UNITED STATES
                    SECURITIES AND EXCHANGE COMMISSION
                          Washington, D.C. 20549
                          ----------------------

                               FORM 10-KSB

[x] Annual Report pursuant to Section 13 or 15(d) of the Securities
    Exchange Act of 1934

For the fiscal year ended June 30, 2008

[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
    Exchange Act of 1934

Commission file number 0-6877


                       SANTA FE FINANCIAL CORPORATION
                       ------------------------------
                (Name of Small Business Issuer in Its Charter)

            Nevada                                      95-2452529
   ------------------------------                    ------------------
  (State or Other Jurisdiction of                    (IRS Employer
   Incorporation or Organization)                    Identification No.)


  820 Moraga Drive, Los Angeles, California               90049
  -----------------------------------------             ----------
  (Address of Principal Executive Offices)              (Zip Code)

                               (310) 889-2500
              ----------------------------------------------------
                        (Issuer's Telephone Number)

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

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

                          $.10 Par Value Common Stock
                          ---------------------------
                                (Title of Class)

    Check whether the issuer is not required to file reports pursuant to
section 13 or 15(d) of the Exchange Act.  [ ]

    Check whether the issuer: (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 [ ]

    Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B contained in this form, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendments to
this Form 10-KSB.  [X]

    Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ]  No [X]

<PAGE>

The issuer's revenues for the year ended June 30, 2008 were $38,337,000.

The aggregate market value of the common equity held by non-affiliates of the
issuer computed by reference to the price of $13.50 at which the stock last
sold on September 3, 2008 is $3,377,673.

The number of shares outstanding of issuer's $.10 Par Value Common Stock, as of
September 10, 2008, was 1,241,810.

Transitional Small Business Disclosure Format:  Yes [ ]    No [X]

                     DOCUMENTS INCORPORATED BY REFERENCE: None


                            TABLE OF CONTENTS

                                PART I                               PAGE

    Item  1.  Description of Business.                                 4

    Item  2.  Description of Property.                                 9

    Item  3.  Legal Proceedings.                                      14

    Item  4.  Submission of Matters to a Vote of Security Holders.    14

                               PART II

    Item  5.  Market For Common Equity and Related                    15
              Stockholder Matters.

    Item  6.  Management's Discussion and Analysis of Financial       16
              Condition and Results of Operations.

    Item  7.  Financial Statements and Supplementary Data.            23

    Item  8.  Changes in and Disagreements with Accountants on        46
              Accounting and Financial Disclosure.

    Item  8A. Controls and Procedures.                                46

    Item  8B. Other Information.                                      47

                              PART III

    Item  9.  Directors, Executive Officers, Promoters and            47
              Control Persons; Compliance with Section 16(a)
              of The Exchange Act.

    Item 10.  Executive Compensation.                                 49

    Item 11.  Security Ownership of Certain Beneficial Owners and     52
              Management.

    Item 12.  Certain Relationships and Related Transactions.         54

    Item 13.  Exhibits.                                               56

    Item 14.  Principal Accountant Fees and Services.                 57

SIGNATURES                                                            58

                                    -2-
<PAGE>

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-KSB contains certain "forward-looking statements"
within the meaning of the Private Securities Litigation reform Act of 1995.
Forward-looking statements give our current expectations or forecasts of future
events. You can identify these statements by the fact that they do not relate
strictly to historical or current facts. They contain words such as
"anticipate," "estimate," expect," "project," intend," "plan," "believe" "may,"
"could," "might" and other words or phrases of similar meaning in connection
with any discussion of future operating or financial performance. From time to
time we also provide forward-looking statements in our Forms 10-QSB and 8-K,
Annual reports to Shareholders, press releases and other materials we may
release to the public. Forward looking statements reflect our current views
about future events and are subject to risks, uncertainties, assumptions and
changes in circumstances that may cause actual results or outcomes to differ
materially from those expressed in any forward looking statement. Consequently,
no forward looking statement can be guaranteed and our actual future results
may differ materially.

Factors that may cause actual results to differ materially from current
expectations include, but are not limited to:

    * risks associated with the hotel industry, including competition,
      increases in wages, labor relations, energy and fuel costs, actual and
      threatened terrorist attacks, and downturns in economic and market
      conditions, particularly in the San Francisco Bay area;

    * risks associated with the real estate industry, including changes in real
      estate and zoning laws or regulations, increases in real property taxes,
      rising insurance premiums, costs of compliance with environmental laws
      and other governmental regulations;

    * the availability and terms of financing and capital and the general
      volatility of securities markets;

    * changes in the competitive environment in the hotel industry and

    * risks related to natural disasters;

    * litigation; and

    * other risk factors discussed below in this Report.

We caution you not to place undue reliance on these forward-looking statements,
which speak only as to the date hereof. We undertake no obligation to publicly
update any forward looking statements, whether as a result of new information,
future events or otherwise. You are advised, however, to consult any further
disclosures we make on related subjects on our Forms 10-KSB, 10-QSB, and 8-K
reports to the Securities and Exchange Commission.

                                    -3-
<PAGE>

                                PART I

Item 1.  Description of Business.

GENERAL

Santa Fe Financial Corporation ("Santa Fe" or the "Company") was incorporated
under the name of Tri Financial Corporation in the State of Nevada on July 25,
1967 as a wholly owned subsidiary of Crateo, Inc, a public company.  On October
31, 1969, Crateo issued a one-for-one stock dividend of all of its shares of
Tri Financial to its common shareholders.  On September 17, 1970, the name of
the Corporation was changed to Santa Fe Financial Corporation.

One of the Company's principal sources of operating revenue has been, and
continues to be, derived from the management of its 68.8% owned subsidiary,
Portsmouth Square, Inc. ("Portsmouth"), a public company (OTCBB: PRSI).
Portsmouth is limited partner, and one of two general partners in Justice
Investors, a California limited partnership ("Justice" or the "Partnership").
In April 2006, Portsmouth purchased a 0.20% limited partnership interest in
Justice from another limited partner, which brought Portsmouth's limited
partnership interest in Justice to exactly 50.0%. The other general partner,
Evon Corporation ("Evon"), acts as the managing general partner. All
significant partnership decisions require the active participation and approval
of both general partners. Pursuant to the terms of the partnership agreement,
voting rights of the partners are determined according to the partners'
entitlement to share in the net profit and loss of the partnership.  The
Company is not entitled to any additional voting rights by virtue of its
position as a general partner. The partnership agreement also provides that no
portion of the partnership real property can be sold without the written
consent of the general and limited partners entitled to more than 72% of the
net profit. As of June 30, 2008, there were 111 limited partners in Justice,
including Portsmouth and Evon.

In accordance with guidance set forth in Financial Accounting Standards Board
(FASB) Statement of Position (SOP) 78-9-1, Portsmouth has applied the
principles of accounting applicable for investments in subsidiaries due to its
"kick out rights" and "substantive participating rights" arising from its
limited partnership and general partnership interest and has consolidated the
financial statements of Justice with those of the Company, effective with the
first reporting period of its fiscal year beginning July 1, 2006. In prior
years, Portsmouth's interest in Justice was recorded on the equity basis.
Please see Item 7. "Financial Statements." - Note 2 to the consolidated
financial statements for a further discussion.

The Company's principal business is conducted through its limited and general
partnership interests in Justice.  Justice owns a 544 room hotel property
located at 750 Kearny Street, San Francisco, California 94108, now known as the
"Hilton San Francisco Financial District" (the "Hotel") and related facilities,
including a five level underground parking garage.  Historically, the
Partnership's most significant source of income was a lease between Justice and
Holiday Inn for the Hotel portion of the property.  That lease was amended in
1995, and ultimately assumed by Felcor Lodging Trust, Inc. ("Felcor", NYSE:
FCH) in 1998. The lease of the Hotel to Felcor was terminated effective June
30, 2004.

With the termination of the Hotel lease, Justice assumed the role of an
owner/operator with the assistance of a third party management company.
Effective July 1, 2004, the Hotel was operated as a Holiday Inn Select brand
hotel pursuant to a short term franchise agreement until it was temporarily

                                    -4-
<PAGE>

closed for major renovations on May 31, 2005. The Hotel was reopened on January
12, 2006 to operate as a full service Hilton hotel, pursuant to a Franchise
License Agreement with Hilton Hotels Corporation.

The Partnership also derives income from its lease of the parking garage
portion of the to Evon and the lease of approximately 5,400 square feet on the
lobby level of the Hotel to Tru Spa, LLC ("Tru Spa") for the operation of a
health and beauty spa. The garage and Tru Spa remained open during the
renovation work.

The Company also derives income from management fees as a general partner in
Justice, rental income from its multi-family, residential rental properties and
from the investment of its cash and securities assets. The Company has invested
in income-producing instruments, equity and debt securities and will consider
other investments if such investments offer growth or profit potential. Please
see discussion of Investment Policies under Item 2 "Description of Property"
below.

HILTON HOTELS FRANCHISE LICENSE AGREEMENT

With the termination of the Hotel Lease to Felcor, the Partnership was able to
actively pursue a franchise agreement with a new nationally recognized brand in
an effort to move the Hotel up-market and become more competitive. After
considering and negotiating with several brands, the Partnership entered into a
Franchise License Agreement with Hilton Hotels Corporation (the "Hilton
Franchise Agreement") on December 10, 2004 for the right to operate the Hotel
as a Hilton brand hotel.  The term of the Hilton Franchise Agreement is for 15
years commencing on the opening date of the Hotel, January 12, 2006, with an
option to extend that Agreement for another five years, subject to certain
conditions.

The Partnership will pay monthly royalty fees for the first two years of three
percent (3%) of the Hotel's gross room revenue, as defined, for the preceding
calendar month, the third year will be four percent (4%) of the Hotel's gross
room revenue, and the fourth year until the end of the term will be five
percent (5%) of the Hotel's gross room revenue.  Justice also pays a monthly
program fee of four percent(4%) of the Hotel's gross room revenue and an
information technology recapture charge of 0.75% of the Hotel's gross revenue.
The amount of the monthly program fee is subject to change; however, the
monthly program fee will not exceed five percent of gross room revenue.

Prior to operating the Hotel as a Hilton hotel, the Partnership was required to
make substantial renovations to the Hotel to meet Hilton standards in
accordance with a product improvement plan ("PIP") agreed upon by Hilton and
the Partnership, as well as comply with other brand standards.  That project
included a complete renovation and upgrade of all of the Hotel's guestrooms,
meeting rooms, common areas and restaurant and bar.  As of January 12, 2006,
the Hotel renovation work was substantially completed, at which time Justice
obtained approval from Hilton to open the Hotel as the "Hilton San Francisco
Financial District". The Hotel opened with a limited number of rooms available
to rent, which increased as the Hotel transitioned into full operations by the
end of February 2006.

The total cost of the construction-renovation project of the Hotel was
approximately $37,030,000, which includes approximately $630,000 in interest
costs incurred during the construction phase that were capitalized. To meet
those substantial financial commitments, and the costs of operations during the
renovation period and for the first five months when the Hotel ramped up its

                                    -5-
<PAGE>

operations, the Partnership has relied on additional borrowings to meet its
obligations.  As discussed in Item 2 herein, the Partnership has been able to
secure adequate financing, collateralized by the Hotel, to meet those
commitments.

HOTEL MANAGEMENT COMPANY AGREEMENTS

In February 2007, the Partnership entered into a management agreement with
Prism Hospitality ("Prism") to manage and operate the Hotel as its agent,
effective February 10, 2007. Prism is an experienced Hilton approved operator
of upscale and luxury hotels throughout the Americas. The agreement is
effective for a term of ten years, unless the agreement is extended as provided
in the agreement, and the Partnership has the right to terminate the agreement
upon ninety days written notice without further obligation. Under the
management agreement, the Partnership is to pay base management fees of 2.5% of
gross operating revenues for the fiscal year. However, 0.75% of the stated
management fee is due only if the partially adjusted net operating income for
the subject fiscal year exceeds the amount of a minimum Partnership's return
($7 million) for that fiscal year. Prism is also entitled to an incentive
management fee if certain milestones are accomplished. No incentive fees were
earned during the years ended June 30, 2008 and 2007.  Management fees paid to
Prism during the years ended June 30, 2008 and 2007 were $571,000 and $212,000,
respectively.

Prior to the Prism management agreement, the Hotel was managed and operated by
Dow Hotel Company, LLC ("DOW") from July 1, 2004 until February 9, 2007.  On
February 9, 2007, Justice entered into an agreement with Dow Hotel Company, to
mutually terminate its management agreement and to transition the day-to-day
management responsibilities of the Hotel to Prism. The management agreement
with Dow was on the same basic terms and conditions as the agreement with
Prism, with the exception of certain provisions that were unique to the
renovation and transition of the Hotel. No incentive management fees were
earned by Dow during the fiscal year ended June 30, 2007. Management fees paid
to DOW during the year ended June 30, 2007 were $311,000.

GARAGE LEASE AND OPERATIONS

The garage lease between the Partnership and Evon provides for a monthly rental
of sixty percent (60%) of gross parking revenues with a minimum rent of $20,000
per month.  That lease expires in November 2010.  The garage lessee, Evon, is
responsible for insurance, repairs and maintenance, utilities and all taxes
assessed against the improvements to the leased premises. The garage is
operated by Ace Parking Management, Inc. ("Ace Parking") pursuant to a parking
facility management agreement with the garage lessee.

TRU SPA LEASE

Approximately 5,400 square feet of space on the lobby level of the Hotel is
leased to Tru Spa for the operation of a health and beauty spa.  The lease
expires in May 2013, with a five year option to extend the term.  The spa lease
provides for minimum monthly rent of $14,000. Minimum rental amounts are
subject to adjustment every three years based on increases in the Consumer
Price Index.

                                    -6-
<PAGE>

CHINESE CULTURE FOUNDATION LEASE

On March 15, 2005, the Partnership entered into an amended lease with the
Chinese Culture Foundation of San Francisco (the "Foundation") for the third
floor space of the Hotel commonly known as the Chinese Cultural Center, which
the Foundation had right to occupy pursuant to a 50-year nominal rent lease.
The amended lease requires the Partnership to pay to the Foundation a monthly
event space fee in the amount of $5,000, adjusted annually based on the local
Consumer Price Index. The term of the amended lease expires on October 17,
2023, with an automatic extension for another 10 year term if the property
continues to be operated as a hotel. This amendment allowed Justice to
incorporate the third floor into the renovation of the Hotel resulting in a new
ballroom for the joint use of the Hotel and new offices and a gallery for the
Chinese Culture Center.

COMPENSATION OF GENERAL PARTNERS AND REPOSITIONING FEES

Effective May 31, 2004, and as amended on February 23, 2006, Justice entered
into a new General Partner Compensation Agreement (the "Compensation
Agreement") with its two general partners, Evon and Portsmouth, to compensate
them for their services to the Partnership. In order to plan, implement, and
administer the repositioning and major changes in the operations of the Hotel,
it is necessary for Evon and Portsmouth to devote substantial time, expertise,
and effort in the renovation and in managing the Partnership's assets. The
Compensation Agreement is structured to provide adequate compensation to Evon
and Portsmouth and provide incentives to the general partners to encourage
excellence in the performance of their responsibilities.

The Compensation Agreement provides that the general partners will receive
annual base compensation of 1.5% of gross revenues, with a minimum annual base
compensation of $262,000, adjusted for inflation. From the minimum annual base
compensation, 80% will be paid to Evon for its services as the managing general
partner and 20% will be paid to Portsmouth as the other general partner. Base
annual compensation in excess of the minimum is payable in equal amounts to
Evon and Portsmouth. The maximum base annual compensation that can be earned by
the general partners is 1.5% of $40,000,000 of gross revenues.  The
Compensation Agreement also provides for incentive compensation to the general
partners in a sum equal to the 5.0% of the annual net operating income of
Justice, that is in excess of $7,000,000. Incentive compensation shall be
payable in equal amounts to Evon and Portsmouth. The Compensation Agreement
will continue to remain in effect until otherwise amended by the Partnership.

During the years ended June 30, 2008 and 2007, the general partners were paid
$285,000 and $283,000, respectively, for the minimum base compensation.  For
the years ended June 30, 2008 and 2007, additional compensation earned above
the minimum base compensation was $232,000 and $184,000, respectively.  No
incentive compensation was earned during the years ended June 30, 2008 and
2007.

In accordance with the Compensation Agreement, the general partners were also
entitled to certain fees for services rendered to the Partnership with respect
to repositioning the Hotel, which were to be paid equally to both general
partners. The payments were due after six milestones in the restoration of the
Hotel. As of June 30, 2007, all milestones had been achieved and all
repositioning fees had been paid.  There were no repositioning fees earned
during the year ended June 30, 2008.  For the year ended June 30, 2007,
repositioning fees earned totaled $376,000.

                                    -7-
<PAGE>

Seasonality

Hotel's operations historically have been seasonal. Like most hotels in the San
Francisco area, the Hotel generally maintains higher occupancy and room rates
during the first and second quarters of its fiscal year (July 1 through
December 31) than it does in the third and fourth quarters (January 1 through
June 30). These seasonal patterns can be expected to cause fluctuations in the
quarterly revenues from the Hotel.

Competition

The hotel industry is highly competitive. Competition is based on a number of
factors, most notably convenience of location, brand affiliation, price, range
of services and guest amenities or accommodations offered and quality of
customer service. Competition is often specific to the individual market in
which properties are located. The Hotel is located in an area of intense
competition from other hotels in the Financial District and San Francisco in
general as described more fully under Item 2. "Description of Property."
Increased competition from new hotels, or hotels that have been recently
undergone substantial renovation, could have an adverse effect on occupancy,
average daily rate ("ADR") and room revenue per available room ("RevPar") and
put pressure on the Partnership to make additional capital improvements to the
Hotel to keep pace with the competition. Because the Hotel operates in an upper
scale segment of the market, we could also face increased competition from
providers of less expensive accommodations, such as limited service hotels,
during periods of economic downturn when leisure and business travelers become
more sensitive to room rates. As a result, there could be pressure to lower
average daily rates during such periods to compete for these guests.

The Hotel is also subject to certain operating risks common to all of the hotel
industry, which could adversely impact performance. These risks include:

   *  Competition for guests and meetings from other hotels including
      competition and pricing pressure from internet wholesalers and
      distributors;

   *  increases in operating costs, including wages, benefits, insurance,
      property taxes and energy, due to inflation and other factors, which may
      not be offset in the future by increased room rates;

   *  labor strikes, disruptions or lock outs;

   *  dependence on demand from business and leisure travelers, which may
      fluctuate and is seasonal;

   *  increases in energy costs, cost of fuel, airline fares and other expenses
      related to travel, which may negatively affect traveling;

   *  terrorism, terrorism alerts and warnings, wars and other military
      actions, SARS, pandemic or other medical events or warnings which may
      result in decreases in business and leisure travel; and

   *  adverse effects of down turns in international, national and/or local
      economies and market conditions.

                                    -8-
<PAGE>

Environmental Matters

In connection with the ownership of the Hotel, the Company is subject to
various federal, state and local laws, ordinances and regulations relating to
environmental protection. Under these laws, a current or previous owner or
operator of real estate may be liable for the costs of removal or remediation
of certain hazardous or toxic substances on, under or in such property. Such
laws often impose liability without regard to whether the owner or operator
knew of, or was responsible for, the presence of hazardous or toxic substances.

Environmental consultants retained by the Partnership or its lenders conducted
updated Phase I environmental site assessments in fiscal year ended June 30,
2008 on the Hotel property. These Phase I assessments relied, in part, on Phase
I environmental assessments prepared in connection with the Partnership's first
mortgage loan obtained in July 2005. Phase I assessments are designed to
evaluate the potential for environmental contamination on properties based
generally upon site inspections, facility personnel interviews, historical
information and certain publicly-available databases; however, Phase I
assessments will not necessarily reveal the existence or extent of all
environmental conditions, liabilities or compliance concerns at the properties.
Although the Phase I assessments and other environmental reports we have
reviewed disclose certain conditions on our properties and the use of hazardous
substances in operation and maintenance activities that could pose a risk of
environmental contamination or liability, we are not aware of any environmental
liability that we believe would have a material adverse effect on our business,
financial position, results of operations or cash flows.

The Company believes that the Hotel and its rental properties are in
compliance, in all material respects, with all federal, state and local
environmental ordinances and regulations regarding hazardous or toxic
substances and other environmental matters, the violation of which could have a
material adverse effect on the Company. The Company has not received written
notice from any governmental authority of any material noncompliance, liability
or claim relating to hazardous or toxic substances or other environmental
matters in connection with any of its present properties.

EMPLOYEES

As of June 30, 2008, the Company had three full-time employees.  The employees
of the Company are not part of any collective bargaining agreement, and the
Company believes that its employee relations are satisfactory.  Although the
employees of Portsmouth and Justice are not unionized, most employees of the
Hotel are part of Local 2 of the Hotel Employees and Restaurant Employees Union
("UNITE HERE"). In September 2007, a new contract was reached with Local 2 that
expires on August 14, 2009. As part of that agreement, Justice also settled all
claims with Local 2 arising out of the temporary closing of the hotel for
renovations. The Hotel also has labor agreements with Stationary Engineers,
Local 39 and Teamsters, Local 856. Those contracts expire on January 11, 2009
and December 31, 2008, respectively.


Item 2.  Description of Properties.

SAN FRANCISCO HOTEL PROPERTY

The Hotel is owned directly by the Partnership. The Hotel is centrally located
near the Financial District, one block from the Transamerica Pyramid. The
Embarcadero Center is within walking distance and North Beach is two blocks
away.  Chinatown is directly across the bridge that runs from the Hotel to

                                    -9-
<PAGE>

Portsmouth Square Park. The Hotel is a 31-story (including parking garage),
steel and concrete, A-frame building, built in 1970. The Hotel has 544 well
appointed guest rooms and luxury suites situated on 22 floors as well as a
5,400 square foot Tru Spa health and beauty spa on the lobby level.  The third
floor houses the Chinese Culture Center and grand ballroom.  The Hotel has
approximately 15,000 square feet of meeting room space, including the grand
ballroom. Other features of the Hotel include a 5-level underground parking
garage and pedestrian bridge across Kearny Street connecting the Hotel and the
Chinese Culture Center with Portsmouth Square Park in Chinatown.  The bridge,
built and owned by the Partnership, is included in the lease to the Chinese
Culture Center.

The Hotel is located in an area of intense competition from other hotels in the
Financial District. After being closed for more than seven months for a
substantial renovation project in fiscal year 2006, it has taken some time for
the Hotel, now operating as a Hilton, to gain recognition as a totally upgraded
and higher level property after being under the Holiday Inn brand for almost 35
years.  The Hotel is also somewhat limited by having only 15,000 square feet of
meeting room space. Other hotels, with greater meeting room space, may have a
competitive advantage by being able to attract larger groups and small
conventions. Management, in conjunction with its management company Prism and
Hilton, will make every effort to market the Hotel as an upscale property to
business travelers, leisure customers and small to medium size groups. While it
may take some time for the Hotel to be fully recognized and reach its full
potential, Management believes that the substantial renovations made to the
Hotel, coupled with the strength of the Hilton brand and its Hilton Honors
program, have provided the foundation for the Hotel to meet or exceed all of
its competition.

Since the Hotel just completed renovations, there is no present program for any
further major renovations; however, the Partnership expects to reserve
approximately 4% of gross annual Hotel revenues each year for future capital
requirements.  In the opinion of management, the Hotel is adequately covered by
insurance.


HOTEL PERFORMANCE

The following table presents certain statistical data and certain performance
information for the Hotel for the years ended June 30, 2008 and 2007. For
additional information, see Item 6. "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Item 7. "Financial
Statements" - Note 2 to the Company's consolidated financial statements.

Fiscal Year Ended         Average           Average
     June 30,            Daily Rate        Occupancy%         RevPar
-----------------        ----------        ----------        ---------
      2008                $175               84.1%            $148
      2007                $160               75.8%            $122

HOTEL FINANCINGS

On July 27, 2005, Justice entered into a first mortgage loan with The
Prudential Insurance Company of America in a principal amount of $30,000,000
(the "Prudential Loan").  The term of the Prudential Loan is for 120 months at
a fixed interest rate of 5.22% per annum. The Prudential Loan calls for monthly
installments of principal and interest in the amount of approximately $165,000,
calculated on a 30-year amortization schedule. The Loan is collateralized by a

                                    -10-
<PAGE>

first deed of trust on the Partnership's Hotel property, including all
improvements and personal property thereon and an assignment of all present and
future leases and rents. The Prudential Loan is without recourse to the limited
and general partners of Justice.

On March 27, 2007, Justice entered into a second mortgage loan with Prudential
(the "Second Prudential Loan") in a principal amount of $19,000,000. The term
of the Second Prudential Loan is for approximately 100 months and matures on
August 5, 2015, the same date as the first Prudential Loan. The Second
Prudential Loan is at a fixed interest rate of 6.42% per annum and calls for
monthly installments of principal and interest in the amount of approximately
$119,000, calculated on a 30-year amortization schedule. The Second Prudential
Loan is collateralized by a second deed of trust on the Partnership's Hotel
property, including all improvements and personal property thereon and an
assignment of all present and future leases and rents. The Second Prudential
Loan is also without recourse to the limited and general partners of Justice.

From the proceeds of the Second Prudential Loan, Justice retired its existing
line of credit facility with United Commercial Bank ("UCB") paying off the
outstanding balance of principal and interest of approximately $16,403,000 on
March 27, 2007.

The Partnership also obtained a new unsecured $3,000,000 revolving line of
credit facility from UCB to be utilized by the Partnership to meet any
emergency or extraordinary cash flow needs.

As a condition of the Second Prudential Loan, Justice was required to utilize
$1,500,000 of its line of credit with UCB to obtain a standby letter of credit
to serve as security for potential liabilities arising out of the litigation
then pending between the Partnership and Allied Construction Management, Inc.
and its subcontractors (the "Allied Litigation") over disputed construction
change orders. That standby letter of credit was released with the settlement
of the Allied Litigation in June 2008. The annual fee for the letter of credit
was one and one half percent of $1,500,000, which fee was paid in quarterly
installments for the periods in which the letter of credit was in effect.

The term of the new line of credit facility with UCB matures on February 2,
2009 and has an annual interest rate, based on an index selected by Justice at
the time of advance, equal to the Wall Street Journal Prime Rate or the Libor
Rate plus two percent (4.50% as of June 30, 2008). As of June 30, 2008, there
was $1,513,000 outstanding under the line of credit.


LOS ANGELES, CALIFORNIA APARTMENT BUILDINGS

The property owned and consolidated by the Company's 55.4% subsidiary, Woodland
Village, is a 27-unit apartment complex located Los Angeles, California. The
Company's equity interest in Woodland Village was acquired on September 29,
1999 at a cost of $4,075,000.  For the year ended June 30, 2008, real estate
property taxes were approximately $55,000.  Depreciation is recorded on the
straight-line method based upon an estimated useful life of 40 years. As of
June 30, 2008, the outstanding mortgage balance was $1,751,000.  The mortgage
carries a fixed interest rate of 7.73% and matures in October 2029.

The second Los Angeles property, Acanto, which is wholly owned by the Company,
is a two-story apartment building with 2 units.  The property was acquired on
February 1, 2002 at an initial cost of $785,000.  For the year ended June 30,
2008, real estate property taxes were approximately $10,000.  Depreciation
is recorded on the straight-line method, based upon an estimated useful life of
40 years.  The outstanding mortgage balance was approximately $424,000 at June

                                    -11-
<PAGE>

30, 2008 and the maturity date of the mortgage is January 2032 and is
collateralized by the property.  The interest rate is variable and was 6.45% at
June 30, 2008.

Effective August 1, 2005, the Company entered into a Management Agreement with
Century West Properties, Inc. ("Century West") to act as an agent of the
Company to rent and manage both of the Company's residential rental properties
in the Los Angeles, California area. The Management Agreement with Century
West is for a term of twelve months ending on July 31, 2006 and will continue
thereafter on a month-to-month basis, unless terminated upon 30 days prior
written notice. The Management Agreements provide for a monthly fee equal to 4%
of the monthly gross receipts from the properties with resident managers and a
fee of 4 1/2% of monthly gross receipts for properties without resident
mangers.  For the year ended June 30, 2008 and 2007, management fees were
$23,000 and $20,000, respectively.

Woodland Village and Acanto lease units in the apartment buildings on a short-
term basis, with no lease extending beyond one year.  For the year ended June
30, 2008, the economic occupancy (gross potential less rent below market,
vacancy loss, bad debt, discounts and concessions divided by gross potential
rent) for Woodland Village and Acanto was 71% and 100%, respectively.  The
physical occupancy(gross potential rent less vacancy loss divided by gross
potential rent) for the year ended June 30, 2008 for Woodland Village and
Acanto was 100% and 100%, respectively.

In the opinion of management, both rental properties are adequately covered by
insurance.

LAND HELD FOR DEVELOPMENT

On August 29, 2007, the Board of Directors authorized an investment of $973,000
for the Company to acquire a 50% equity interest in Intergroup Uluniu, Inc., a
Hawaii corporation ("Uluniu") in a related party transaction. Uluniu is a 100%
owned subsidiary of The InterGroup Corporation ("InterGroup"). Uluniu owns an
approximately two-acre parcel of unimproved land located in Kihei, Maui, Hawaii
which is held for development. The Company's investment in Uluniu represents an
amount equal to the costs paid by InterGroup for the acquisition and carrying
costs of the property through August 2007. The fairness of the financial terms
of the transaction were reviewed and approved by the independent director of
the Company.

Uluniu intends to obtain the entitlements and permits necessary for the joint
development of the parcel with an adjoining landowner into residential units.
After the completion of this predevelopment phase, the Uluniu will determine
whether it more advantageous to sell the entitled property or to commence with
construction. As of June 30, 2008, the $973,000 had been paid by the Company.
A portion of the proceeds were used by Uluniu to retire the mortgage on the
property in the amount of $750,000. The balance of the proceeds will be used to
fund predevelopment costs and to meet other requirements to try to enhance the
value of the property.

INVESTMENT POLICIES

The most significant real estate operation of the Company has been through its
ownership interest in Justice Investors.  The Company will continue to explore
ways to increase the value of Justice Investors and to improve operations of
the hotel.

                                    -12-
<PAGE>

The Company may also look for new real estate investment opportunities in
hotels, apartments, office buildings and shopping centers.  The acquisition of
any new real estate investments will depend on the Company's ability to find
suitable investment opportunities and the availability of sufficient financing
to acquire such investments.  To help fund any such acquisition, the Company
may borrow funds to leverage its investment capital.  The amount of any such
debt will depend on a number of factors including, but not limited to, the
availability of financing and the sufficiency of the acquisition property's
projected cash flows to support the operations and debt service.

The Company also invests from time to time in income producing instruments,
corporate debt and equity securities, mortgage backed securities, and
securities issued by REIT's, where financial benefit can be obtained through
income and/or capital gain.

The Company's securities investments are made under the supervision of a
Securities Investment Committee of the Board of Directors. The Committee
currently has three members and is chaired by the Company's Chairman of the
Board and President, John V. Winfield.  The Committee has delegated authority
to manage the portfolio to the Company's Chairman and President together with
such assistants and management committees he may engage.  The Committee has
established investment guidelines for the Company's investments.  These
guidelines presently include: (i) corporate equity securities should be listed
on the New York Stock Exchange (NYSE), NYSE ARCA, American Stock Exchange
(AMEX) or The Nasdaq Stock Market (NASDAQ); (ii) securities should be priced
above $5.00 per share; and (iii) investment in a particular issuer should not
exceed 5% of the market value of the total portfolio. The investment policies
do not require the Company to divest itself of investments, which initially
meet these guidelines but subsequently fail to meet one or more of the
investment criteria.  Non-conforming investments require the approval of the
Securities Investment Committee.  The Committee has in the past approved non-
conforming investments and may in the future approve non-conforming
investments.  The Securities Investment Committee may modify these guidelines
from time to time.

The Company's investment portfolio is diversified with 21 different equity
positions.  The portfolio contains five individual equity security positions
that are more than 5% of the total equity value of the portfolio, with the
largest representing approximately 23% of the total equity value of the entire
portfolio.  The amount of the Company's investment in any particular issuer may
increase or decrease, and additions or deletions to its securities portfolio
may occur, at any time.  While it is the internal policy of the Company to
limit its initial investment in any single equity to less than 5% of its total
portfolio value, that investment could eventually exceed 5% as a result of
equity appreciation or reduction of other positions.  Marketable securities are
stated at market value as determined by the most recently
traded price of each security at the balance sheet date.  As of June 30, 2008,
the market value of the Company's marketable securities was $4,328,000.

The Company may also invest, with the approval of the Securities Investment
Committee, in private equity investment funds and unlisted securities, such as
convertible notes, through private placements.  Those investments in non-
marketable securities are carried at cost net of impairment losses on the
Company's balance sheet as part of other investments and reviewed for
impairment on a periodic basis. As of June 30, 2008, the Company had other
investments of $4,239,000.

The Company may also use exchange traded funds, options and futures to manage
market risk against certain stock positions and index futures and to enhance
the performance of the Company's portfolio while reducing the overall

                                    -13-
<PAGE>

portfolio's risk and volatility.  As part of its investment strategies, the
Company may assume short positions in marketable securities.  Short sales are
used by the Company to potentially offset normal market risks undertaken in the
course of its investing activities or to provide additional return
opportunities.  The Company has no naked short positions.  As of June 30, 2008,
the Company had no obligations for securities sold (equities short).

The Company may utilize margin for its marketable securities purchases through
the use of standard margin agreements with national brokerage firms.  The use
of available leverage is guided by the business judgment of management and is
subject to any internal investment guidelines, which may be imposed by the
Securities Investment Committee.  The margin used by the Company may fluctuate
depending on market conditions.  The use of leverage could be viewed as risky
and the market values of the portfolio may be subject to large fluctuations.
As of June 30, 2008, the Company had a margin balance of $1,440,000 and
incurred $127,000 and $395,000 in margin interest during the years ended June
30, 2008 and 2007, respectively.

On July 18, 2003, the disinterested members of the Board of Directors
established a performance based compensation program for the Company's CEO,
John V. Winfield, to keep and retain his services as a direct and active
manager of the Company's securities portfolio.  The terms of that compensation
arrangement is discussed in detail in Item 10 "Executive Compensation" of this
Report.  During the years ended June 30, 2008 and 2007, no performance based
compensation was earned by the Company's CEO.

As Chairman of the Securities Investment Committee, the Company's President and
Chief Executive Officer, John V. Winfield, directs the investment activity of
the Company in public and private markets pursuant to authority granted by the
Board of Directors.  Mr. Winfield also serves as Chief Executive Officer and
Chairman of Santa Fe and InterGroup and oversees the investment activity of
those companies.  Depending on certain market conditions and various risk
factors, the Chief Executive Officer, his family, Santa Fe and InterGroup may,
at times, invest in the same companies in which the Company invests.  The
Company encourages such investments because it places personal resources of the
Chief Executive Officer and his family members, and the resources of Santa Fe
and InterGroup, at risk in connection with investment decisions made on behalf
of the Company.


Item 3.  LEGAL PROCEEDINGS

Bacon Plumbing Co., Inc. and Golden Electric Company v. Allied Construction, et
al., San Francisco County Superior Court, Case No. 06-455401 (the "Allied
Litigation").

This is to update matters previously reported regarding the litigation and lien
claims filed by Allied Construction Management, Inc. ("Allied") and
eight subcontractors arising out of the renovation work performed on the San
Francisco hotel property. As previously reported, the lien claims of Allied
were reduced by the court from $2,062,000 to $1,167,000 as a result of
settlements paid to subcontractors by Justice in November 2007. The balance of
the dispute between Justice and Allied was submitted to arbitration pursuant to
the terms of the construction contract.

On May 27, 2008, Justice, Evon and Portsmouth entered into a settlement and
release agreement with Allied to settle all remaining claims asserted by Allied
for the sum of $588,000. On June 5, 2008, the settlement payment was made by
Justice at which time a release of Allied's lien claim was recorded and the
action was dismissed with prejudice as to all parties.

                                    -14-
<PAGE>

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

No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this Report.


Item 5.  Market For Common Equity and Related Stockholder Matters.

MARKET INFORMATION

Santa Fe's common stock is traded on the OTC Bulletin Board ("OTCBB") under the
symbol: SFEF.OB The following table sets forth the range of the high and low
bid information as reported by the OTCBB for Santa Fe's common stock for each
full quarterly period for the years ended June 30, 2008 and 2007. The
quotations reflect inter-dealer prices, without retail mark-up, markdown or
commissions and may not represent actual transactions.


Fiscal 2008                             High            Low
-----------                             -----          -----
First Quarter (7/1 to 9/30)            $20.00         $18.00
Second Quarter (10/1 to 12/31)         $20.00         $15.60
Third Quarter (1/1 to 3/31)            $20.96         $15.55
Fourth Quarter (4/1 to 6/30)           $15.55         $ 8.30


Fiscal 2007                             High            Low
-----------                             -----          -----
First Quarter (7/1 to 9/30)            $18.01         $15.50
Second Quarter (10/1 to 12/31)         $20.00         $17.50
Third Quarter (1/1 to 3/31)            $20.00         $17.50
Fourth Quarter (4/1 to 6/30)           $18.25         $17.85

As of September 10, 2008, the number of holders of record of the Company's
Common Stock was approximately 260.  Such number of owners was determined from
the Company's shareholders records and does not include beneficial owners of
the Company's Common Stock whose shares are held in the names of various
brokers, clearing agencies or other nominees.  Including beneficial holders,
there are approximately 400 shareholders of the Company's Common Stock.


Dividends

On February 1, 2000, the Board of Directors of the Company determined that it
did not foresee the Company paying any cash dividends on its Common Stock in
the immediate future.  Instead, it is the intent of the Company to deploy its
capital in a manner to increase its operating activities.


SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

Santa Fe has no securities authorized for issuance under equity compensation
plans.


PURCHASES OF EQUITY SECURITIES

Santa Fe did not repurchase any of its own securities during the last quarter
of its fiscal year ending June 30, 2008 and does not have any publicly
announced repurchase program. The following table reflects purchases of Santa

                                    -15-
<PAGE>

Fe's common stock made by The InterGroup Corporation, for its own account,
during the last quarter of fiscal 2008. InterGroup can be considered
an affiliated purchaser.

<TABLE>

              SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

                                            (c)Total Number         (d)Maximum Number
             (a)Total         (b)           of Shares Purchased     of Shares that May
Fiscal       Number of      Average         as Part of Publicly     Yet Be Purchased
 2008         Shares        Price Paid       Announced Plans         Under the Plans
Period       Purchased      Per Share         or Programs             or Programs
--------------------------------------------------------------------------------------
<S>           <C>            <C>                    <C>                    <C>
Month #1
(April 1-         -               -                 -                      N/A
April 30)
--------------------------------------------------------------------------------------
Month #2
(May 1-       5,753          $13.33                 -                      N/A
May 31)
--------------------------------------------------------------------------------------
Month #3
(June 1-          -               -                 -                      N/A
June 30)
--------------------------------------------------------------------------------------
Total          5,753         $13.33                 -                      N/A
--------------------------------------------------------------------------------------
</TABLE>


Item 6. Management's Discussion and Analysis of Financial
        Condition and Results of Operations

RESULTS OF OPERATIONS

The Company's principal sources of revenue continue to be derived from the
investment of its 68.8% owned subsidiary, Portsmouth, in the Justice Investors
limited partnership ("Justice" or the "Partnership"), rental income from its
investments in multi-family real estate properties and income received from
investment of its cash and securities assets.  Portsmouth has a 50.0% ownership
interest in the Justice and serves as one of the general partners. Justice owns
the land, improvements and leaseholds at 750 Kearny Street, San Francisco,
California, known as the Hilton San Francisco Financial District hotel (the
"Hotel"). The financial statements of Justice have been consolidated with those
of the Company, effective as of July 1, 2006.  See Note 2 to the Consolidated
Financial Statements.

The Hotel is operated by the Partnership as a full service Hilton brand hotel
pursuant to a Franchise License Agreement with Hilton Hotels Corporation. The
term of the Agreement is for a period of 15 years commencing on January 12,
2006, with an option to extend the license term for another five years, subject
to certain conditions. Justice also has a Management Agreement with Prism
Hospitality L.P. ("Prism") to perform the day-to-day management functions of
the Hotel.

The Partnership also derives income from the lease of the garage portion of the
property to Evon Corporation ("Evon"), the managing general partner of Justice,
and from a lease with Tru Spa for a portion of the lobby level of the Hotel.
The Company also receives management fees as a general partner of Justice for
its services in overseeing and managing the Partnership's assets. Those fees
are eliminated in consolidation.

                                    -16-
<PAGE>

Fiscal Year Ended June 30, 2008 Compared to Fiscal Year Ended June 30, 2007

The Company had a net loss of $2,272,000 for the year ended June 30, 2008
compared to a net loss of $1,962,000 for the year ended June 30, 2007. The
increase in the net loss is primarily due to the significant loss incurred from
the Company's investment activities, partially offset by the significant
decrease in the loss from Hotel operations.

The following table sets forth a more detailed presentation of Hotel operations
for the years ended June 30, 2008 and 2007.

<TABLE>

For the years ended June 30,                                    2008            2007
                                                             ----------      ----------
<S>                                                         <C>             <C>
Hotel revenues:
 Hotel rooms                                                $29,426,000     $24,431,000
 Food and beverage                                            6,017,000       5,110,000
 Garage                                                       1,602,000       1,533,000
 Other operating departments                                    733,000         641,000
                                                             ----------      ----------
  Total hotel revenues                                       37,778,000      31,715,000
                                                             ----------      ----------
Operating expenses excluding interest, depreciation
  and amortization                                          (31,967,000)    (29,310,000)
                                                             ----------      ----------
Operating income                                              5,811,000       2,405,000

Interest expense                                             (2,858,000)     (2,919,000)
Depreciation and amortization expense                        (4,463,000)     (4,172,000)
                                                             ----------      ----------
Loss from hotel operations                                  $(1,510,000)    $(4,686,000)
                                                             ==========      ==========
</TABLE>

For the year ended June 30, 2008, the Hotel generated operating income of
approximately $5,811,000, before interest, depreciation and amortization, on
operating revenues of approximately $37,778,000 compared to operating income of
approximately $2,405,000 before interest, depreciation and amortization, on
operating revenues of approximately $31,715,000 for the year ended June 30,
2007. The increase in Hotel operating income is primarily due to a higher
average daily room rate and an increase in occupancy percentage resulting in an
approximately $6,063,000 increase in Hotel revenues.

The following table sets forth the average daily room rate, average occupancy
percentage and room revenue per available room ("RevPar") of the Hotel for the
years ended June 30, 2008 and 2007.

    Year Ended            Average           Average
     June 30,            Daily Rate        Occupancy%         RevPar
-----------------        ----------        ----------        ---------
      2008                 $175              84.1%             $148
      2007                 $160              75.8%             $122

Average daily room rates and occupancy have continued to improve since the
Hotel's reopening in January 2006 as the Hotel approaches full stabilization
and gets further penetration into the Financial District hotel market.  As a
result, the Hotel was able to achieve an increase in RevPar of $26 for the year
ended June 30, 2008 compared the year ended June 30, 2007. While we expect
operating revenues of the Hotel to continue to grow, that growth will probably
be at a slower pace due to the uncertain economy and the impact of rising fuel
costs on travel.

The Hotel's food and beverage operations remained challenging. Although
management was able to trim the losses in that department to approximately
$214,000 for the year ended June 30, 2008 from approximately $510,000 for the
year ended June 30, 2007. The Hotel's food and beverage operations will

                                    -17-
<PAGE>

continue to be an area of concern due to brand requirements of maintaining a
three-meal, full service restaurant, the associated costs of union labor, and
the intense competition in the San Francisco market for restaurants. Management
will continue to focus on this area and will explore new and innovative ways to
improve operations. One new concept that Management has recently initiated is
the opening of a new wine bar "Flyte" in the lobby of the Hotel in August 2008.

With an uncertain economy, higher fuel prices and the possibility of a decline
in business, group and leisure travel, management will also continue to focus
on ways to improve efficiencies and reduce operating costs and other expenses
in its efforts to increase the operating income of the Hotel. In the last two
quarters of the year ended June 30, 2008, we have seen an improvement in
operating costs of the Hotel as a percentage Hotel revenues as well as a
reduction in general and administrative costs at the Partnership level for
legal and consulting fees.

Minority interest related to Justice Investors decreased to $802,000 for the
year ended June 30, 2008 from $2,423,000 for the year ended June 30, 2007.  The
decrease is due to the reduced loss from the hotel operations to $1,510,000 for
the year ended June 30, 2008 from $4,686,000 for the year ended June 30, 2007.

Income from real estate operations increased to income of $113,000 from income
of $3,000.  The increase in income is primarily as the result of the increase
rental income to $559,000 from $501,000 combined with the decrease in operating
expenses to $197,000 from $246,000.  Rental income increased as the result of
the increase in rents and occupancy while operating expenses decreased as the
result of having fewer repairs and maintenance related expenses.

The Company had a net loss on marketable securities of $1,473,000 for the year
ended June 30, 2008 as compared to a net gain on marketable securities of
$2,038,000 for the year ended June 30, 2007.  For the year ended June 30, 2008,
the Company had a net realized gain of $1,356,000 and a net unrealized loss
$2,829,000.  For the year ended June 30, 2007, the Company had a net realized
gain of $1,936,000 and a net unrealized gain of $102,000.  Gains and losses on
marketable securities and other investments may fluctuate significantly from
period to period in the future and could have a significant impact on the
Company's net income. However, the amount of gain or loss on marketable
securities and other investments for any given period may have no predictive
value and variations in amount from period to period may have no analytical
value.  For a more detailed description of the composition of the Company's
marketable securities please see the Marketable Securities section below.

Dividend and interest income decreased to $138,000 for the year ended June 30,
2008 from $251,000 for the year ended June 30, 2007 as a result of the
decreased investment in income yielding securities during the year ended June
30, 2008.

Margin interest and trading expenses decreased to $511,000 for the year ended
June 30, 2008 from $775,000 for the year ended June 30, 2007.  The decrease is
primarily due to the decrease in margin interest expense to $127,000 for the
year ended June 30, 2008 from $395,000 for the year ended June 30, 2007.  The
decrease is the result of the maintenance of lower margin balances.

The Company may also invest, with the approval of the Securities Investment
Committee, in private investment equity funds and other unlisted securities,
such as convertible notes through private placements. Those investments in non-
marketable securities are carried at cost on the Company's balance sheet as
part of other investments net of other than temporary impairment losses. As of
June 30, 2008, the Company had net other investments of $4,239,000. During the
years ended June 30, 2008 and 2007, the Company performed an impairment

                                    -18-
<PAGE>

analysis of its other investments and determined that its investments had other
than temporary impairments and recorded impairment losses of $640,000 and
$875,000, respectively.

The provision for the income tax benefit increased to $1,296,000 for the year
ended June 30, 2008 from $199,000 for the year ended June 30, 2007 primarily
due to the increase in the pre-tax loss to $4,126,000 from $2,634,000,
respectively.


MARKETABLE SECURITIES AND OTHER INVESTMENTS

As of June 30, 2008, the Company had investments in marketable equity
securities totaling $4,328,000.  The following table shows the composition of
the Company's marketable securities portfolio by selected industry groups as of
June 30, 2008.


                                                             % of Total
                                                              Investment
   Industry Group                      Market Value           Securities
   --------------                      ------------           ----------
   Dairy products                      $  1,036,000               23.9%
   Communications                           610,000               14.1%
   Financial                                555,000               12.8%
   Basic materials                          393,000                9.1%
   Transportation                           285,000                6.6%
   Medical                                  270,000                6.2%
   Other                                  1,179,000               27.3%
                                         ----------              ------
                                       $  4,328,000              100.0%
                                         ==========              ======

The Company's investment portfolio is diversified with 21 different equity
positions.  The portfolio contains five individual equity security positions
that are more than 5% of the total equity value of the portfolio, with the
largest representing approximately 23% of the total equity value of the
entire portfolio.  The amount of the Company's investment in any particular
issuer may increase or decrease, and additions or deletions to its securities
portfolio may occur, at any time.  While it is the internal policy of the
Company to limit its initial investment in any single equity to less than 5% of
its total portfolio value, that investment could eventually exceed 5% as a
result of equity appreciation or reduction of other positions.  Marketable
securities are stated at market value as determined by the most recently
traded price of each security at the balance sheet date.

The following table shows the net gain or loss on the Company's marketable
securities and the associated margin interest and trading expenses for the
respective years.

For the years ended June 30,                     2008              2007
                                            -------------     -------------

Net (loss)gain on marketable securities      $(1,473,000)     $  2,038,000
Impairment loss on other investments            (640,000)         (875,000)
Dividend and interest income                     138,000           251,000
Margin interest expense                         (127,000)         (395,000)
Trading and management expenses                 (384,000)         (380,000)
                                              ----------        ----------
                                             $(2,486,000)     $    639,000
                                              ==========        ==========

                                    -19-
<PAGE>

The Company may also invest, with the approval of the Securities Investment
Committee, in private investment equity funds and other unlisted securities,
such as convertible notes through private placements. Those investments in non-
marketable securities are carried at cost on the Company's balance sheet as
part of other investments net of other than temporary impairment losses.

As of June 30, 2008, the Company had net other investments of $4,239,000.
During the years ended June 30, 2008 and 2007, the Company made investments in
corporate debt instruments of a public company in the basic materials sector
totaling $790,000 and $555,000, respectively.

During the years ended June 30, 2008 and 2007, the Company received common
stock issued upon conversion or as payment of interest and penalties on
convertible notes in this company.  Through sales of this common stock, the
Company was able to recover approximately $851,000 and $352,000 of its
investments during the year ended June 2008 and 2007.  The sales of this common
stock were recognized as realized gains in the consolidated statement of
operations in the respective years.  As of June 30, 2008, Santa Fe had $393,000
of this company's common stock included in its investment in marketable
securities balance of $4,328,000.  As of June 30, 2008, the Company still holds
notes and convertible notes of this company totaling approximately $3,478,000,
which includes $2,822,000 of principal and $656,000 of accrued interest and
penalties.

In June 2008, the Company and InterGroup ("the Companies") entered into an
agreement to make additional investments in corporate debt instruments in the
aggregate amount of $1,250,000. Those investments will be allocated $750,000 to
the Company and $500,000 to Intergroup.  In addition, the Company's chairman
agreed to invest in a like amount and on the same terms as the Companies.  As
of June 30, 2008, a total of $250,000 of the investment was made by the
Companies, of which the Company paid $150,000, leaving an aggregate remaining
commitment from the Companies of $1,000,000. Subsequent to year end, additional
investment funding was made in July and August 2008 in the total amount of
$500,000, of which $300,000 was paid by the Company, reducing the Companies
remaining commitment to $500,000.


FINANCIAL CONDITION AND LIQUIDITY

The Company's cash flows are primarily generated from the operations of Justice
Investors. The Company also receives revenues generated from its real estate
operations and from the investment of its cash and securities assets.  Since
the operations of the Hotel were temporarily suspended on May 31, 2005, and
significant amounts of money were expended to renovate and reposition the Hotel
as a Hilton, Justice did not pay any partnership distributions until the end of
March 2007. As a result, the Company had to depend more on the revenues
generated from the investment of its cash and marketable securities during that
transition period.

The Hotel started to generate cash flows from its operations in June 2006,
which have continued to improve since that time.  As a result, Justice was able
to pay a total of $1,450,000 in limited partnership distributions for the year
ended June 30, 2008 compared to $1,000,000 for the year ended June 30, 2007.
The general partners expect to conduct regular reviews to set the amount of any
future distributions that may be appropriate based on the results of operations
of the Hotel and other factors. If cash flows from the Hotel operations
continue to improve, the Partnership could be in a position to increase
distributions to its limited partners in fiscal 2009.

                                    -20-
<PAGE>

To meet its substantial financial commitments for the renovation and transition
of the Hotel to a Hilton, Justice had to rely on borrowings to meet its
obligations. On July 27, 2005, Justice entered into a first mortgage loan
with The Prudential Insurance Company of America in a principal amount of
$30,000,000 (the "Prudential Loan"). The term of the Prudential Loan is for 120
months at a fixed interest rate of 5.22% per annum. The Prudential Loan calls
for monthly installments of principal and interest in the amount of
approximately $165,000, calculated on a 30-year amortization schedule. The
Prudential Loan is collateralized by a first deed of trust on the Partnership's
Hotel property, including all improvements and personal property thereon and an
assignment of all present and future leases and rents. The Prudential Loan is
without recourse to the limited and general partners of Justice. As of June 30,
2008 the Prudential Loan balance was approximately $28,735,000.

On March 27, 2007, Justice entered into a second mortgage loan with Prudential
(the "Second Prudential Loan") in the principal amount of $19,000,000. The term
of the Second Prudential Loan is for approximately 100 months and matures on
August 5, 2015, the same date as the first Prudential Loan. The Second
Prudential Loan is at a fixed interest rate of 6.42% per annum and calls for
monthly installments of principal and interest in the amount of approximately
$119,000, calculated on a 30-year amortization schedule. The Second Prudential
Loan is collateralized by a second deed of trust on the Partnership's Hotel
property, including all improvements and personal property thereon and an
assignment of all present and future leases and rents. The Second Prudential
Loan is without recourse to the limited and general partners of Justice. As of
June 30, 2008, the Second Prudential Loan balance was approximately
$18,747,000.

From the proceeds of the Second Prudential Loan, Justice retired its existing
line of credit facility with United Commercial Bank ("UCB") paying off the
outstanding balance of principal and interest of approximately $16,403,000 on
March 27, 2007.

The Partnership also obtained a new unsecured $3,000,000 revolving line of
credit facility from UCB to be utilized by the Partnership to meet any
emergency or extraordinary cash flow needs. The new line of credit facility
matures on February 2, 2009 and the annual interest rate is based on an index
selected by Justice at the time of advance, equal to the Wall Street Journal
Prime Rate less 0.5%, or the LIBOR Rate plus 2%. As of June 30, 2008, there was
a balance of $1,513,000 drawn by Justice under the new line of credit, with an
annual interest rate at LIBOR plus two percent (4.50% as of June 30, 2008).
During part of fiscal 2008 and 2007, Justice also utilized approximately
$1,500,000 of the amount available under the line of credit in the form of a
standby letter of credit related to the Allied Litigation. That letter of
credit was retired with the settlement of the Allied Litigation in June 2008.

While the debt service requirements related to the two Prudential loans, as
well as the utilization of the UCB line of credit, may create some additional
risk for the Company and its ability to generate cash flows in the future since
the Partnership's assets had been virtually debt free for a number of years,
management believes that cash flows from the operations of the Hotel and the
garage lease will continue to be sufficient to meet all of the Partnership's
current and future obligations and financial requirements. Management also
believes that there is sufficient equity in the Hotel assets to support future
borrowings, if necessary, to fund any new capital improvements and other
requirements.

The Company has invested in short-term, income-producing instruments and in
equity and debt securities when deemed appropriate.  The Company's marketable
securities are classified as trading with unrealized gains and losses recorded
through the consolidated statement of operations.

                                    -21-
<PAGE>

Management believes that its cash, securities assets, and the cash flows
generated from those assets and from partnership distributions and management
fees, will be adequate to meet the Company's current and future obligations.

MATERIAL CONTRACTUAL OBLIGATIONS

The Company does not have any material contractual obligations or commercial
commitments other than Justice's mortgage loans with Prudential, its revolving
line of credit facility with UCB and notes payable on its rental properties.

OFF-BALANCE SHEET ARRANGEMENTS

The Company has no material off balance sheet arrangements.

IMPACT OF INFLATION

Hotel room rates are typically impacted by supply and demand factors, not
inflation, since rental of a hotel room is usually for a limited number of
nights.  Room rates can be, and usually are, adjusted to account for
inflationary cost increases.  Since Prism has the power and ability under the
terms of its management agreement to adjust hotel room rates on an ongoing
basis, there should be minimal impact on partnership revenues due to inflation.
Partnership revenues are also subject to interest rate risks, which may be
influenced by inflation.  For the two most recent fiscal years, the impact of
inflation on the Company's income is not viewed by management as material.

The Company's residential rental properties provide income from short-term
operating leases and no lease extends beyond one year.  Rental increases are
expected to offset anticipated increased property operating expenses.

CRITICAL ACCOUNTING POLICIES

Critical accounting policies are those that are most significant to the
portrayal of our financial position and results of operations and require
judgments by management in order to make estimates about the effect of matters
that are inherently uncertain. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts in
our consolidated financial statements. We evaluate our estimates on an on-going
basis, including those related to the consolidation of our subsidiaries, to our
revenues, allowances for bad debts, accruals, asset impairments, other
investments, income taxes and commitments and contingencies. We base our
estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities.
The actual results may differ from these estimates or our estimates may be
affected by different assumptions or conditions.

                                    -22-
<PAGE>

Item 7. Financial Statements

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS                         PAGE

Report of Independent Registered Public Accounting Firm
  Burr, Pilger & Mayer LLP                                          24

Report of Independent Registered Public Accounting Firm
  PricewaterhouseCoopers LLP                                        25

Consolidated Balance Sheet - June 30, 2008                          26

Consolidated Statements of Operations - For
  Years Ended June 30, 2008 and 2007                                27

Consolidated Statements of Shareholders' Equity - For
  Years Ended June 30, 2008 and 2007                                28

Consolidated Statements of Cash Flows - For
  Years Ended June 30, 2008 and 2007                                29

Notes to Consolidated Financial Statements                          30 - 45

                                    -23-
<PAGE>


        REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM -
                     BURR, PILGER & MAYER LLP


To the Board of Directors and
   Shareholders of Santa Fe Financial Corporation:


We have audited the accompanying consolidated balance sheet of Santa Fe
Financial Corporation and its subsidiaries (the "Company") as of June 30, 2008,
and the related consolidated statements of operations, shareholders' equity,
and cash flows for the year then ended.  These consolidated financial
statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor have we been engaged to perform, an audit of the
Company's internal control over financial reporting for the year ended June 30,
2008.  An audit includes consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion for the year ended June 30, 2008.  An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.  We believe
that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company and its
subsidiaries as of June 30, 2008, and the results of their operations and their
cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America.


/s/ BURR, PILGER & MAYER LLP


San Francisco, California
September 24, 2008

                                    -24-
<PAGE>

        Report of Independent Registered Public Accounting Firm


To the Board of Directors and Shareholders of
Santa Fe Financial Corporation


In our opinion, the consolidated statements of operations, of shareholders'
equity and of cash flows for the year ended June 30, 2007 present fairly, in
all material respects, the results of operations and cash flows of Santa Fe
Financial Corporation and its subsidiaries for the year ended June 30, 2007, in
conformity with accounting principles generally accepted in the United States
of America.  These financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these financial
statements based on our audit.  We conducted our audit of these statements in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation.  We believe that
our audit provides a reasonable basis for our opinion.


/s/ PricewaterhouseCoopers LLP


Irvine, California
September 28, 2007

                                    -25-
<PAGE>


                SANTA FE FINANCIAL CORPORATION
                    CONSOLIDATED BALANCE SHEET


As of June 30,                                                2008
                                                           -----------
ASSETS

  Investment in hotel, net                                $ 43,540,000
  Investment in real estate, net                             5,369,000
  Investment in marketable securities                        4,328,000
  Other investments                                          4,239,000
  Cash and cash equivalents                                    763,000
  Accounts receivable, net                                   1,140,000
  Other assets, net                                          1,893,000
  Deferred tax asset                                         3,517,000
  Minority interest of Justice Investors                     6,793,000

                                                           -----------
Total assets                                              $ 71,582,000
                                                           ===========
LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
  Accounts payable and other liabilities                  $  7,722,000
  Due to securities broker                                   1,440,000
  Line of credit                                             1,513,000
  Mortgage notes payable - real estate                       2,175,000
  Mortgage notes payable - hotel                            47,482,000
                                                           -----------
Total liabilities                                           60,332,000
                                                           -----------

Minority interest                                            3,580,000
                                                           -----------
Commitments and contingencies(Note 17)

Shareholders' equity:
  Common stock - par value $.10 per share
   Authorized - 2,000,000
   Issued 1,339,638 and outstanding 1,241,810                  134,000
  Additional paid-in capital                                 8,808,000
  Accumulated deficit                                         (321,000)
  Treasury stock, at cost, 97,828 shares                      (951,000)
                                                           -----------
Total shareholders' equity                                   7,670,000
                                                           -----------
Total liabilities and shareholders' equity                $ 71,582,000
                                                           ===========


The accompanying notes are an integral part of these consolidated
financial statements.

                                    -26-
<PAGE>
<TABLE>

                      SANTA FE FINANCIAL CORPORATION
                        CONSOLIDATED STATEMENTS OF OPERATIONS


For the years ended June 30,                              2008           2007
                                                       ----------     -----------
<S>                                                  <C>             <C>
Hotel operations:
 Hotel and garage revenues                           $ 37,778,000    $ 31,715,000
 Operating expense                                    (31,259,000)    (28,749,000)
 Real estate taxes                                       (708,000)       (561,000)
 Interest expense                                      (2,858,000)     (2,919,000)
 Depreciation and amortization                         (4,463,000)     (4,172,000)
                                                       ----------      ----------
    Loss from hotel operations                         (1,510,000)     (4,686,000)
                                                       ----------      ----------
Real estate operations:
 Rental income                                            559,000         501,000
 Property operating expense                              (197,000)       (246,000)
 Mortgage interest expense                               (170,000)       (172,000)
 Depreciation expense                                     (79,000)        (80,000)
                                                       ----------      ----------
    Income from real estate operations                    113,000           3,000
                                                       ----------      ----------

Investment transactions:
  Net (loss)gain on marketable securities              (1,473,000)      2,038,000
  Impairment loss on other investments                   (640,000)       (875,000)
  Dividend and interest income                            138,000         251,000
  Margin interest and trading expenses                   (511,000)       (775,000)
                                                       ----------      ----------
    Income(loss) from investment transactions          (2,486,000)        639,000
                                                       ----------      ----------

General and administrative expenses                    (1,045,000)     (1,013,000)
                                                       ----------      ----------

Loss before income taxes and minority interest         (4,928,000)     (5,057,000)

Minority interest - Justice Investors, pretax             802,000       2,423,000
                                                       ----------      ----------
Loss before income taxes                               (4,126,000)     (2,634,000)

Provision for income tax benefit                        1,296,000         199,000
                                                       ----------      ----------
Loss before minority interest                          (2,830,000)     (2,435,000)

Minority interest benefit, net of tax                     558,000         473,000
                                                       ----------      ----------
Net loss                                              $(2,272,000)    $(1,962,000)
                                                       ==========      ==========
Basic loss per share                                  $     (1.83)    $     (1.58)
                                                       ==========      ==========
Weighted average number of common shares
  outstanding                                           1,241,810       1,241,810
                                                       ==========      ==========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                    -27-
<PAGE>
<TABLE>

                    SANTA FE FINANCIAL CORPORATION
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY


                       Common Stock
                   --------------------                 Retained
                                           Additional   Earnings
                                           Paid-In     (Accumulated  Treasury
                     Shares     Amount     Capital       Deficit)     Stock        Total
                   ---------  ---------   ----------   ----------   ---------   -----------
<S>                <C>         <C>        <C>          <C>          <C>         <C>
Balance at
June 30, 2006      1,339,638  $134,000    $8,808,000   $3,913,000   $(951,000)  $11,904,000

Net loss                                               (1,962,000)               (1,962,000)

                   ---------  ---------   ----------   ----------   ---------   -----------
Balance at
June 30, 2007      1,339,638   134,000     8,808,000    1,951,000    (951,000)    9,942,000

Net loss                                               (2,272,000)               (2,272,000)

                   ---------  ---------   ----------   ----------   ---------   -----------
Balance at
June 30, 2008      1,339,638  $134,000    $8,808,000   $ (321,000)  $(951,000)  $ 7,670,000
                   =========  ========    ==========   ==========   =========   ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                    -28-
<PAGE>
<TABLE>

                           SANTA FE FINANCIAL CORPORATION
                        CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended June 30,                           2008          2007
                                                    ----------    ----------
<S>                                                <C>           <C>
Cash flows from operating activities:
  Net loss                                         $(2,272,000)  $(1,962,000)
  Adjustments to reconcile net loss
   to net cash provided by operating activities:
    Net unrealized loss(gain) on marketable
     securities                                      2,829,000      (102,000)
    Impairment loss on other investments               640,000       875,000
    Minority interest                               (1,360,000)   (2,896,000)
    Depreciation and amortization                    4,542,000     4,252,000
    Changes in operating assets and liabilities:
      Investment in marketable securities            6,536,000     5,025,000
      Other investments                               (704,000)   (2,650,000)
      Accounts receivable                              (96,000)            -
      Other assets                                    (431,000)      280,000
      Accounts payable and other liabilities          (832,000)    1,431,000
      Due to securities broker                      (4,461,000)   (1,728,000)
      Obligations for securities sold               (1,056,000)   (2,136,000)
      Deferred tax asset                            (1,299,000)     (202,000)
                                                    ----------    ----------
  Net cash provided by operating activities          2,036,000       187,000
                                                    ----------    ----------
Cash flows from investing activities:
  Investment in hotel                               (2,715,000)   (2,355,000)
  Investment in real estate                           (973,000)       (9,000)
  Restricted cash                                    1,500,000    (1,500,000)
                                                    ----------    ----------
  Net cash used in investing activities             (2,188,000)   (3,864,000)
                                                    ----------    ----------
Cash flows from financing activities:
  Draw from(pay-off of)line of credit                1,513,000   (16,403,000)
  Proceeds from new mortgage note payable                    -    19,000,000
  Principal payments on mortgage notes payable        (724,000)     (183,000)
  Cash distributions to minority partner              (725,000)     (500,000)
                                                    ----------    ----------
  Net cash provided by financing activities             64,000     1,914,000
                                                    ----------    ----------
Net decrease in cash and cash equivalents              (88,000)   (1,763,000)

Cash and cash equivalents at beginning of year         851,000     2,614,000
                                                    ----------    ----------
Cash and cash equivalents at end of year           $   763,000   $   851,000
                                                    ==========    ==========
Supplemental information:
  Net income tax paid                              $     3,000   $     3,000
                                                    ==========    ==========
  Interest paid                                    $ 3,089,000   $ 3,485,000
                                                    ==========    ==========

Supplemental disclosure of non-cash activities:
 Consolidation of Justice Investors as of July 1, 2006
  Gross components:
   Assets(including cash of $2,352,000)                          $(42,975,000)
   Liabilities                                                     52,366,000
   Investment in Justice                                           (7,321,000)
   Minority interest                                               (2,343,000)

</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                    -29-
<PAGE>

                       SANTA FE FINANCIAL CORPORATION
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Santa Fe Financial Corporation, a Nevada corporation, ("Santa Fe" or the
"Company") owns approximately 68.8% of the outstanding common shares of
Portsmouth Square, Inc. ("Portsmouth"), a public company. Santa Fe is a 75.9%-
owned subsidiary of The InterGroup Corporation ("InterGroup"), a public
company. InterGroup also directly owns approximately 11.7% of the common stock
of Portsmouth.

The Company's principal business is conducted through the management of
Portsmouth's general and limited partnership interest in the Justice Investors
limited partnership ("Justice" or the "Partnership"). Portsmouth has a 50.0%
limited partnership interest in Justice and serves as one of the two general
partners. The other general partner, Evon Corporation ("Evon"), serves as the
managing general partner. As discussed in Note 2, the financial statements of
Justice are consolidated with those of the Company, effective the fiscal year
beginning July 1, 2006.

Justice owns a 544 room hotel property located at 750 Kearny Street, San
Francisco, California, known as the "Hilton San Francisco Financial District"
(the "Hotel") and related facilities, including a five level parking garage.
The Hotel was temporarily closed for major renovations from May 2005 to January
2006. The total construction costs related to the renovation project was
approximately $37 million.

The Hotel is operated by the Partnership as a full service Hilton brand hotel
pursuant to a Franchise License Agreement with Hilton Hotels Corporation.
Justice also has a Management Agreement with Prism Hospitality L.P. ("Prism")
to perform the day-to-day management functions of the Hotel. The Partnership
also derives income from the lease of the parking garage to Evon and a lease of
a portion of the lobby level of the Hotel to a day spa operator.  Portsmouth
also receives management fees as a general partner of Justice for its services
in overseeing and managing the Partnership's assets. Those fees are eliminated
in consolidation.

In addition to the operations of the Hotel, the Company also generates income
from the ownership and management of real estate.  On December 31, 1997, the
Company acquired a controlling 55.4% interest in Intergroup Woodland Village,
Inc. ("Woodland Village") from InterGroup.  Woodland Village's major asset is a
27-unit apartment complex located in Los Angeles, California. The Company also
owns a two-unit apartment building in Los Angeles, California.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and
all controlled subsidiaries. All significant inter-company transactions and
balances have been eliminated.

Investment in Hotel, Net

The Hotel property and equipment are stated at cost less accumulated
depreciation.  Building and improvements are being depreciated on a straight-
line basis over their estimated useful lives ranging from 5 to 39 years.

                                    -30-
<PAGE>

Furniture, fixtures and equipment are being depreciated on a straight-line
basis over their estimated useful lives ranging from 5 to 7 years.

Repairs and maintenance are charged to expense as incurred, and costs of
significant renewals and improvements are capitalized.

In accordance with Statement of Financial Accounting Standards (SFAS) No. 144
"Accounting for Impairment or Disposal of Long-Lived Assets", the Company
reviews its investment in Hotel for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.  If expected future cash flows (undiscounted and excluding
interest costs) are less than the carrying value of the asset, the asset is
written down to its estimated fair value.  The estimation of expected future
net cash flows is inherently uncertain and relies to a considerable extent on
assumptions regarding current and future economic and market conditions, and
the availability of capital. If, in future periods, there are changes in the
estimates or assumptions incorporated into the impairment review analysis, the
changes could result in an adjustment to the carrying amount of the long-lived
asset. No impairment losses on the investment in Hotel have been recorded for
the years ended June 30, 2008 and 2007.

Investment in Real Estate, Net

Rental properties are stated at cost less accumulated depreciation.
Depreciation of rental property is provided on the straight-line method based
upon estimated useful lives of 5 to 40 years for buildings and improvements and
5 to 10 years for equipment.  Expenditures for repairs and maintenance are
charged to expense as incurred and major improvements are capitalized.

In accordance with SFAS No. 144, the Company also reviews its rental property
assets for impairment.  No impairment losses on the investment in real estate
have been recorded for the year ended June 30, 2008 and 2007.

Investment in Marketable Securities

Marketable securities are stated at market value as determined by the most
recently traded price of each security at the balance sheet date.  Marketable
securities are classified as trading securities with all unrealized gains and
losses on the Company's investment portfolio recorded through the consolidated
statements of operations.

Other Investments, Net

Other investments in non-marketable securities are carried at cost net of any
impairment loss.  The Company has no significant influence or control over the
entities that issue these investments.  These investments are reviewed on a
periodic basis for other-than-temporary impairment. The Company reviews several
factors to determine whether a loss is other-than-temporary. These factors
include but are not limited to: (i) the length of time an investment is in an
unrealized loss position, (ii) the extent to which fair value is less than
cost, (iii) the financial condition and near term prospects of the issuer and
(iv) our ability to hold the investment for a period of time sufficient to
allow for any anticipated recovery in fair value. For the years ended June 2008
and 2007, the Company recorded impairment losses related to other investments
of $640,000 and $875,000, respectively.

                                    -31-
<PAGE>

Cash and Cash Equivalents

Cash equivalents consist of highly liquid investments with an original maturity
of three months or less when purchased and are carried at cost, which
approximates fair value.  The Company maintains most of its cash balances at
one financial institution.  The Federal Deposit Insurance Corporation insures
balances up to $100,000 in the aggregate per depositor.

Accounts Receivable, Net

Accounts receivable from Hotel customers are carried at cost less an allowance
for doubtful accounts that is based on management's assessment of the
collectibility of accounts receivable.  The Company extends unsecured credit to
its customers but mitigates the associated credit risk by performing ongoing
credit evaluations of its customers.

Other Assets, Net

Other assets include inventory, prepaid expenses, loan fees and franchise fees.
Loan fees are stated at cost and amortized over the term of the loan using the
straight-line method which approximates the effective interest method.
Franchise fees are stated at cost and amortized over the life of the agreement
of 15 years.

Minority Interest

Minority interests in the net assets and earnings or losses of consolidated
subsidiaries are reflected in the caption "Minority interest" in the Company's
consolidated balance sheet and consolidated statements of operations. Minority
interest adjusts the Company's consolidated results of operations to reflect
only the Company's share of the earnings or losses of the consolidated
subsidiaries.  As of June 30, 2008, the Company reported the minority interest
of Justice Investors as an asset in the consolidated balance sheet as the
result of the accumulated deficit at Justice Investors.  Management believes
the accumulated deficit is considered temporary as the Hotel was temporarily
closed to undergo major renovations from May 2005 to January 2006.  The Company
expects the Hotel to be profitable, thereby reversing the accumulated deficit
in the future.  The minority interest in other subsidiaries are reported under
the liability section in the consolidated balance sheet as of June 30, 2008.

Income Taxes

The provision for income tax expense or benefit differs from the amounts of
income taxes currently payable because certain items of income and expense
included in the consolidated financial statements are recognized in different
time periods by taxing authorities.  Deferred income taxes are determined using
the liability method.  A deferred tax asset or liability is determined based on
the difference between the financial statement and tax basis of assets and
liabilities as measured by the enacted tax rates.  Deferred tax expense is the
result of changes in the amount of deferred income taxes during the period.
Deferred tax assets, including net operating loss and tax credit carry
forwards, are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that any portion of these tax attributes
will not be realized.  As of June 30, 2008, a valuation allowance of $1,171,000
was recorded against the Company's deferred tax assets.

                                    -32-
<PAGE>

From time to time, management must assess the need to accrue or disclose a
possible loss contingency for proposed adjustments from various federal, state
and foreign tax authorities that regularly audit the company in the normal
course of business. In making these assessments, management must often analyze
complex tax laws of multiple jurisdictions.

The Company adopted Financial Accounting Standards Board (FASB) Interpretation
No. 48(FIN 48), Accounting for Uncertainty in Income Taxes - an interpretation
of FASB Statement No. 109, effective July 1, 2007. FIN 48 clarifies the
accounting for uncertainty in tax positions. FIN 48 requires that the Company
recognize the impact of a tax position in the Company's financial statements if
that position is more likely than not of being sustained on audit, based on the
technical merits of the position. The adoption of FIN 48 did not have a
material impact on the Company's consolidated financial statements. The Company
recognizes interest and penalties related to uncertain income tax positions in
income tax expense.  There were no interest and penalties related to uncertain
income tax positions that were accrued as of June 30, 2008 and during the
period there were no changes in individual or aggregate unrecognized tax
positions.  The Company's income tax returns for the years ended June 30, 2004
to the present are subject to examination by major taxing authorities.

Due to Securities Broker

Various securities brokers have advanced funds to the Company for the purchase
of marketable securities under standard margin agreements. These advanced funds
are recorded as a liability.

Obligations for Securities Sold

Obligation for securities sold represents the fair market value of shares sold
with the promise to deliver that security at some future date and the fair
market value of shares underlying the written call options with the obligation
to deliver that security when and if the option is exercised.  The obligation
may be satisfied with current holdings of the same security or by subsequent
purchases of that security.  Unrealized gains and losses from changes in the
obligation are included in the statement of operations. As of June 30, 2008,
there were no obligations for securities sold.

Fair Value of Financial Instruments

The recorded values of cash, cash equivalents, accounts receivable, marketable
securities, amounts due to securities broker and accounts payable approximate
their fair values based on their short-term nature.  As of June 30, 2008, the
recorded value of mortgage notes payable approximates the fair value as the
related interest rate is in line with market rates.

Treasury Stock

The Company records the acquisition of treasury stock under the cost method.

Environmental Remediation Costs

Liabilities for environmental remediation costs are recorded and charged to
expense when it is probable that obligations have been incurred and the amounts
can be reasonably estimated.  Recoveries of such costs are recognized when
received.  As of June 30, 2008, there were no liabilities for environmental
remediation.

                                    -33-
<PAGE>

Revenue Recognition

Room revenues are recognized on the date upon which a guest occupies a room and
or utilizes the Hotel's services.

Food and beverage revenues are recognized upon delivery.

Rental revenues from the garage and other are recognized on the straight-line
method of accounting under which contractual rent payment increases are
recognized evenly over the lease term, regardless of when the rent payments are
received by Justice.  The leases contain provisions for base rent plus a
percentage of the lessees' revenues, which are recognized when earned.

Revenue recognition from apartment rentals commences when an apartment unit is
placed in service and occupied by a rent-paying tenant.  Apartment units are
leased on a short-term basis, with no lease extending beyond one year.

Basic Earnings per Share

Basic earnings per share are calculated based upon the weighted average number
of common shares outstanding during each fiscal year.  As of June 30, 2008 and
2007, the Company did not have any potentially dilutive securities outstanding;
and therefore, does not report diluted earnings per share.

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America(GAAP) requires the use of
estimates and assumptions regarding certain types of assets, liabilities,
revenues, and expenses.  Such estimates primarily relate to unsettled
transactions and events as of the date of the financial statements.
Accordingly, upon settlement, actual results may differ from estimated amounts.

Reclassifications

Certain prior year balances have been reclassified to conform with the current
year presentation.

Recent Accounting Pronouncements

In May 2008, the Financial Accounting Standards Board(FASB) issued Statement of
Financial Accounting Standards No. 162(SFAS No. 162), The Hierarchy of Generally
Accepted Accounting Principles. This new standard is intended to improve
financial reporting by identifying a consistent framework, or hierarchy, for
selecting accounting principles to be used in preparing financial statements
that are presented in conformity with GAAP for nongovernmental entities. SFAS
No. 162 will become effective 60 days following the Securities and Exchange
Commission's (SEC) approval of the Public Company Accounting Oversight Board
amendments (PCAOB) to AU Section 411, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.  The Company is
currently evaluating the potential impact of SFAS No. 162 on its financial
statements.

In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements, and amendment to Accounting Research
Bulletin (ARB) No. 51," (SFAS No. 160). This standard prescribes the accounting

                                    -34-
<PAGE>

by a parent company for minority interests held by other parties in a
subsidiary of the parent company. SFAS No. 160 is effective for the Company for
fiscal year ending June 30, 2010. The Company is currently assessing the impact
of SFAS No. 160 on its consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities.  SFAS No. 159 provides entities with
an irrevocable option to report selected financial assets and financial
liabilities at fair value. It also establishes presentation and disclosure
requirements that are designed to facilitate comparisons between entities that
choose different measurement attributes for similar types of assets and
liabilities.  The provisions of SFAS No. 159 are effective for the Company for
the fiscal year ending June 30, 2009. The Company is currently evaluating the
impact of the provisions of SFAS No. 159 on its financial statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business
Combinations" ("SFAS 141R"), which replaces SFAS No. 141. SFAS 141R establishes
principles and requirements for how an acquirer in a business combination
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any controlling interest; recognizes and
measures the goodwill acquired in the business combination or a gain from a
bargain purchase; and determines what information to disclose to enable users
of the financial statements to evaluate the nature and financial effects of the
business combination. SFAS 141R is to be applied prospectively to business
combinations for which the acquisition date is on or after an entity's fiscal
year that begins after December 15, 2008.  The provisions of SFAS 141R are
effective for the Company for the fiscal year ending June 30, 2010.  The
Company is currently assessing the impact of SFAS 141R on its financial
statements.


NOTE 2 - JUSTICE INVESTORS

On July 14, 2005, the FASB issued Staff Position (FSP) SOP 78-9-1, "Interaction
of AICPA Statement of Position 78-9 and EITF Issue No. 04-5" to amend the
guidance in AICPA Statement of Position 78-9, "Accounting for Investments in
Real Estate Ventures" (SOP 78-9) to be consistent with the consensus in
Emerging Issues Task Force Issue No. 04-5 "Determining Whether a
General Partner, or General Partners as a Group, Controls a Limited Partnership
or Similar Entity When the Limited Partners Have Certain Rights" (Issue 04-5).
FSP SOP 78-9-1 eliminated the concept of "important rights" in paragraph .09 of
SOP 78-9 and replaces it with the concepts of "kick out rights" and
"substantive participating rights" as defined in Issue 04-5.  In accordance
with guidance set forth in FSP SOP 78-9-1, Portsmouth has applied the
principles of accounting applicable for investments in subsidiaries due to its
substantial limited partnership interest and general partnership rights and has
consolidated the financial statements of Justice with those of the Company
effective as of July 1, 2006.  For the year ended June 30, 2008 and 2007, the
results of operations for Justice were consolidated with those of the Company.

Since the Hotel was temporarily closed to undergo major renovations from May
31, 2005 through January 12, 2006, there was no income from operations of the
Hotel. Management anticipated losses during that period and for a period of
time after the reopening as the Hotel ramped up its operations. To meet its
substantial financial commitments for the renovation and repositioning of the
Hotel, the Partnership had to rely on additional borrowings to meet its
obligations. The value of the Hotel was adequate to serve as collateral for
such lending facilities which provided the financial resources to meet its
obligations. As a result of the renovation and repositioning of the Hotel and

                                    -35-
<PAGE>

the operating losses incurred during the temporary closure and transition of
the Hotel to a Hilton, the Partnership had an accumulated deficit as of June
30, 2008. Management considers that accumulated deficit to be temporary as the
Hotel is now generating operating income before depreciation and amortization
which has continued to improve since the Hotel's reopening. For the year ended
June 30, 2008, the Partnership had a net loss of $1,510,000, which included
approximately $4.5 million in non cash charges for depreciation and
amortization. For the year ended June 30, 2007, the Partnership had a net loss
of $4,686,000, which included approximately $4.2 million in non cash charges
for depreciation and amortization. Management also believes that the revenues
expected to be generated from the operations of the Hotel and the Partnership's
leases will be sufficient to meet all of the Partnership's current and future
obligations and financial requirements.


NOTE 3 - INVESTMENT IN HOTEL, NET

Hotel property and equipment as of June 30, 2008 consisted of the following:

                                             Accumulated       Net Book
                               Cost          Depreciation        Value
                          ------------       ------------     ------------
Land                      $  1,896,000       $          -     $  1,896,000
Furniture and equipment     16,279,000         (8,005,000)       8,274,000
Building and improvements   48,975,000        (15,605,000)      33,370,000
                          ------------       ------------     ------------
                          $ 67,150,000       $(23,610,000)    $ 43,540,000
                          ------------       ------------     ------------

Depreciation expense for the years ended June 30, 2008 and 2007 were $4,408,000
and $4,128,000 respectively.

The Partnership leases certain equipment under agreements that are classified
as capital leases. The cost of equipment under capital leases was $958,000 as
of June 30, 2008. The accumulated amortization on capital leases was $478,000
as of June 30, 2008.


NOTE 4 - INVESTMENT IN REAL ESTATE, NET

The Company owns and operates a 27-unit and 2-unit multi-family apartment
complex located in Los Angeles, California and owns land held for development
located in Maui, Hawaii.  At June 30, 2008, investment in real estate included
the following:

  Land                                      $ 2,430,000
  Buildings, improvements and equipment       2,575,000
  Accumulated depreciation                     (609,000)
                                              ---------
                                              4,396,000
  Land held for development                     973,000
                                              ---------
  Investment in real estate, net            $ 5,369,000
                                              =========

Depreciation expense for the years ended June 30, 2008 and 2007 was $79,000 and
$80,000 respectively.

In August 2007, Portsmouth agreed to acquire 50% interest in Intergroup Uluniu,
Inc., a Hawaiian corporation and a 100% owned subsidiary of InterGroup, for
$973,000, which represents an amount equal to the costs paid by InterGroup for

                                    -36-
<PAGE>

the acquisition and carrying costs of approximately 2 acres of unimproved land
held for development located in Maui, Hawaii.  As a related party transaction,
the fairness of the financial terms of the transaction were reviewed and
approved by the independent director of Portsmouth.


NOTE 5 - INVESTMENT IN MARKETABLE SECURITIES

The Company's investment portfolio consists primarily of corporate equities.
The Company has also invested in income producing securities, which may include
interests in real estate based companies and REITs, where financial benefit
could inure to its shareholders through income and/or capital gain.

At June 30, 2008, all of the Company's marketable securities are classified as
trading securities.  In accordance with SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," the change in the unrealized gains
and losses on these investments are included in the statements of operations.
Trading securities are summarized as follows:

<TABLE>

As of June 30, 2008

                            Gross            Gross            Net            Market
Investment   Cost        Unrealized Gain Unrealized Loss  Unrealized Gain     Value
---------- -----------   --------------- ---------------  ---------------  ------------
<S>        <C>            <C>              <C>             <C>             <C>
Corporate
Equities   $ 3,763,000    $ 1,496,000      ($931,000)      $565,000        $4,328,000

</TABLE>

As of June 30, 2008, the Company had $522,000 of unrealized losses related to
securities held for over one year.

The net gain(loss) on marketable securities on the statements of operations are
comprised of realized and unrealized gains.  Below is the composition of the
two components for the years ended June 30, 2008 and 2007, respectively.

For the years ended June 30,                          2008             2007
                                                  -----------      -----------
Realized gain on marketable securities            $ 1,356,000      $ 1,936,000
Unrealized (loss)gain on marketable securities     (2,829,000)         102,000
                                                  -----------      -----------
Net loss(gain) on marketable securities           $(1,473,000)     $ 2,038,000
                                                  ===========      ===========


NOTE 6 - OTHER INVESTMENTS

The Company may also invest, with the approval of the Securities Investment
Committee, in private investment equity funds and other unlisted securities,
such as convertible notes through private placements. Those investments in non-
marketable securities are carried at cost on the Company's balance sheet as
part of other investments net of other than temporary impairment losses.

As of June 30, 2008, the Company had net other investments, net of $4,239,000,
which consist of the following:


            Type                   Other Investments, Net
   ---------------------------     ----------------------
   Private equity hedge fund         $       3,975,000
   Corporate debt instruments                   64,000
   Other                                       200,000
                                     -----------------
                                     $       4,239,000
                                     =================

                                    -37-
<PAGE>

In accordance with Emerging Issues Task Force No. 03-01, "The Meaning of Other-
Than-Temporary Impairment and Its Application to Certain Investments", the
Company recorded impairment losses $640,000 and $875,000, respectively, during
the years ended June 30, 2008 and 2007.

In June 2008, the Company and InterGroup ("the Companies") entered into an
agreement to make additional investments in corporate debt instruments in the
aggregate amount of $1,250,000. Those investments will be allocated $750,000 to
the Company and $500,000 to Intergroup.  In addition, the Company's chairman
agreed to invest in a like amount and on the same terms as the Companies.  As
of June 30, 2008, a total of $250,000 of the investment was made by the
Companies, of which the Company paid $150,000, leaving an aggregate remaining
commitment from the Companies of $1,000,000. Subsequent to year end, additional
investment funding was made in July and August 2008 in the total amount of
$500,000, of which $300,000 was paid by the Company, reducing the Companies
remaining commitment to $500,000.


NOTE 7 - OTHER ASSETS, NET

Other assets consist of the following as of June 30, 2008:

  Inventory                  $   539,000
  Prepaid expenses               613,000
  Miscellaneous assets, net      741,000
                             -----------
  Total other assets         $ 1,893,000
                             ===========


NOTE 8 - LINE OF CREDIT

The Partnership has available a line of credit with a bank for $3,000,000 that
expires on February 2, 2009.  The interest rate is LIBOR plus 2% per annum or
is based on the Wall Street Journal Prime Rate less 0.5% per annum, floating,
as selected by the Partnership for each advance.  The interest rate at June 30,
2008 was 4.50%.  As of June 30, 2008, the outstanding balance on the line of
credit was $1,513,000.  Borrowings under the line of credit are subject to
certain financial covenants, which are measured annually at December 31 of each
year.   The Partnership was not in compliance with the covenants at December
31, 2007.  The Partnership received a waiver of such non-compliance from the
bank in June 2008.


NOTE 9 - MORTGAGE NOTES PAYABLE

Each mortgage note payable is secured by its respective land and building. As
of June 30, 2008, the Company had the following two mortgages on its Hotel and
two mortgages on its two rental apartments:

<TABLE>

Mortgage balance   Property     Interest Rate    Origination Date     Maturity Date
-------------      --------     -------------    ----------------     --------------
<S>                <C>          <C>              <C>                  <C>
$  28,735,000      Hotel        5.22% Fixed      July 27, 2005        August 5, 2015
   18,747,000      Hotel        6.42% Fixed      March 27, 2007       August 5, 2015
-------------
$  47,482,000      Total mortgage notes payable - hotel
=============

$   1,751,000      Apartment    7.73% Fixed      November 1, 1999     October 1,2029
      424,000      Apartment    6.45% Variable   January 1, 2002      January 18, 2032
-------------
$   2,175,000      Total mortgage notes payable - real estate
=============

</TABLE>
                                    -38-
<PAGE>

On July 27, 2005, Justice entered into a first mortgage loan with The
Prudential Insurance Company of America in a principal amount of $30,000,000
(the "Prudential Loan").  The term of the Prudential Loan is for 120 months at
a fixed interest rate of 5.22% per annum. The Prudential Loan calls for monthly
installments of principal and interest in the amount of approximately $165,000,
calculated on a 30-year amortization schedule. The Loan is collateralized by a
first deed of trust on the Partnership's Hotel property, including all
improvements and personal property thereon and an assignment of all present and
future leases and rents. The Prudential Loan is without recourse to the limited
and general partners of Justice.

In March 2007, Justice entered into a second mortgage loan with The Prudential
Insurance Company of America (the "Second Prudential Loan") in a principal
amount of $19,000,000. The term of the Second Prudential Loan is for
approximately 100 months and matures on August 5, 2015, the same date as the
Partnership's first mortgage loan with Prudential. The Second Prudential Loan
is at a fixed interest rate of 6.42% per annum and calls for monthly
installments of principal and interest in the amount of approximately $119,000,
calculated on a 30-year amortization schedule. The Loan is collateralized by a
second deed of trust on the Partnership's Hotel property, including all
improvements and personal property thereon and an assignment of all present and
future leases and rents. The Loan is without recourse to the limited and
general partners of Justice. From the proceeds of the Second Prudential Loan,
Justice retired its existing line of credit facility with United Commercial
Bank ("UCB") paying off the outstanding balance of principal and interest of
approximately $16,403,000 on March 27, 2007.

Future minimum payments for mortgage notes payable are as follows:

        For the year ending June 30,

          2009                       $    766,000
          2010                            812,000
          2011                            859,000
          2012                            910,000
          2013                            963,000
          Thereafter                   45,347,000
                                      -----------
                                     $ 49,657,000
                                      ===========


NOTE 10 - HOTEL RENTAL INCOME

The Partnership has a lease agreement with Evon for the use of the parking
garage expiring in November 2010. The lease provides the Partnership with
minimum monthly payments of $20,000 and additional contingent rental income
based on 60% of the gross parking revenues.  For the years ended June 30, 2008
and 2007, the Partnership recorded rental income from Evon of $1,602,000 and
$1,533,000, respectively. This income is included with the hotel and garage
revenue on the consolidated statements of operations.

The Partnership has a lease agreement with Tru Spa, LLC for the use of the spa
facilities expiring in May 2013. The lease provides the Partnership with
minimum monthly payments of $14,000, subject to increases based on the Consumer
Price Index.

                                    -39-
<PAGE>

Future minimum rentals to be received under existing non-cancelable operating
leases as of June 30, 2008 for each of the next five years and in the aggregate
are:

   For the year ending June 30,   Parking Garage    Spa Facilities     Total
                                  --------------    --------------   ----------
       2009                       $      237,000    $      165,000   $  402,000
       2010                              237,000           165,000      402,000
       2011                               99,000           165,000      264,000
       2012                                    -           165,000      165,000
       2013                                    -           151,000      151,000
                                  --------------    --------------   ----------
                                  $      573,000    $      811,000   $1,384,000
                                  ==============    ==============   ==========


NOTE 11 - MANAGEMENT AGREEMENT

On February 2, 2007, the Partnership entered into an agreement with Prism to
manage and operate the Hotel as its agent. The agreement is effective for a
term of ten years, unless the agreement is extended or terminated earlier as
provided in the agreement. Under the management agreement, the Partnership is
required to pay the base management fees of 2.5% of gross operating revenues
for the fiscal year. However, 0.75% of the stated management fee is due only if
the partially adjusted net operating income for the fiscal year exceeded the
amount of the Partnership's return for the fiscal year. Prism is also entitled
to an incentive management fee if certain milestones are accomplished. No
incentive fees were earned during the year ended June 30, 2008.  Management
fees paid to Prism during the years ended June 30, 2008 and 2007 were $571,000
and $212,000, respectively.

Prior to the Prism management agreement, the Hotel was managed and operated by
Dow Hotel Company LLC (Dow). Under the Dow management agreement, the
Partnership was to pay base management fees of 2.5% of gross operating revenues
for the fiscal year. However, 0.75% of the stated management fee is due only if
the partially adjusted net operating income for the fiscal year exceeded the
amount of the Partnership's return ($7 million). Dow was also entitled to
incentive management fees if certain milestones were accomplished. No incentive
management fees were paid during the year ended June 30, 2007. Management fees
paid to Dow during the year ended June 30, 2007 was $311,000.


NOTE 12 - HILTON FRANCHISE LICENSE AGREEMENT

Partnership entered into a Franchise License Agreement with Hilton Hotels
Corporation (the "Hilton Franchise Agreement") on December 10, 2004 for the
right to operate the Hotel as a Hilton brand hotel.  The term of the Hilton
Franchise Agreement is for 15 years commencing on the opening date of the
Hotel, January 12, 2006, with an option to extend that Agreement for another
five years, subject to certain conditions.

Beginning on the opening date, the Partnership pays monthly royalty fees for
the first two years of three percent (3%) of the Hotel's gross room revenue for
the preceding calendar month; the third year will be four percent (4%) of the
Hotel's gross room revenue; and the fourth year until the end of the term will
be five percent (5%) of the Hotel's gross room revenue.  The Partnership also
pays a monthly program fee of four percent (4%) of the Hotel's gross revenue.
The amount of the monthly program fee is subject to change; however, the
increase can not exceed one percent of the Hotel gross room revenue in any

                                    -40-
<PAGE>

calendar year, and the cumulative increases in the monthly fees will not exceed
five percent (5%) of gross room revenue.  For the years ended June 30, 2008 and
2007, the royalty fees and program fees (collectively "Franchise fees") were
$2,181,528 and $1,702,000, respectively.

The Partnership also pays Hilton a monthly information technology recapture
charge of 0.75% of the Hotel's gross revenues. For the years ended June 30,
2008 and 2007, those charges were $221,000 and $183,000, respectively.


NOTE 13 - GENERAL PARTNERS COMPENSATION

Effective May 31, 2004, and as amended on February 23, 2006, the Partnership
entered into a new General Partner Compensation Agreement (the "Compensation
Agreement") with its two general partners, Evon and Portsmouth, to compensate
them for their services to the Partnership, including the repositioning of the
Hotel, the active oversight of its operations and the management of the
Partnership's assets. The Compensation Agreement provides for annual base
compensation equal to 1.5% of gross revenues for the fiscal year, payable in
monthly installments, with a minimum annual base compensation of $262,000,
subject to CPI percentage adjustments. From the minimum annual base
compensation, 80% is to be paid to Evon as the managing general partner, and
20% is to be paid to Portsmouth as the other general partner. Base annual
compensation in excess of the minimum is payable in equal amounts to Evon and
Portsmouth. The maximum annual compensation that can be earned by the general
partners is 1.5% of $40,000,000 of gross revenues, subject to CPI percentage
adjustments. The Compensation Agreement will continue to remain in effect until
otherwise amended by the Partnership.

During the years ended June 30, 2008 and 2007, the general partners were paid
$285,000 and $283,000, respectively, for the minimum base compensation.  For
the years ended June 30, 2008 and 2007, additional compensation earned above
the minimum base compensation was $232,000 and $184,000, respectively.
Pursuant to the Compensation Agreement, the general partners are also eligible
for incentive compensation based upon 5% of net operating income of the
Partnership in excess of $7 million. No incentive compensation was earned
during the years ended June 30, 2008 and 2007.

In accordance with the Compensation Agreement as restated on February 23, 2006,
the general partners were entitled to certain fees for services rendered to the
Partnership with the respect to repositioning the Hotel, which were to be paid
equally to both general partners. The payments were due after six milestones in
the restoration of the Hotel. As of June 30, 2007, all milestones had been
achieved and all repositioning fees had been paid.  There were no repositioning
fees earned during the year ended June 30, 2008.  For the year ended June 30,
2007, repositioning fees earned totaled $379,000.

                                    -41-
<PAGE>

NOTE 14 - INCOME TAXES

The Company and Portsmouth file separate tax returns for both federal and state
purposes.  The provision for income tax benefit (expense) consists of the
following:

For the year ended June 30,             2008          2007
                                     ----------    ----------
 Federal
   Current                          $         -   $         -
   Deferred                           1,014,000       (62,000)
                                     ----------    ----------
                                      1,014,000       (62,000)
                                     ----------    ----------
State
   Current                               (3,000)       (3,000)
   Deferred                             285,000       264,000
                                     ----------    ----------
                                        282,000       261,000
                                     ----------    ----------
                                    $ 1,296,000   $   199,000
                                     ==========    ==========

A reconciliation of the statutory federal income tax rate to the effective tax
rate is as follows:

For the year ended June 30,               2008          2007
                                         ------        ------
  Statutory federal tax rate              34.0%         34.0%
  State income taxes, net of
   federal tax benefit                     5.7%          5.5%
  Valuation allowance                     (8.0%)       (31.8%)
  Other                                   (0.3%)        (0.1%)
                                         ------        ------
                                          31.4%          7.6%
                                         ======        ======
The components of the Company's deferred tax assets and (liabilities) as of
June 30, 2008 are as follows:

  Deferred tax assets
    Net operating loss carryforwards                $ 6,052,000
    Other investment impairment reserve                 649,000
    Wash sales                                            7,000
    Depreciation amortization                           175,000
    Valuation allowance                              (1,171,000)
                                                     ----------
                                                      5,712,000
  Deferred tax liabilities
    Unrealized gains on marketable securities          (255,000)
    Deferred gains on real estate sale                 (913,000)
    Book/tax basis difference in the investment
     in Justice Investors                              (759,000)
    State taxes                                        (268,000)
                                                     ----------
                                                     (2,195,000)
                                                     ----------
  Net deferred tax asset                            $ 3,517,000
                                                     ==========

                                    -42-
<PAGE>

As of June 30, 2008, the Company had net operating loss carryforwards of
$14,815,000 and $11,471,000 for federal and state purposes, respectively.
These carryforwards begin to expire in varying amounts through 2025.

For the year ended June 30, 2008, the Company recorded a valuation allowance of
$332,000 against the total deferred tax assets.  Management believes that it is
more likely than not that the Company will not realize the entire benefit of
the deferred asset as of June 30, 2008.


NOTE 15 - SEGMENT INFORMATION

The Company operates in three reportable segments, the operation of the hotel,
the operations of its multi-family residential properties, and the investment
of its cash and securities assets. These three operating segments, as presented
in the financial statements, reflect how management internally reviews each
segment's performance.  Management also makes operational and strategic
decisions based on this same information.

Information below represents reporting segments for the year ended June 30,
2008 and 2007.  Operating income for rental properties consist of rental
income.  Operating income from the hotel consists of the operations of the
hotel and garage.  Operating income for investment transactions consist of net
investment gains(losses) and dividend and interest income.

<TABLE>

AS OF AND
FOR THE YEAR ENDED            HOTEL       REAL ESTATE  INVESTMENT
JUNE 30, 2008               OPERATIONS    OPERATIONS   TRANSACTIONS      OTHER         TOTAL
                            -----------   -----------  ------------   -----------   ------------
<S>                        <C>            <C>           <C>           <C>          <C>
Operating income           $ 37,778,000   $   559,000   $(1,975,000)  $         -  $  36,362,000
Operating expenses          (39,288,000)     (446,000)     (511,000)            -    (40,245,000)
                            -----------   -----------   -----------   -----------   ------------
Net operating income(loss)   (1,510,000)      113,000    (2,486,000)            -     (3,883,000)
General and administrative
 Expense                              -             -             -    (1,045,000)    (1,045,000)
Income tax benefit                    -             -             -     1,296,000      1,296,000
Minority interest               802,000             -             -       558,000      1,360,000
                            -----------   -----------   -----------   -----------   ------------
Net income (loss)          $   (708,000)  $   113,000   $(2,486,000)  $   809,000   $ (2,272,000)
                            ===========   ===========   ===========   ===========   ============
Total Assets               $ 46,551,000   $ 5,369,000   $ 8,567,000   $11,095,000   $ 71,582,000
                            ===========   ===========   ===========   ===========   ============
</TABLE>
<TABLE>

AS OF AND
FOR THE YEAR ENDED            HOTEL       REAL ESTATE  INVESTMENT
JUNE 30, 2007               OPERATIONS    OPERATIONS   TRANSACTIONS      OTHER         TOTAL
                            -----------   -----------  ------------   -----------   ------------
<S>                        <C>            <C>           <C>           <C>          <C>
Operating income           $ 31,715,000   $   501,000   $ 1,414,000   $         -  $  33,630,000
Operating expenses          (36,401,000)     (498,000)     (775,000)            -    (37,674,000)
                            -----------   -----------   -----------   -----------   ------------
Net operating income(loss)   (4,686,000)        3,000       639,000             -     (4,044,000)
General and administrative
 Expense                              -             -             -    (1,013,000)    (1,013,000)
Income tax benefit                    -             -             -       199,000        199,000
Minority interest             2,423,000             -             -       473,000      2,896,000
                            -----------   -----------   -----------   -----------   ------------
Net income (loss)          $ (2,263,000)  $     3,000   $   639,000   $  (341,000)  $ (1,962,000)
                            ===========   ===========   ===========   ===========   ============
Total Assets               $ 50,921,000   $ 4,476,000   $17,868,000   $ 2,569,000   $ 75,834,000
                            ===========   ===========   ===========   ===========   ============
</TABLE>

                                    -43-
<PAGE>

NOTE 16 - RELATED PARTY TRANSACTIONS

The contractor that was selected to oversee the garage and the first four
floors' renovation (excluding room upgrades) of the Hotel was the contractor
who originally constructed the Hotel. He is also a partner in the Partnership
and is a director of Evon Corporation, the managing general partner of the
Partnership.  The contractor is also a board member of Evon Corporation.  At
June 30, 2008 and 2007, there were $67,000 and $33,000, respectively, payable
to the contractor. Services performed by the contractor are capitalized as
fixed assets which totaled $399,000 and $1,256,000 for the year ended June 30,
2008 and 2007, respectively. Management believes these renovations were
competitively priced.

The garage lessee, Evon, is the Partnership's managing general partner. Evon
paid the Partnership $1,602,000 and $1,533,000 for the years ended June 30,
2008 and 2007, respectively, under the terms of the lease agreement.  Rent
receivable from Evon as of June 30, 2008 and 2007 was $15,000 and $33,000,
respectively.

The InterGroup Corporation allocates corporate expenses to the Company and its
subsidiaries based on management's estimate of the pro rata utilization of
resources.  During the years ended June 30, 2008 and 2007, the Company made
payments to InterGroup of approximately $144,000 for each respective year, for
administrative costs and reimbursement of direct and indirect costs associated
with the management of the Companies and their investments, including the
partnership asset.

As Chairman of the Securities Investment Committee, the Company's President and
Chief Executive Officer, John V. Winfield, directs the investment activity of
the Company in public and private markets pursuant to authority granted by the
Board of Directors.  Mr. Winfield also serves as Chief Executive Officer
and Chairman of Portsmouth and InterGroup and oversees the investment activity
of those companies.  Depending on certain market conditions and various risk
factors, the Chief Executive Officer, his family, Portsmouth and InterGroup
may, at times, invest in the same companies in which the Company invests.  The
Company encourages such investments because it places personal resources of the
Chief Executive Officer and his family members, and the resources of Portsmouth
and InterGroup, at risk in connection with investment decisions made on behalf
of the Company.

On July 18, 2003, the disinterested members of the Board of Directors
established a performance based compensation program for the Company's CEO to
keep and retain his services as a direct and active manager of the Company's
securities portfolio.  Pursuant to the criteria established by the Board, Mr.
Winfield is entitled to performance based compensation for his management of
the Company's securities portfolio equal to 20% of all net investment gains
generated in excess of the performance of the S&P 500 Index.  Compensation
amounts are calculated and paid quarterly based on the results of the Company's
investment portfolio for that quarter.  Should the Company have a net
investment loss during any quarter, Mr. Winfield would not be entitled to any
further performance-based compensation until any such investment losses are
recouped by the Company.  On February 26, 2004, the Board of Directors amended
the performance threshold to require an annualized return equal to the Prime
Rate of Interest (as published in the Wall Street Journal) plus 2% instead of
the S&P 500 Index, effective with the quarterly period commencing January 1,
2004.  For the years ended June 30, 2008 and 2007, Mr. Winfield did not receive
any performance based compensation.  This performance based compensation
program may be further modified or terminated at the discretion of the Board.

All of the Company's Directors serve as directors of InterGroup and all three
of the Company's Directors serve on the Board of Portsmouth.

                                    -44-
<PAGE>

NOTE 17 - COMMITMENTS AND CONTINGENCIES

The Partnership was involved with a contract claim with one of its general
contractors who recorded a mechanic's lien against the Partnership property
arising out of the renovation work performed on the Hotel.  The contractor had
failed to pay a number of subcontractors who also filed mechanic's lien claims
against the property. In November 2007, the Partnership entered into settlement
agreements with the subcontractors and their liens were released. The balance
of the dispute with the general contractor was submitted to arbitration
pursuant to the terms of the construction contract. All remaining claims
asserted by the general contractor were settled by the Partnership on June 5,
2008 for the sum of $588,000 and a release of the lien claim was recorded and
the action dismissed. Management believes that all claims against the
Partnership or on the property had been settled as of June 30, 2008.

From time to time, the Company may be a defendant or co-defendant in other
legal actions involving various claims incident to the conduct of its business.
Most of such claims are covered by insurance.  Management does not anticipate
the Company to suffer any material liability by reason of such actions.

The Company leases certain equipment under capital leases expiring in various
years through 2012.

Minimum future lease payments for assets under capital leases as of June 30,
2008 for each of the next five years and in aggregate are:

    Year ending June 30
          2009                                         $ 243,000
          2010                                           243,000
          2011                                           243,000
          2012                                            14,000
                                                        --------
            Total minimum lease payments:                743,000
            Less interest on capital leases             (105,000)
                                                        --------
            Present value of minimum lease payments      638,000
                                                        ========

The Company leases equipment from an unrelated third party under operating
leases with expiration dates through 2010.  Minimum future operating lease
commitments for equipment leases as of June 30, 2008 are as follows:

              Year ended June 30,
                   2009               $ 196,000
                   2010                  10,000
                                       --------
                                      $ 206,000
                                       ========

                                            -45-
<PAGE>


Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

Disclosure of the appointment of Burr, Pilger & Mayer LLP as the Company's
independent registered public accounting firm in October 2008 was previously
reported and no additional disclosure is required under this Item.


Item 8A(T). Controls and Procedures.

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

The Company's management, with the participation of the Company's Chief
Executive Officer and Principal Financial Officer, has evaluated the
effectiveness of the Company's disclosure controls and procedures (as defined
in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) as of the end of the
fiscal period covered by this Annual Report on Form 10-KSB.  Based upon such
evaluation, the Chief Executive Officer and Principal Financial Officer have
concluded that, as of the end of such period, the Company's disclosure controls
and procedures are effective in ensuring that information required to be
disclosed in this filing is accumulated and communicated to management and is
recorded, processed, summarized and reported in a timely manner and in
accordance with the Securities and Exchange Commission rules and regulations.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Rule 13a-15(f)
under the Securities Exchange Act of 1934, for the Company. In establishing
adequate internal control over financial reporting, management has developed
and maintained a system of internal control, policies and procedures designed
to provide reasonable assurance that information contained in the accompanying
consolidated financial statements and other information presented in this
annual report is reliable, does not contain any untrue statement of a material
fact or omit to state a material fact, and fairly presents in all material
respects the financial condition, results of operations and cash flows of the
Company as of and for the periods presented in this annual report.

Management conducted an evaluation of the effectiveness of Company's internal
control over financial reporting using the framework in Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on its evaluation under that framework, management
believes that the Company's internal control over financial reporting was
effective as of June 30, 2008.

This Annual Report on Form 10-KSB does not include an attestation report of the
Company's independent registered public accounting firm regarding internal
control over financial reporting. Management's report was not subject to
attestation by the Company's independent registered public accounting firm
pursuant to temporary rules of the Securities and Exchange Commission that
permit the Company to provide only management's report in this Annual Report on
Form 10-KSB.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There have been no changes in the Company's internal control over financial
reporting during the last quarterly period covered by this Annual Report on
Form 10-KSB that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial reporting.

                                    -46-
<PAGE>

Item 8B. Other Information.

None to report.


                           PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
         Compliance with Section 16(a) of the Exchange Act.

The following table sets forth certain information with respect to the
Directors and Executive Officers of the Company as of June 30, 2007:

<TABLE>

                                  Present
                                  Position           Director
     Name             Age      with the Company        Since       Term to Expire
--------------------------------------------------------------------------------------
<S>                   <C>      <C>                     <C>         <C>
John V. Winfield      61       Chairman, President     1995        2008 Annual Meeting
                               and Chief Executive
                               Officer (1)

William J. Nance      63       Director (1)(2)         1996        2008 Annual Meeting

John C. Love          68       Director (1)(2)         1998        2008 Annual Meeting

Michael G. Zybala     56       Vice President,
                               Secretary, and
                               General Counsel         N/A         N/A

David T. Nguyen       35       Treasurer and           N/A         N/A
                               Controller
</TABLE>
---------------------------
(1)  Member of Securities Investment Committee
(2)  Member of Audit Committee


BUSINESS EXPERIENCE:

The principal occupation and business experience during the last five years
for each of the Directors and Executive Officers of the Company are as
follows:

John V. Winfield - Mr. Winfield was first elected to the Board in May of 1995
and currently serves as the Company's Chairman of the Board, President and
Chief Executive Officer, having been appointed as such in April 1996.  Mr.
Winfield is also the Chairman of the Board, President and Chief Executive
Officer of the Company's subsidiary Portsmouth, having held those positions
since May of 1996.  Mr. Winfield is Chairman of the Board, President and Chief
Executive Officer of The InterGroup Corporation ("InterGroup"), a public
company, and has held those positions since 1987.

William J. Nance - Mr. Nance was first elected to the Board in May of 1996.
Mr. Nance is also a director of Portsmouth.  Mr. Nance is the President and CEO
of Century Plaza Printers, Inc., a company he founded in 1979.  He has also
served as a consultant in the acquisition and disposition of multi-family and
commercial real estate.  Mr. Nance is a Certified Public Accountant and, from
1970 to 1976, was employed by Kenneth Leventhal & Company where he was a Senior
Accountant specializing in the area of REITS and restructuring of real estate
companies, mergers and acquisitions, and all phases of real estate development
and financing.  Mr. Nance is also Director of InterGroup, a public company, and
has held such position since 1984. Mr. Nance also serves as a director of
Goldspring, Inc., a public company.

                                    -47-
<PAGE>

John C. Love - Mr. Love was appointed a Director of the Company on March 5,
1998.  Mr. Love is an international hospitality and tourism consultant and a
hotel broker.  He was formerly a partner in the national CPA and consulting
firm of Pannell Kerr and Forster.  Mr. Love has extensive experience in hotel
development, acquisition and development.  He is Chairman Emeritus of Golden
Gate University in San Francisco.  Mr. Love is also a Director of Portsmouth,
having first been appointed in March 1998 and a Director of InterGroup, having
first been appointed in January 1998.

Michael G. Zybala - Mr. Zybala was appointed as Vice President and Secretary of
the Company on February 20, 1998 and was appointed Treasurer on May 16, 2000,
which was a position he held until February 27, 2003.  He is also Vice
President, Secretary and General Counsel of Portsmouth.  Mr. Zybala has served
as the Company's General Counsel since 1995 and has represented the Company as
its corporate counsel since 1978.  Mr. Zybala also serves as Assistant
Secretary and counsel to InterGroup and has held those positions since January
1999.

David T. Nguyen - Mr. Nguyen was appointed as Treasurer of the Company on
February 27, 2003.  Mr. Nguyen also serves as Treasurer of InterGroup and
Portsmouth, having been appointed to those positions on February 26, 2003 and
February 27, 2003, respectively.  Mr. Nguyen is a Certified Public Accountant
and, from 1995 to 1999, was employed by PricewaterhouseCoopers LLP where he was
a Senior Accountant specializing in real estate.  Mr. Nguyen has also served as
the Company's Controller from 1999 to December 2001 and from December 2002 to
present.


Family Relationships:  There are no family relationships among directors,
executive officers, or persons nominated or chosen by the Company to become
directors or executive officers.

Involvement in Certain Legal Proceedings:  No director or executive officer, or
person nominated or chosen to become a director or executive officer, was
involved in any legal proceeding requiring disclosure.

BOARD AND COMMITTEE INFORMATION

Santa Fe is an unlisted company and a small business issuer under the rules and
regulations of the Securities and Exchange Commission ("SEC").  The majority of
its Board of Directors consists of "independent" directors as independence is
defined by the applicable rules of the SEC and the National Association of
Securities Dealers' ("NASD").

AUDIT COMMITTEE AND AUDIT COMMITTEE FINANCIAL EXPERT

Santa Fe is an unlisted company and small business issuer under SEC rules.  The
Company's Audit Committee is currently comprised of Messrs. Nance (Chairperson)
and Love, each of whom are independent directors as independence is defined by
the applicable rules of the SEC and the NASD, and as may be modified or
supplemented.  Each of these directors also meets the audit committee financial
expert test.

Procedures for Recommendations of Nominees to Board of Directors

There have been no changes to the procedures previously disclosed by which
security holders may recommend nominees to the Company's Board of Directors.

                                    -48-
<PAGE>

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and each beneficial owner of more than ten percent of
the Common Stock of the Company, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission.  Officers, directors and
greater than ten-percent shareholders are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by the Company,
or written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that during fiscal 2008 all
filing requirements applicable to its officers, directors, and greater than
ten-percent beneficial owners were complied with.

Code of Ethics.

The Company has adopted a Code of Ethics that applies to its principal
executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions.  A copy of the Code of
Ethics is filed as Exhibit 14 to this Report.  The Company will provide to any
person without charge, upon request, a copy of its code of ethics by sending
such request to: Santa Fe Financial Corporation, Attn: Treasurer, 820 Moraga
Drive, Los Angeles 90049. The Company does not maintain an Internet website.
The Company will promptly disclose any amendments or waivers to its Code of
Ethics on Form 8-K.


Item 10.   Executive Compensation

The following table provides certain summary information concerning
compensation awarded to, earned by, or paid to the Company's principal
executive officer and other named executive officers of the Company whose total
compensation exceeded $100,000 for all services rendered to the Company and its
subsidiary for each of the Company's last two competed fiscal years ended June
30, 2008 and June 30, 2007.  No stock awards, long-term compensation, options
or stock appreciation rights were granted to any of the named executive
officers during the last two fiscal years.

<TABLE>

                        SUMMARY COMPENSATION TABLE

                              Fiscal                                All Other
Name and Principal Position    Year     Salary        Bonus       Compensation     Total
---------------------------    ----   ----------    ----------   ------------   ------------
<S>                            <C>    <C>            <C>           <C>           <C>
John V. Winfield               2008   $267,000(1)    $      -      $42,500(2)    $ 309,500
Chairman, President and        2007   $267,000(1)    $      -      $42,500(2)    $ 309,500
Chief Executive Officer

Michael G. Zybala              2008   $111,000(3)    $      -      $     -       $ 111,000
Vice President, Secretary      2007   $135,000(3)    $      -      $     -       $ 135,000
and General Counsel

</TABLE>
---------------------------

(1) Includes salary and director's fees received from the Company's subsidiary,
Portsmouth, in the amounts of $133,000 for each of the fiscal years ended June
30, 2008 and 2007 and directors fees in the amount of $6,000 per year paid by
Santa Fe.  Does not include compensation received from Santa Fe's parent
corporation, InterGroup, of $255,000 for each of the fiscal years ended June
30, 2008 and June 30, 2007.

                                    -49-
<PAGE>

(2) During fiscal 2008 and 2007, the Company and Portsmouth also paid combined
annual premiums of $42,500, for each respective year, for split dollar whole
life insurance policies, owned by, and the beneficiary of which is, a trust for
the benefit of Mr. Winfield's family.  Portsmouth's share of those premiums was
$17,000 per year. These policies were obtained in December 1998 and provide for
an aggregate death benefit of $2,500,000. The Company has a secured right to
receive, from any proceeds of the policy, reimbursement of all premiums paid
prior to any payments to the beneficiary.

(3) Includes salary and Special Hotel Committee monthly fee fees paid by
Portsmouth in the aggregate amounts of $94,800 and $118,800 for fiscal years
ended June 30, 2008 and 2007, respectively. Does not include $27,000 paid by
Santa Fe's parent company, InterGroup, for each fiscal years 2008 and 2007.


As a small business issuer, Santa Fe has no compensation committee. Executive
Officer compensation is set by disinterested members of the Board of Directors.
Santa Fe has no stock option plan or stock appreciation rights for its
executive officers.  The Company has no pension or long-term incentive plans.
There are no employment contracts between Santa Fe and any executive officer,
nor is there any termination-of-employment or change-in-control arrangements.

On July 18, 2003, the disinterested members of the Board of Directors
established a performance based compensation program for the Company's CEO,
John V. Winfield, to keep and retain his services as a direct and active
manager of the Company's securities portfolio.  The Company's previous
experience and results with outside money managers was not acceptable.
Pursuant to the criteria established by the Board, Mr. Winfield was be entitled
to performance compensation for his management of the Company's securities
portfolio equal to 20% of all net investment gains generated in excess of the
performance of the S&P 500 Index.  Compensation amounts will be calculated and
paid quarterly based on the results of the Company's investment portfolio for
that quarter.  Should the Company have a net investment loss during any
quarter, Mr. Winfield would not be entitled to any further performance-based
compensation until any such investment losses are recouped by the Company.  On
February 26, 2004, the Board of Directors amended the performance threshold to
require an annualized return equal to the Prime Rate of Interest (as published
in the Wall Street Journal) plus 2% instead of the S&P 500 Index, effective
with the quarterly period commencing January 1, 2004. This change was made to
make the Company's plan be consistent with that established by its parent
company, InterGroup.  This performance based compensation program may be
further modified or terminated at the discretion of the Board. No performance
based compensation was paid for fiscal years ended June 30, 2008 or 2007.

Internal Revenue Code Limitations

Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
provides that, in the case of a publicly held corporation, the corporation is
not generally allowed to deduct remuneration paid to its chief executive
officer and certain other highly compensated officers to the extent that such
remuneration exceeds $1,000,000 for the taxable year. Certain remuneration,
however, is not subject to disallowance, including compensation paid on a
commission basis and, if certain requirements prescribed by the Code are
satisfied, other performance based compensation.  No compensation paid by the
Company to its CEO or other executive officers was subject the deduction
disallowance prescribed by Section 162(m) of the Code.

                                    -50-
<PAGE>

Outstanding Equity Awards at Fiscal Year End.

The Company did not have any outstanding equity awards at the end of its fiscal
year ended June 30, 2008 and has no equity compensation plans in effect.


                          DIRECTOR COMPENSATION


                          Fees Earned
                            or Paid            All Other
     Name                   in Cash           Compensation        Total
-----------------         -----------         ------------       -------

John C. Love              $ 46,000(1)                  -         $46,000

William J. Nance          $ 46,000(1)                  -         $46,000

John V. Winfield(2)
------------------

(1) Mr. Love and Mr. Nance also serve as directors of the Company's subsidiary,
    Portsmouth. Amounts shown include $8,000 in regular board and audit
    committee fees paid by Santa Fe and $8,000 in regular board and audit
    committee fees paid by Portsmouth. These amounts also include $30,000 in
    special hotel committee fees paid to Mr. Love and Mr. Nance by Portsmouth
    related to the oversight of its Hotel asset.

(2) As an executive officer Mr. Winfield director's fees are reported in the
    Summary Compensation Table.


The bylaws of Santa Fe permit directors to be paid a fixed sum for attendance
at each meeting of the Board or a stated retainer fee as director.  Each
director is paid a fee of $1,500 per quarter for a total annual compensation of
$6,000.  This policy has been in effect since July 1, 1985. Members of the
Company's Audit Committee also receive a fee of $500 per quarter.

                                    -51-
<PAGE>

Item 11.    Security Ownership of Certain Beneficial Owners and Management

(a) Security ownership of Certain Beneficial Owners

The following table sets forth, as of September 10, 2008, certain information
with respect to the beneficial ownership of the Company's voting securities
owned by those persons or groups known by the Company to own more than five
percent of any class of the Company's voting securities.


Name and Address of                 Amount and Nature            Percent of
Beneficial Owner                   of Beneficial Owner (1)        Class (2)
-------------------                ----------------------        ----------
Guinness Peat Group plc ("GPG")          89,858(3)                   7.2%
Allied Mutual Insurance
  Services ("AMI")
First Floor, Times Place,
45 Pall Mall
London SW1Y 5GP, UK

The InterGroup Corporation              942,212                     75.9%
820 Moraga Drive
Los Angeles, CA 90049

John V. Winfield                         49,400                      4.0%
820 Moraga Drive
Los Angeles, CA 90049

The InterGroup Corporation and          991,612(4)                  79.9%
  John V. Winfield as a group
------------------------------

(1) Unless otherwise indicated, and subject to applicable community property
    laws, each person has sole voting and investment power with respect to the
    shares beneficially owned.

(2) Percentages are calculated on the basis of 1,241,810 shares of Common
    Stock issued and outstanding as of September 10, 2008, plus any securities
    that person has the right to acquire within 60 days pursuant to options,
    warrants, conversion privileges or other rights.

(3) Based on their Statement on Schedule 13D (Amendment No. 6) dated June 13,
    2001, GPG and its wholly-owned subsidiary AMI claim shared power to vote,
    or to direct the vote, and to dispose of, or to direct the disposition of,
    the shares of Santa Fe's Common Stock owned of record by AMI.

(4) Pursuant to Voting Trust Agreement dated June 30, 1998, InterGroup has the
    power to vote the 49,400 shares of Common Stock owned by Mr. Winfield.  As
    President, Chairman of the Board and a 62.6% shareholder of InterGroup,
    Mr. Winfield has voting and dispositive power over the shares owned
    of record and beneficially by InterGroup.

                                    -52-
<PAGE>

(b) Security Ownership of Management

The following table sets forth, as of September 10, 2008, certain
information with respect to the beneficial ownership as to each class of the
Company's equity securities beneficially owned by all directors, each of the
named executive officers and directors and executive officers as a group.


Name and Address of                 Amount and Nature            Percent of
Beneficial Owner                   of Beneficial Owner(1)         Class (2)
-------------------                -------------------           ----------

John V. Winfield                        991,612(3)                  79.9%
820 Moraga Drive
Los Angeles, CA 90049

John C. Love                                  0(4)                      *
820 Moraga Drive
Los Angeles, CA 90049

William J. Nance                              0(4)                      *
820 Moraga Drive
Los Angeles, CA 90049

Michael G. Zybala                             0                         *
820 Moraga Drive
Los Angeles, CA 90049

David T. Nguyen                               0                         *
820 Moraga Drive
Los Angeles, CA 90049

All of the above as a group             991,612                     79.9%
---------------------------
* Ownership does not exceed 1%

(1) Unless otherwise indicated, and subject to applicable community property
    laws, each person has sole voting and investment power with respect to the
    shares beneficially owned.

(2) Percentages are calculated on the basis of 1,241,810 shares of Common
    Stock issued and outstanding as of September __, 2008, plus any securities
    that person has the right to acquire within 60 days pursuant to options,
    warrants, conversion privileges or other rights.

(3) John V. Winfield is the sole beneficial owner of 49,400 shares of Common
    Stock.  InterGroup is the beneficial owner of 942,212 shares of Common
    Stock.  As the President, Chairman of the Board and a 62.6% shareholder of
    InterGroup, Mr. Winfield has voting and dispositive power with respect to
    the shares of Santa Fe owned of record and beneficially by InterGroup.

(4) William J. Nance is a 3.4% shareholder of InterGroup as well as a
    Director thereof.  John C. Love is also a Director of InterGroup and a
    1.2% shareholder.

                                    -53-
<PAGE>

Security Ownership of Management in Subsidiary

As of September 10, 2008, Santa Fe was the record and beneficial owner of
505,437 shares of its subsidiary, Portsmouth, and 85,600 shares are owned by
Santa Fe's parent company InterGroup. The President and Chairman of the Board
of Santa Fe and InterGroup has voting power with respect to common shares of
Portsmouth owned by Santa Fe and InterGroup which represent 80.5% of the voting
power of Portsmouth.  No other director or executive officer of Santa Fe has a
beneficial interest in Portsmouth's shares.


(c) Changes in Control

There are no arrangements that may result in a change in control of the
Company.

Securities Authorized for Issuance Under Equity Compensation Plans.

Santa Fe has no securities authorized for issuance under any equity
compensation plans.


Item 12. Certain Relationships and Related Transactions, and
         Director Independence

As of September 10, 2008, Santa Fe and InterGroup owned 80.5% of the common
stock of Portsmouth, and InterGroup and John V. Winfield, in the aggregate,
owned approximately 79.1% of the voting stock of Santa Fe.  All of the
Company's Directors serve as directors of InterGroup and all three of the
Company's Directors serve on the Board of Portsmouth.

Certain costs and expenses, primarily administrative salaries, rent and
insurance, are allocated among the Company, its subsidiary, Portsmouth, and
parent InterGroup based on management's estimate of the pro rata utilization of
resources.  During the fiscal years ended June 30, 2008 and 2007, the Company
and Portsmouth made payments to InterGroup of approximately $144,000 and
$146,000, respectively, for administrative costs and reimbursement of direct
and indirect costs associated with the management of the Companies and their
investments, including the partnership asset.

As Chairman of the Securities Investment Committee, the Company's President and
Chief Executive officer, John V. Winfield, directs the investment activity of
the Company in public and private markets pursuant to authority granted by the
Board of Directors.  Mr. Winfield also serves as Chief Executive Officer and
Chairman of Portsmouth and InterGroup and oversees the investment activity
of those companies.  Depending on certain market conditions and various risk
factors, the Chief Executive Officer, his family, Portsmouth and InterGroup
may, at times, invest in the same companies in which the Company invests.  The
Company encourages such investments because it places personal resources of the
Chief Executive Officer and his family members, and the resources of Portsmouth
and InterGroup, at risk in connection with investment decisions made on behalf
of the Company.

                                    -54-
<PAGE>

On July 18, 2003, the disinterested members of the Board of Directors
established a performance based compensation program for the Company's CEO to
keep and retain his services as a direct and active manager of the Company's
securities portfolio.  Pursuant to the criteria established by the Board, Mr.
Winfield is entitled to performance compensation for his management of the
Company's securities portfolio equal to 20% of all net investment gains
generated in excess of the performance of the S&P 500 Index.  Compensation
amounts are calculated and paid quarterly based on the results of the Company's
investment portfolio for that quarter.  Should the Company have a net
investment loss during any quarter, Mr. Winfield would not be entitled to any
further performance-based compensation until any such investment losses are
recouped by the Company.  On February 26, 2004, the Board of Directors amended
the performance threshold to require an annualized return equal to the Prime
Rate of Interest (as published in the Wall Street Journal) plus 2% instead of
the S&P 500 Index, effective with the quarterly period commencing January 1,
2004. No such compensation was paid for fiscal years 2008 and 2007. This
performance based compensation program may be further modified or terminated at
the discretion of the Board.

In December 1998, Board of Directors authorized the Company to obtain whole
life insurance and split dollar insurance policies covering the Company's
President and Chief Executive Officer, Mr. Winfield.  During fiscal years 2007
and 2006, the Company paid annual premiums of $25,500 for the split dollar
whole life insurance policy, owned by, and the beneficiary of which is, a trust
for the benefit of Mr. Winfield's family.  The Company has a secured right to
receive, from any proceeds of the policy, reimbursement of all premiums paid
prior to any payments to the beneficiary.  During fiscal 2008 and 2007,
Portsmouth paid annual premiums of $17,000 for a split dollar policy also
covering Mr. Winfield. The premiums associated with that spilt dollar policy
are considered additional compensation to Mr. Winfield.

In August 2007, Portsmouth's Board of Directors authorized an investment of
$973,000 for Portsmouth to acquire a 50% equity interest in Intergroup Uluniu,
Inc., a Hawaii corporation ("Uluniu") in a related party transaction. Uluniu is
a 100% owned subsidiary of InterGroup. Uluniu owns an approximately two-acre
parcel of unimproved land located in Kihei, Maui, Hawaii which is held for
development. The Company's investment in Uluniu represents an amount equal to
the costs paid by InterGroup for the acquisition and carrying costs of the
property through August 2007. The fairness of the financial terms of the
transaction were reviewed and approved by the independent director of
Portsmouth. As of June 30, 2008, the $973,000 investment amount had been paid
by Portsmouth.

There are no other relationships or related transactions between the Company
and any of its officers, directors, five-percent security holders or their
families which require disclosure.


Director Independence

Santa Fe is an unlisted company and a small business issuer under the rules and
regulations of the Securities and Exchange Commission ("SEC").  With the
exception of the Company's President and CEO, John V. Winfield, all of
Portsmouth's Board of Directors consists of "independent" directors as
independence is defined by the applicable rules of the SEC and the National
Association of Securities Dealers' ("NASD").

                                    -55-
<PAGE>

Item 13.  Exhibits.

(a) Listing of Exhibits by Table Number
    -----------------------------------

Set forth below is an index of applicable exhibits filed with this report
according to exhibit table number.

           Exhibit                                                 Page
           -------                                                 ----

   3.(i)  Articles of Incorporation                                 ***
     (ii) Bylaws (Amended February 15, 2000)                        ****

   4.     Instruments defining he rights of Security Holders,       *
          including indentures (see Articles of Incorporation
          and Bylaws)

   10.    Material Contracts
          (a) Securities Purchase Agreement dated December 20,      **
              1994 between Santa Fe Financial Corporation and
              The InterGroup Corporation

   14.    Code of Ethics (filed herewith)

   21.    Subsidiaries:

          (1) Portsmouth Square, Inc. (68.8%)
              Incorporated on July 6, 1967 in California

          (2) Intergroup Woodland Village, Inc. (55.4%)
              Incorporated on August 5, 1993 in Ohio

          (3) 614 Acanto Properties, Inc. (100%)
              Incorporated on November 7, 2001 in California

  31.1    Certification of Chief Executive Officer of Periodic Report
          Pursuant to Rule 13a-14(a) and Rule 15d-14(a). (filed herewith)

  31.2    Certification of Chief Financial Officer of Periodic Report
          Pursuant to Rule 13a-14(a) and Rule 15d-14(a). (filed herewith)

  32.1    Certification of Chief Executive Officer Pursuant to 18
          U.S.C. Section 1350. (filed herewith)

  32.2    Certification of Chief Financial Officer Pursuant to 18
          U.S.C. Section 1350. (filed herewith)

*   All exhibits marked by an asterisk have been previously filed with other
    documents, including Registrant's Form 10 filed on October 27, 1967, and
    subsequent filings on forms 8-K, 10-K and 10-Q which are incorporated
    herein by reference.

**  Securities Purchase Agreement dated December 20, 1994 between Santa Fe
    Financial Corporation and The InterGroup Corporation was previously filed
    on March 31, 1995 with Registrant's Form 10-K Annual Report for the year
    ended December 31, 1994 and is incorporated herein by reference.

                                    -56-
<PAGE>

*** Restated Articles of Incorporation, dated August 12, 1997, were previously
    filed on March 31, 1998 with Registrant's Form 10-KSB Annual Report for
    the year ended December 31, 1997 and is incorporated herein by reference.

**** Amendment to Bylaws are incorporated herein by reference to the Company's
     Form 10-KSB filed with the Commission March 29, 2000.

 (b) Reports on Form 8-K
     -------------------

No Reports on Form 8-K were filed by the Company during the last quarter of the
period covered by this Report.


Item 14.  Principal Accountant Fees and Services.

Audit Fees - The aggregate fees billed for each of the last two fiscal years
ended June 30, 2008 and 2007 for professional services rendered by Burr, Pilger
& Mayer, LLP (fiscal 2008) and PricewaterhouseCoopers LLP (fiscal 2007), the
independent registered public accounting firms for the audit of the Company's
annual financial statements and review of financial statements included in the
Company's Form 10-QSB or services normally provided by the independent
registered public accounting firms in connection with statutory and regulatory
filings or engagements for those fiscal years, were as follows:

                                              Fiscal Year
                                       -------------------------
                                         2008             2007
                                       --------         --------
               Audit Fees              $136,000         $222,000
               Audit Related Fees             -                -
               Tax Fees                       -                -
               All Other Fees                 -                -
                                       --------         --------
                   TOTAL:              $136,000         $222,000
                                        =======          =======


Audit Committee Pre-Approval Policies

The Audit Committee shall pre-approve all auditing services and permitted non-
audit services (including the fees and terms thereof) to be performed for the
Company by its independent auditor, subject to any de minimus exceptions that
may be set for non-audit services described in Section 10A(i)(1)(B) of the
Exchange Act which are approved by the Committee prior to the completion of the
audit.  The Committee may form and delegate authority to subcommittees
consisting of one or more members when appropriate, including the authority to
grant pre-approvals of audit and permitted non-audit services, provided that
decisions of such subcommittee to grant pre-approvals shall be presented to the
full Committee at its next scheduled meeting.

All of the services described herein were approved by the Audit Committee
pursuant to its pre-approval policies.

None of the hours expended on the principal accountant's engagement to audit
the Company's financial statements for the most recent fiscal year were
attributed to work performed by persons other than the principal accountant's
full-time permanent employees.

                                    -57-
<PAGE>

                                SIGNATURES
                                ----------

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


                                               SANTA FE FINANCIAL CORPORATION
                                                        (Registrant)

Date: September 25, 2008                      by /s/ John V. Winfield
      ------------------                         ---------------------------
                                                 John V. Winfield, President,
                                                 Chairman of the Board and
                                                 Chief Executive Officer

Date: September 25, 2008                      by /s/ Michael G. Zybala
      ------------------                         ---------------------------
                                                 Michael G. Zybala,
                                                 Vice President and Secretary

Date: September 25, 2008                      by /s/ David T. Nguyen
      ------------------                         ---------------------------
                                                 David T. Nguyen, Treasurer
                                                 and Controller
                                                 (Principal Financial Officer)


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


Date: September 25, 2008              /s/ John V. Winfield
      ------------------              ---------------------------------------
                                      John V. Winfield, Chairman of the Board


Date: September 25, 2008              /s/ John C. Love
      ------------------              ---------------------------------------
                                      John C. Love
                                      Director


Date: September 25, 2008              /s/ William J. Nance
      ------------------              ---------------------------------------
                                      William J. Nance,
                                      Director

                                    -58-