     The registrant is a limited  partnership  and has no executive  officers or
directors. Effective December 31, 1994, the general partner is LMH Realty, Inc.,
a  California  corporation  that is wholly owned by L. Mark  Hammerschmitt,  the
President of Preferred  Financial  Corporation.  The previous general  partners,
Alex Gershunoff and Lawrence M. Silk, became limited partners of the partnership
with no management  authority for the  Partnership.  See Item 4. Alex Gershunoff
died on February 5, 1995.

                                       -6-
<PAGE>

ITEM 11.          EXECUTIVE COMPENSATION.
                  ----------------------

     None.

ITEM 12.         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
                  --------------------------------------------------------------

     In December  2000,  an  affiliate  of the general  partner  acquired  7,030
Partnership  Interests,  or 19.7% of the  outstanding  Interests,  pursuant to a
Repurchase  Offer made available to existing  limited  partners.  The Repurchase
Offer was  extended  and in April 2001,  an  affiliate  of the  general  partner
acquired an additional 2,158 Partnership  Interests,  or 6.1% of the outstanding
interests.  In September 2002,  another  Repurchase  Offer was made available to
existing  limited  partners,  and  pursuant  to this offer an  affiliate  of the
general  partner  acquired  8,453.5  Partnership  Interests,  or  23.7%  of  the
outstanding  interests  during the fourth quarter of 2002.  Including  Interests
previously  acquired,  the  general  partner  and  its  affiliates  hold  18,321
Interests  or 51.3% of the  outstanding  Interests  at  December  31, 2002 which
represents a majority-in-interest of the Partnership.

     The Partnership is a limited partnership and has no officers or directors.

ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
                  ----------------------------------------------

     Affiliates of the  registrant's  General Partner  received certain fees for
services and financing provided to the Partnership.

     Concurrent with the purchase of the Property,  the Partnership  engaged PFC
to manage the Property and the affairs of the  Partnership for a combined fee of
6% of the gross rental  receipts.  Management  fees paid in 2000,  2001 and 2002
amounted  to  $220,176,  $249,170  and  $261,963  respectively.  PFC was further
reimbursed for accounting,  data processing, tax preparation services, and other
out-of-pocket expenses of $29,748 in 2000, $29,880 in 2001 and $32,130 in 2002.

     In connection with the Repurchase  Offers described in Item 12, the General
Partner  received a fee of $25,133 in  December  2000,  $8,222 in April 2001 and
$29,682 in October 2002.

                                     PART IV

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

     (a) The financial statements and schedules listed in the accompanying Index
to Financial  Statements and Schedules are attached  hereto and filed as part of
this Report.

     (b) Exhibits:

     None.






                                       -7-
<PAGE>

                                   SIGNATURES

     Pursuant to the  requirements of Section 12 of the Securities  Exchange Act
of 1934, the  Partnership has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.

Date:  March 26,  2003

                                        LARCHDALE OWNERSHIP COMPANY, LTD.


                                        By:/s/L. Mark Hammerschmitt
                                        -----------------------------
                                        L. Mark Hammerschmitt, President
                                        LMH REALTY, INC.
                                        GENERAL PARTNER



     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
Report  has  been  signed  below  by  the  following  person  on  behalf  of the
Partnership in the capacity and on the date indicated.

SIGNATURE                            TITLE                  DATE
---------                            ---------------        ----------


/s/L. Mark Hammerschmitt
------------------------
L. Mark Hammerschmitt, President
LMH Realty, Inc.                     General Partner        March 26, 2003















                                      -8-
<PAGE>

                                 CERTIFICATIONS

I, L. Mark Hammerschmitt, President of LMH Realty, Inc., General Partner of the
Company, certify that:

1. I have  reviewed  this annual  report on Form 10-K of  Larchdale Ownership
Company, Ltd.;

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:

a) designed  such  disclosure  controls and  procedures  to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period in which this annual report is being prepared;

b) evaluated  the  effectiveness  of the  registrant's  disclosure  controls and
procedures  as of a date  within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

c) presented in this annual report our conclusions  about the  effectiveness  of
the  disclosure  controls  and  procedures  based  on our  evaluation  as of the
Evaluation Date;

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):

         a) all significant  deficiencies in the design or operation of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

         b) any fraud whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

                                       -9-
<PAGE>

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 26, 2003

                        /s/ L. Mark Hammerschmitt
                        -----------------------------------------------------
                        L. Mark Hammerschmitt,
                        President of LMH Realty, Inc., General Partner



                                      -10-

<PAGE>

                   INDEX TO FINANCIAL STATEMENTS AND SCHEDULES

Financial Statements - Under Item 14(a)
--------------------------------------

Report of Cohen Pagano Accountancy Corporation,
Certified Public Accountants                                          F-1

Balance Sheets - December 31, 2002 and 2001                           F-2

Statements of Operations - for the Years Ended
December 31, 2002, 2001 and 2000                                      F-3

Statement of Changes in Partners' Capital -
for the Years Ended December 31, 2002, 2001 and 2000                  F-4

Statement of Cash Flows - for the Years Ended
December 31, 2002, 2001 and 2000                                      F-5

Notes to Financial Statements -
December 31, 2002 and 2001                                            F-6-F-9


Financial Statement Schedule - Under Item 14(a)
----------------------------------------------

Schedule XI - Properties and Accumulated Depreciation
- December 31, 2002, 2001 and 2000                                    F-10

All other  schedules  are  omitted,  since they are either not  required  or not
applicable, or the required information is set forth in the Financial Statements
or the related notes.





                                      -11-
<PAGE>

                         COHEN PAGANO ACCOUNTANCY, INC.
                          Certified Public Accountants
                        12100 Wilshire Blvd., Suite 670
                         Los Angeles, California 90025
                                 -------------
M. Richard Cohen                                            Tel: (310) 826-3400
(1918-1991)                                                 Fax: (310) 826-3405
John M. Pagano
Bruce I. Kolbrenner
Diane Schroder


March 25, 2003

To the Partners
Larchdale Ownership Company, Ltd.

We have  audited the balance  sheets of  Larchdale  Ownership  Company,  Ltd., a
California Limited  Partnership (the  "Partnership") as of December 31, 2002 and
2001, and the related  statements of opreations,  changes in partners'  capital,
and cash flows for the years ended  December 31,  2002,  2001,  and 2000.  These
financial statements are the responsibility of the Partnership's management. Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatements.  An audit includes examining,  on 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 financial  statements  referred to above present fairly, in
all material respects,  the financial  position of Larchdale  Ownership Company,
Ltd. as of December 31, 2002 and 2001, and the results of its operations and its
cash flows for the years ended  December 31, 2002,  2001 and 2000 in  conformity
with generally accepted accounting principles.

Our audit was made for the purpose of forming an opinion on the basic  financial
statements  taken as a whole.  The  Schedule  XI -  Properties  and  Accumulated
Depreciation  is presented for the purposes of additional  analysis and is not a
required  part of the basic  financial  statements.  Such  information  has been
subjected to the auditing procedures applied in the audit of the basic financial
statements  and, in our opinion,  is fairly  stated in all material  respects in
relation to the basic financial statements taken as a whole.

/s/Cohen Pagano Accountancy

COHEN PAGANO ACCOUNTANCY
Los Angeles, California


                                      F-1
<PAGE>


                        LARCHDALE OWNERSHIP COMPANY, LTD.
                       (A California Limited Partnership)
                                 Balance Sheets

                                                       December 31,
                                               2002                   2001
                                          -----------              ------------

                                    ASSETS

PROPERTY AT COST - Notes 1 and 3
Land                                      $ 1,679,198               $ 1,679,198
Buildings and improvements                 12,081,160                12,081,160
Furniture and fixtures                        410,845                   410,845
                                          -----------               -----------
                                           14,171,203                14,171,203
Less accumulated depreciation              12,234,987                11,876,292
                                          -----------               -----------
                                            1,936,216                 2,294,911


CASH - Note 2                                  83,037                   131,034

LOAN FEES -
net of accumulated amortization of
$211,490 at December 31, 2002 and
$175,234 at December 31, 2001                 151,063                   187,319

PREPAID EXPENSES AND OTHER ASSETS             349,787                   319,142
                                          -----------               -----------
                                          $ 2,520,103               $ 2,932,406
                                          ===========               ===========


                        LIABILITIES AND PARTNERS' CAPITAL

NOTE PAYABLE - Note 3                     $13,208,318               $13,374,012

ACCOUNTS PAYABLE AND ACCRUED
EXPENSES                                      224,028                   215,975

ADVANCE DUE TO AFFILIATE - Note 4           1,100,000                 1,495,200

TENANT SECURITY DEPOSITS                      173,292                   166,197

PARTNERS' CAPITAL (DEFICIT)               (12,185,535)              (12,318,978)
                                          -----------               -----------
                                          $ 2,520,103               $ 2,932,406
                                          ===========               ===========




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

                                      F-2
<PAGE>

                        LARCHDALE OWNERSHIP COMPANY, LTD.
                       (A California Limited Partnership)

                            Statements of Operations

                        For The Years Ended December 31,

<TABLE>
<CAPTION>

                                                          2002                       2001                      2000
                                                      -----------                -----------              ------------
REVENUE
<S>                                                   <C>                        <C>                       <C>
Rental income                                         $ 4,224,359                $ 4,032,818               $ 3,542,811
Other income                                              136,674                    113,533               $    99,899
                                                      -----------                -----------               -----------
                                                        4,361,033                  4,146,351                 3,642,710
                                                      -----------                -----------               -----------

EXPENSES
      Interest                                          1,254,133                  1,265,813                 1,176,639
      Depreciation and amortization                       394,950                    703,318                   699,668
      Repairs and maintenance                             949,663                    835,737                   939,617
      Utilities                                           351,870                    349,974                   342,425
      Salaries and related expenses                       498,646                    438,602                   418,216
      Management and administrative fee                   261,963                    249,170                   220,176
      Property taxes                                      227,307                    219,466                   221,589
      Professional services                               114,632                     71,527                    99,362
      Insurance                                           119,369                     68,988                    53,048
      Administrative costs                                 23,120                     24,359                    45,888
      Advertising and promotion                            31,107                     29,192                    21,450
      Licenses                                                830                     27,180                       500
      foundation and drainage                                                        164,521                   882,203
                                                       ----------                -----------               -----------
                                                        4,227,590                  4,447,847                 5,120,781

NET INCOME (LOSS)                                     $   133,443                $  (301,496)              $(1,478,071)
                                                      ===========                ===========               ===========

Net loss per weighted number of
      limited partnership interests
      outstanding (35,371 in 2002,
      2001, and 2000)                                 $         4                $        (9)              $       (42)
                                                      ===========                ===========               ===========

</TABLE>








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

                                       F-3
<PAGE>

                        LARCHDALE OWNERSHIP COMPANY, LTD.
                       (A California Limited Partnership)

                    Statement of Changes in Partners' Capital
              for the Years Ended December 31, 2002, 2001 and 2000

                               Limited
                               Partner
                              Interests          Limited    General
                             Outstanding        Partners    Partners    Total
================================================================================

PARTNERS' CAPITAL BALANCE
 December 31, 1999             35,371      (10,473,578)    (65,833) (10,539,411)

NET LOSS for the year ended
 December 31, 2000                          (1,477,923)       (148)  (1,478,071)
                              -------      ------------    -------- ------------

PARTNERS' CAPITAL BALANCE
 December 31, 2000             35,371      (11,951,501)    (65,981) (12,017,482)

NET LOSS for the year ended
 December 31, 2001                            (301,466)        (30)    (301,496)
                              -------      ------------    -------- ------------

PARTNERS' CAPITAL BALANCE
 December 31, 2001             35,371      (12,252,967)    (66,011) (12,318,978)

NET INCOME  for the year ended
 December 31, 2002                             133,430          13      133,443
                              -------      ------------    -------- ------------

PARTNERS' CAPITAL BALANCE
 December 31, 2002             35,371      (12,119,537)    (65,998) (12,185,535)
                              =======      ============    ======== ============














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

                                      F-4
<PAGE>

                        LARCHDALE OWNERSHIP COMPANY, LTD.
                       (A California Limited Partnership)
                            Statements of Cash Flows
                        For The Years Ended December 31,

                                           2002           2001          2000
                                        ---------       ---------      -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) from operations       $133,443      $ (301,496)   $(1,478,071)
Adjustments to reconcile net loss
to net cash provided (used) by
operating activities
Depreciation and amortization             394,950        703,318        699,668
(Increase) decrease in:
Prepaid expenses and other assets         (30,645)       (54,215)        11,406
Increase (decrease) in:
Accounts payable and accrued expenses       8,054        (12,502)      (160,868)
Accrued interest to affiliate             160,200         60,260         60,070
                                       -----------     ----------    -----------
Net cash provided (used) by
operating activities                      345,602        395,365       (867,795)


CASH FLOW FROM INVESTING ACTIVITIES
Purchases of building improvements                      (131,450)
                                       -----------     ----------    -----------
Net cash used by investing activities                   (131,450)

CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in note payable      (165,694)      (152,692)      (140,710)
Advance due to affiliate                 (235,000)                      982,000
Increase (decrease) in tenant
security deposits                           7,095         10,551         34,489
                                       -----------     ----------    -----------

Net cash provided (used) by financing
activities                               (393,599)      (142,141)       875,779
                                       -----------     ----------    -----------

Net increase (decrease) in cash           (47,997)       121,774          7,984
Cash beginning of year                    131,034          9,260          1,276
                                       -----------     ----------    -----------

Cash at end of year                    $   83,037      $ 131,034      $   9,260
                                       ===========     ==========    ===========




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

                                      F-5

<PAGE>

                        LARCHDALE OWNERSHIP COMPANY, LTD.
                       (A California Limited Partnership)

                          NOTES TO FINANCIAL STATEMENTS

                           December 31, 2002 and 2001

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------------

ORGANIZATION

Larchdale  Ownership Company,  Ltd. (the Partnership) was formed as a California
limited  partnership on June 13, 1984.  Effective December 31, 1994, the general
partner is LMH Realty, Inc., which is wholly owned by L. Mark Hammerschmitt, the
President  of  Preferred  Financial  Corporation  (PFC).  The  previous  general
partners became limited partners of the Partnership.  The Partnership was formed
to  acquire,   on  June  28,  1984,  a  526-unit  garden  apartment  project  on
approximately forty acres in Laurel, Maryland, known as Larchdale Woods.

The term of the Partnership is 31 years,  but it may be dissolved  earlier under
certain  circumstances.  The partners  share in operating  profits and losses in
proportion to their respective capital contributions.  Any proceeds arising from
the sale or  refinancing of the  Partnership  property that are in excess of the
limited  partners'  initial  capital   contributions,   plus  a  12%  per  annum
noncompounded  cumulative return,  will be allocated 25% to the general partners
and 75% to the limited partners.

DEPRECIATION AND AMORTIZATION

Depreciation  is provided  using the  straight-line  method  over the  estimated
useful lives of the related assets as follows:

          Building and improvements - 18 Years
          Furniture and fixtures    -  5 Years

Loan fees are amortized over the life of the related loan.

NOTE 2 - CASH
-------------

The Partnership  participates in a consolidated cash account administered by PFC
to receive and hold cash from various  entities it manages and controls in order
to make  disbursements  on behalf of these  entities.  Amounts so  received  are
accounted for separately,  although PFC does not maintain separate bank accounts
for the various companies.

                                      F-6

<PAGE>

                        LARCHDALE OWNERSHIP COMPANY, LTD.
                       (A California Limited Partnership)

                    NOTES TO FINANCIAL STATEMENTS (Continued)

                           December 31, 2002 and 2001


NOTE 3 - NOTE PAYABLE SECURED BY REAL PROPERTY
----------------------------------------------

On November 10, 1986, the Partnership refinanced the property by obtaining a new
loan of $12,750,000 from an institutional  third-party lender secured by a first
trust deed on the  property.  The note bore  interest at a variable  rate of 225
basis points over the 11th District Federal Home Loan Bank Cost of Funds, with a
floor of 10% and maximum of 15% and was due December 1, 1998.

In May 1992, the  Partnership  completed a modification  of the payment terms of
the loan for a one-year  period  commencing  with the  payment due in January 1,
1992. Under the terms of the  modification,  monthly interest only payments were
made at the reduced rate of 5%, with the difference between interest at the full
rate and the reduced payment rate added to the principal  amount of the loan. In
addition,  payments for property taxes were impounded by the lender on a monthly
basis.  After the end of the modification  period,  the Partnership made partial
monthly  payments  until April 6, 1993 when  payment in full of past due amounts
was made and the loan reverted to its unmodified terms.

In May 1994, the Partnership completed a second modification of the loan payment
terms for a one-year period  commencing on November 1, 1993.  Under the terms of
the second modification, monthly interest only payments were paid at the reduced
rate of 9%, with the difference between interest at the full rate of 10% and the
reduced  payment rate added to the  principal  amount of the loan.  In addition,
payments for property taxes were impounded by the lender on a monthly basis.  In
March 1995, the  modification  was extended for a one-year period  commencing on
November 1, 1994.

Starting with the payment due on November 1, 1995, the modification  expired and
monthly  payments at the full rate of 10% per annum plus principal  amortization
were  required  under  the  original  terms of the  note.  However,  the  lender
continued to bill the Partnership  under the terms of the  modification  and the
Partnership paid the amounts as billed. The Partnership  contacted the lender in
September 1996 to initiate negotiations to resolve the billing disparity,  which
had  accumulated to $281,000 and the problems of the property taxes due starting
in September  1996 and the deferred  maintenance  of the  property.  In December
1996,  the lender  agreed to accept  $11,800,000  as payment in full on its loan
under the  conditions,  among others,  that payment be received before April 15,
1997, that the property taxes be paid, and that the loan be purchased by a third
party independent of the Partnership.  The loan payoff amount was reduced by the
principal  portion of the monthly payments made from January 1, 1997 through the
purchase date. The property taxes were paid by the Partnership in December 1996.

                                      F-7
<PAGE>

                        LARCHDALE OWNERSHIP COMPANY, LTD.
                       (A California Limited Partnership)

                    NOTES TO FINANCIAL STATEMENTS (Continued)

                           December 31, 2002 and 2001

NOTE 3 - NOTE PAYABLE SECURED BY REAL PROPERTY (CONTINUED)
---------------------------------------------------------

On February 28, 1997, the Partnership  completed the refinancing of the property
and paid off the existing  loan,  which had a balance at closing of  $13,248,725
with a cash payment of $11,767,496.  The Partnership  paid a fee of $50,000 to a
third party to purchase the existing loan from the lender and subsequently  sell
the loan to the Partnership, a referral fee of 25,214 to a consultant, and a fee
of $140,602 to the general partner, LMH Realty, Inc. for services related to the
loan discount.  The  Partnership  recognized the remaining gain of $1,265,414 in
1997.

The loan was purchased and the refinancing  completed with funds from a new loan
to the  Partnership  of $14,000,000 at 8.20% per annum maturing on March 1, 2007
with monthly principal and interest  payments of $104,686.  The Partnership paid
fees to the lender and loan broker of  $280,000,  loan costs,  title  insurance,
transfer  taxes and  recording  fees of  $50,996,  and  estimated  legal fees of
$25,000.

NOTE 4 - ADVANCE DUE TO AFFILIATE
---------------------------------

In 1995,  the County enacted a solid waste service charge on property tax bills.
However,  the County  did not bill the charge for 1996,  1997 and 1998 until May
1998. The  Partnership  paid this charge of $81,530 in July 1998 utilizing funds
from an $80,000 loan from an affiliate of the general partner.

In 1999 and 2000 an additional $273,000 and $982,000,  respectively,  was loaned
to the  Partnership  by an affiliate of the general  partner for  completion  of
exterior  cosmetic  improvements  and preliminary  engineering and  construction
activity on structural  building problems affecting several buildings  involving
27 of the 526 units in the apartment  complex.  These loans totaling  $1,335,000
accrue interest at 12% per annum.

In December 2002, the Partnership made a principal payment of $235,000, reducing
the loan to $1,100,000,  and paid all accrued interest through December 31, 2002
of $320,400 to the affiliate of the general partner.

NOTE 5 - INCOME TAXES
---------------------

Under  provisions of the Internal  Revenue Code and the  California  Revenue and
Taxation Code,  partnerships  are not subject to income taxes;  however they are
subject to a minimum  California  tax. As the minimum  tax is not  material,  no
provision has been made for such taxes in the accompanying financial statements.
For income  tax  reporting  purposes,  income or loss is  includable  in the tax
returns of the individual partners.

                                      F-8

<PAGE>

                        LARCHDALE OWNERSHIP COMPANY, LTD.
                       (A California Limited Partnership)

                    NOTES TO FINANCIAL STATEMENTS (Continued)

                           December 31, 2002 and 2001

NOTE 5 - INCOME TAXES (CONTINUED)
--------------------------------

The net loss reported for financial  reporting  purposes is different  from that
reported for income tax purposes, as shown below:

                                                        2002             2001
                                                      ---------      -----------

Net income (loss) for financial reporting purposes    $ 133,443      $ (301,496)
Tax depreciation difference                              94,772          86,922
Interest                                               (160,200)        160,200
                                                      ---------      -----------

Net income (loss) for income tax reporting purposes   $  68,015      $  (54,374)


NOTE 6 - RELATED PARTY TRANSACTIONS
-----------------------------------

Concurrent  with the purchase of the property,  the  Partnership  engaged PFC to
manage the property and the affairs of the  Partnership for a combined fee of 6%
of the gross  rental  receipts.  Management  fees paid or  accrued  amounted  to
$261,963 in 2002, $249,170 in 2001, and $220,176 in 2000.  Professional  service
expenses  include  $32,130 in 2002,  $29,880 in 2001 and $29,748 in 2000 paid to
PFC for accounting, data processing, tax services and out-of-pocket expenses.

In December 2000, an affiliate of the general partner acquired 7,030 Partnership
Interests, or 19.7% of the outstanding Interests, pursuant to a Repurchase Offer
made available to existing limited  partners.  The Repurchase Offer was extended
and in April 2001,  an affiliate of the General  Partner  acquired an additional
2,158 Partnership Interests,  or 6.1% of the outstanding interests. In September
2002,  another Repurchase Offer was made available to existing limited partners,
and pursuant to this offer an affiliate of the general partner  acquired 8,453.5
Partnership  Interests,  or 23.7% of the outstanding interests during the fourth
quarter of 2002. Including Interests  previously  acquired,  the general partner
and its affiliates hold 18,321 Interests,  or 51.3% of the outstanding Interests
at  December  31,  2002,   which  represents  a   majority-in-interest   of  the
Partnership.  In connection  with the  Repurchase  Offers,  the General  Partner
received a fee of $25,133 in December 2000,  $8,222 in April 2001 and $29,682 in
October 2002.

                                      F-9
<PAGE>

                        LARCHDALE OWNERSHIP COMPANY, LTD.
                       (A California Limited Partnership)
              SCHEDULE XI - PROPERTIES AND ACCUMULATED DEPRECIATION
              for the Years Ended December 31, 2002, 2001 and 2000

<TABLE>
<CAPTION>
                                                                           Buildings         Furniture
                                                                              and               and
                                                          Land            Improvements        Fixtures             Total
                                                       ----------         ------------        --------          -----------
COST

<S>                                                    <C>                 <C>               <C>                <C>
Balance at December 31, 1999                           $1,679,198          $11,949,710       $ 410,845          $14,039,753
Additions during the year
                                                       ----------          -----------       ---------          -----------
Balance at December 31, 2000                            1,679,198           11,949,710         410,845           14,039,753
Additions during the year                                                      131,450                              131,450
                                                       ----------          -----------       ---------          -----------
Balance at December 31, 2001                            1,679,198           12,081,160         410,845           14,171,203
Additions during the year
                                                       ----------          -----------       ---------          -----------
Balance At December 31, 2002                            1,679,198           12,081,160         410,845           14,171,203
                                                       ==========          ===========       =========          ===========


ACCUMULATED DEPRECIATION

Balance at December 31, 1999                                                10,134,972         410,845           10,545,817
Add depreciation charged to expense
  during the year                                                              663,412                              663,412
                                                       ----------          -----------       ---------          -----------
Balance at December 31, 2000                                                10,798,384         410,845           11,209,229
Add depreciation charged to expense
  during the year                                                              667,063                              667,063
                                                       ----------          -----------       ---------          -----------
Balance at December 31, 2001                                                11,465,447         410,845           11,876,292
Add depreciation charged to expense
  during the year                                                              358,695                              358,695
                                                       ----------          -----------       ---------          -----------
Balance At December 31, 2002                                                11,824,142         410,845           12,234,987
                                                       ----------          -----------       ---------          -----------

Net Book Value At December 31, 2002                   $ 1,679,198         $    257,018      $       -0-         $ 1,936,216
                                                       ==========          ===========       =========          ===========


                                      F-10
</TABLE>