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, 2001                                            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, 2002,  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 $4,704,423.


<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.
                  -----------------------
<TABLE>
<CAPTION>
<S>                                            <C>                 <C>                     <C>
                                               Year Ended           Year Ended              Year Ended
                                               December 31,         December 31,            December 31,
                                                  2001                 2000                    1999

Revenue                                        $  4,146,351        $  3,642,710            $  3,214,375
Net loss                                       $   (301,496)       $ (1,478,071)           $   (859,291)
Per limited partnership interest               $         (9)       $        (42)           $        (24)
Total assets                                   $  2,932,406        $  3,328,285            $  4,031,375
Long-term obligations                          $ 13,374,012        $ 13,526,704            $ 13,667,414
</TABLE>





















                                       -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
of

                                       -4-
<PAGE>

$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.
                  ---------------------

         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.

         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.

                                       -5-
<PAGE>

         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.

         The  Partnership  made progress in addressing  its various  problems in
1999. The on-site  management  team has been stabilized with the hiring of a new
manager  who had managed  Larchdale  in 1997  before  leaving to pursue  another
business  interest.  The local rental market is positive which,  combined with a
stronger  management  team and other  improvements,  has  resulted  in  steadily
improving  rental  collections  through the second half of 1999.  Rental  income
increased by $74,086, or 2.4%, to $3,130,937 in 1999, which reversed the decline
incurred in 1998.

         The second issue was related to the completion of the exterior cosmetic
improvements,  which  began in 1997 and  were  finished  in  December  1999,  as
evidenced by the issuance of the County biannual operating permit after clearing
all of the County inspection deficiencies.  License expenses in 1999 include the
County biannual license fee of $26,300.

         But, by far, the most serious problem for Larchdale has been the ground
shifting  affecting  five  buildings  in the 526  unit  apartment  complex.  The
shifting  caused  foundation  failures in two buildings  requiring the buildings
consisting of 25 units to be closed and tenants  transferred to other  buildings
plus two units in two other buildings to be unrentable.  In addition,  there are
surface runoff drainage  problems that  periodically  cause water damage to four
other units.

         In March 2000,  work  commenced to repair the buildings and improve the
surface  drainage  systems at a total cost of  approximately  $700,000  in 2000,
including  repairs  to the  interior  of  these  31  units,  with  an  estimated
completion  date at the end of May  2000.  These  costs  were  funded in 2000 by
additional loans from an affiliate of the general partner which loaned Larchdale
$273,000  in 1999 for  completion  of the  exterior  cosmetic  improvements  and
preliminary  engineering and  construction  activity on the structural  building
problems.

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.  Including Interests previously acquired, the general partner and its
affiliates  hold  9,867  Interests  or 27.6%  of the  outstanding  Interests  at
December 31, 2001.

         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 1999, 2000 and 2001
amounted  to  $193,263,  $220,176  and  $249,170  respectively.  PFC was further
reimbursed for accounting,  data processing, tax preparation services, and other
out-of-pocket expenses of $37,298 in 1999, $29,748 in 2000 and $29,880 in 2001.

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

                                     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 28, 2002

                                      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 28, 2002
















                                       -8-
<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, 2001 and 2000                                F-2

Statements of Operations - for the Years Ended
 December 31, 2001, 2000 and 1999                                          F-3

Statement of Changes in Partners' Capital -
 for the Years Ended December
31, 2001, 2000 and 1999                                                    F-4

Statement of Cash Flows - for the Years Ended
 December 31, 2001, 2000 and 1999                                          F-5

Notes to Financial Statements - December 31, 2001 and 2000                 F-6


Financial Statement Schedule - Under Item 14(a)

Schedule XI - Properties and Accumulated Depreciation -
 December 31, 2001, 2000 and 1999                                          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.

                                       -9-


<PAGE>

                         COHEN PAGANO ACCOUNTANCY, INC.
                          Certified Public Accountants
                        12100 Wilshire Blvd., Suite 645
                         Los Angeles, California 90025
                                 -------------
                              Tel: (310) 826-3400
                              Fax: (310) 826-3405


March 27, 2002

To the Partners
Larchdale Ownership Company, Ltd.


We have audited the accompanying  balance sheets of Larchdale Ownership Company,
Ltd., a California  Limited  Partnership (the  "Partnership") as of December 31,
2001 and 2000, and the related  statements of  opreations,  changes in partners'
capital,  and cash flows for the years ended December 31, 2001,  2000, and 1999.
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, 2001 and 2000, and the results of its operations and its
cash flows for the years ended  December 31, 2001,  2000 and 1999 in  conformity
with generally accepted accounting principles.

Our audit was  conducted  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 purpose 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>
<TABLE>
<CAPTION>

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


                                                           ASSETS
<S>                                                                          <C>                      <C>
                                                                                         December 31,
                                                                                2001                     2000
                                                                             -----------              ------------

PROPERTY AT COST - Notes 1 and 3
Land                                                                         $ 1,679,198              $  1,679,198
Buildings and improvements                                                    12,081,160                11,949,710
Furniture and fixtures                                                           410,845                   410,845
                                                                             -----------               -----------
                                                                              14,171,203                14,039,753
LESS ACCUMULATED DEPRECIATION                                                 11,876,292                11,209,229
                                                                             -----------               -----------
                                                                               2,294,911                 2,830,524


CASH - Note 2                                                                    131,034                     9,260

LOAN FEES -
net of accumulated amortization of
$175,234 at December 31, 2001 and
$138,979 at December 31, 2000                                                    187,319                   223,574

PAID EXPENSES AND OTHER ASSETS                                                   319,142                   264,927
                                                                           -------------               -----------

                                                                             $ 2,932,406               $ 3,328,285
                                                                           =============               ===========


                                              LIABILITIES AND PARTNERS' CAPITAL

NOTE PAYABLE - Note 3                                                        $13,374,012               $13,526,704

ACCOUNTS PAYABLE AND ACCRUED
EXPENSES                                                                         215,975                   228,477

ADVANCE DUE TO AFFILIATE - Note 4                                              1,495,200                 1,434,940

TENANT SECURITY DEPOSITS                                                         166,197                   155,646

PARTNERS' CAPITAL (DEFICIT)                                                  (12,318,978)              (12,017,482)
                                                                           -------------               -----------
                                                                             $ 2,932,406               $ 3,328,285
                                                                           =============               ===========




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

                                                        F-2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>


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

<S>                                                   <C>                        <C>                       <C>
                                                          2001                       2000                      1999
                                                      ------------               -----------               -----------
REVENUE
Rental income                                         $ 4,032,818                $ 3,542,811               $ 3,130,937
Other income                                              113,533                     99,899                    83,438
                                                      -----------                -----------               -----------
                                                        4,146,351                  3,642,710                 3,214,375
                                                      -----------                -----------               -----------

EXPENSES
      Interest                                          1,265,813                  1,176,639                 1,167,620
      Depreciation and amortization                       703,318                    699,668                   699,668
      Repairs and maintenance                             835,737                    939,617                   818,660
      Utilities                                           349,974                    342,425                   346,228
      Salaries and related expenses                       438,602                    418,216                   407,664
      Management and administrative fee                   249,170                    220,176                   193,263
      Property taxes                                      219,466                    221,589                   221,854
      Professional services                                71,527                     99,362                    85,390
      Insurance                                            68,988                     53,048                    54,653
      Administrative costs                                 24,359                     45,888                    30,368
      Advertising and promotion                            29,192                     21,450                    21,128
      Licenses                                             27,180                        500                    27,170
      Foundation and drainage                             164,521                    882,203
                                                      -----------                -----------               -----------
                                                        4,447,847                  5,120,781                 4,073,666

NET INCOME (LOSS)                                     $  (301,496)               $(1,478,071)              $  (859,291)
                                                      ===========                ===========               ===========

Net loss per weighted number of
      limited partnership interests
      outstanding (35,371 in 2001,
      2000, and 1999)                                 $        (9)               $       (42)              $       (24)
                                                      ===========                ===========               ===========











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

                                                          F-3
</TABLE>
<PAGE>

                        LARCHDALE OWNERSHIP COMPANY, LTD.
                       (A California Limited Partnership)
                    Statement of Changes in Partners' Capital
              for the Years Ended December 31, 2001, 2000 and 1999

                                       Limited
                                      Partner
                                     Interests    Limited   General
                                    Outstanding  Partners  Partners    Total
                                      -------  ----------- --------  -----------

PARTNERS' CAPITAL BALANCE
December 31, 1998                     35,371   (9,614,373) (65,747)  (9,680,120)

NET LOSS for the year ended
December 31, 1999                                (859,205)     (86)    (859,291)
                                      ------   ----------  --------  -----------

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)
                                      ======   ==========  ========  ==========












    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,


                                          2001           2000             1999
                                       ----------      ---------        --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss from operations               $ (301,496)   $(1,478,071)    $ (859,291)
Adjustments to reconcile net loss
to net cash provided (used) by
operating activities
Depreciation and amortization             703,318        699,668        699,668
(Increase) decrease in:
Prepaid expenses and other assets         (54,215)        11,406        (17,451)
Increase (decrease) in:
Accounts payable and accrued expenses     (12,502)      (160,868)       (62,234)
Accrued interest to affiliate              60,260         60,070         39,870
                                       -----------     ----------    -----------
Net cash provided (used) by
operating activities                      395,365       (867,795)      (199,438)


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      (152,692)      (140,710)      (129,668)
Advance due to affiliate                                 982,000        273,000
Increase (decrease) in tenant
security deposits                          10,551         34,489          9,818
                                       -----------     ----------    -----------

Net cash provided (used) by financing
activities                               (142,141)       875,779        153,150
                                       -----------     ----------    -----------

Net increase (decrease) in cash           121,774          7,984        (46,288)
Cash beginning of year                      9,260          1,276         47,564
                                       -----------     ----------    -----------

Cash at end of year                    $  131,034      $   9,260     $    1,276
                                       ===========     ==========    ===========








    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, 2001 and 2000

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, 2001 and 2000

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, 2001 and 2000

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.  Accrued interest at 12% per annum
on these advances of $1,335,000 totaled $160,200 at December 31, 2001.

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, 2001 and 2000

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:

                                                    2001                 2000
                                                ------------         -----------

Net loss for financial reporting purposes        $ 301,496          $ 1,478,071
Tax depreciation difference                        (86,922)            (173,248)
Interest                                          (160,200)              39,870
                                                ------------         -----------

Net loss for income tax reporting purposes       $  54,374          $ 1,344,693


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
$249,170 in 2001, $220,176 in 2000, and $193,263 in 1999.  Professional  service
expenses  include  $29,880 in 2001,  $29,748 in 2000 and $37,298 in 1999 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.  Including
Interests previously acquired, the general partner and its affiliates hold 9,867
Interests,  or 27.6% of the  outstanding  Interests  at December  31,  2001.  In
connection  with the Repurchase  Offer,  the General  Partner  received a fee of
$25,133 in December 2000 and $8,222 in April 2001.

                                      F-9
<PAGE>
<TABLE>
<CAPTION>

                        LARCHDALE OWNERSHIP COMPANY, LTD.
                       (A California Limited Partnership)
              SCHEDULE XI - PROPERTIES AND ACCUMULATED DEPRECIATION
              for the Years Ended December 31, 2001, 2000 and 1999



<S>                                                <C>                    <C>              <C>              <C>
                                                                           Buildings         Furniture
                                                                              and               and
                                                          Land            Improvements        Fixtures             Total
                                                   --------------         ------------     -----------       --------------

COST

Balance at December 31, 1998                          $ 1,679,198          $11,949,710       $ 410,845          $14,039,753
Additions during the year
                                                   --------------         ------------     -----------       --------------
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
                                                   ==============         ============     ===========       ==============


ACCUMULATED DEPRECIATION

Balance at December 31, 1998                                                 9,471,560         410,845            9,882,405
Add depreciation charged to expense
  during the year                                                              663,412                              663,412
                                                                          ------------     -----------       --------------
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
                                                   --------------         ------------     -----------       --------------

Net Book Value At December 31, 2001                   $ 1,679,198         $    615,713    $         -0-         $ 2,294,911
                                                   ==============         ============     ============      ==============




</TABLE>








                                      F-10
<PAGE>