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

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FORM 10-Q

|ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2003

or

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

For the transition period from  to

Commission file number 1-8885

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

California(State or other jurisdiction of
incorporation or organization)

95-3931727(I.R.S. Employer
Identification No.)


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

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

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

Yes  ý        No  o

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

Yes  ý        No  o

23,387,705
partnership units outstanding at April 30, 2003

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Part I. Financial Information
Item 1. Financial Statements

Consolidated Statements of Income
(Unaudited)

|                                                                     |                                 | Three Months Ended
March 31, |       
|-------------------------------------------------------------------- | ------------------------------- | ---------------------------- | ------
|
|
|Revenues                                                             |                                 |                              |       
|Real estate                                                          |                                 |                              |       
|                                                                     | Residential land sales          |                              | $     
|                                                                     | Industrial and commercial sales |                              |       
|                                                                     | Commercial operations           |                              |       
|                                                                     |                                 | Income-producing properties  |       
|                                                                     |                                 | Valencia Water Company       |       
|                                                                     |                                 |                              |       
|                                                                     |                                 |                              | 66,892
|                                                                     |                                 |                              |       
|Agriculture operations                                               |                                 |                              | 652   
|                                                                     |                                 |                              |       
|                                                                     | Total revenues                  |                              | $     
|                                                                     |                                 |                              |       
|Contribution to income                                               |                                 |                              |       
|Real estate                                                          |                                 |                              |       
|                                                                     | Residential land sales          |                              | $     
|                                                                     | Industrial and commercial sales |                              |       
|                                                                     | Community development           |                              |       
|                                                                     | Commercial operations           |                              |       
|                                                                     |                                 | Income-producing properties  |       
|                                                                     |                                 | Valencia Water Company       |       
|                                                                     |                                 |                              |       
|                                                                     |                                 |                              | 16,575
|                                                                     |                                 |                              |       
|Agriculture operations                                               |                                 |                              | 304   
|                                                                     |                                 |                              |       
|General and administrative expense                                   |                                 |                              | (4,503
|                                                                     |                                 |                              |       
|Operating income                                                     |                                 |                              | 12,376
|Interest and other, net                                              |                                 |                              | (599  
|                                                                     |                                 |                              |       
|Net income                                                           |                                 | $                            | 11,777
|                                                                     |                                 |                              |       
|Net income per unit                                                  |                                 | $                            | 0.51  
|                                                                     |                                 |                              |       
|Net income per unitdiluted                                          |                                 | $                            | 0.50  
|                                                                     |                                 |                              |       
|Weighted average number of units used in computing per unit amounts: |                                 |                              |       
|                                                                     | Net income per unit             |                              |       
|                                                                     | Net income per unitdiluted     |                              |       
|Cash distributions per unit:                                         |                                 |                              |       
|                                                                     | Regular                         |                              | $     
|                                                                     | Special                         |                              |       

2

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Consolidated Balance Sheets

|In thousands                                                                                                                                                                                           |                                                                     | March 31,
2003    |         | December 31,
2002 |        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------- | ----------------- | ------- | ----------------- | -------
|
|ASSETS                                                                                                                                                                                                 |                                                                     |                   |         |                   |        
|                                                                                                                                                                                                       | Cash and cash equivalents                                           |                   | $       | 52,018            |        
|                                                                                                                                                                                                       | Accounts and notes receivable                                       |                   |         | 8,174             |        
|                                                                                                                                                                                                       | Land under development                                              |                   |         | 27,512            |        
|                                                                                                                                                                                                       | Land held for future development                                    |                   |         | 19,154            |        
|                                                                                                                                                                                                       | Income-producing properties, net                                    |                   |         | 163,634           |        
|                                                                                                                                                                                                       | Property and equipment, net                                         |                   |         | 76,390            |        
|                                                                                                                                                                                                       | Investment in joint venture                                         |                   |         | 1,234             |        
|                                                                                                                                                                                                       | Other assets and deferred charges                                   |                   |         | 26,821            |        
|                                                                                                                                                                                                       |                                                                     |                   |         |                   |        
|                                                                                                                                                                                                       |                                                                     | $                 | 374,937 |                   | $      
|                                                                                                                                                                                                       |                                                                     |                   |         |                   |        
|LIABILITIES AND PARTNERS' CAPITAL                                                                                                                                                                      |                                                                     |                   |         |                   |        
|                                                                                                                                                                                                       | Accounts payable                                                    |                   | $       | 29,800            |        
|                                                                                                                                                                                                       | Accrued expenses                                                    |                   |         | 48,047            |        
|                                                                                                                                                                                                       | Deferred revenues                                                   |                   |         | 33,209            |        
|                                                                                                                                                                                                       | Mortgage and other debt                                             |                   |         | 59,927            |        
|                                                                                                                                                                                                       | Advances and contributions from developers for utility construction |                   |         | 38,583            |        
|                                                                                                                                                                                                       | Other liabilities                                                   |                   |         | 23,581            |        
|                                                                                                                                                                                                       |                                                                     |                   |         |                   |        
|                                                                                                                                                                                                       |                                                                     | Total liabilities |         |                   | 233,147
|                                                                                                                                                                                                       | Partners' capital                                                   |                   |         |                   |        
|23,396 units outstanding, excluding 13,376 units in treasury (cost-$333,676), at March 31, 2003 and 23,518 units outstanding, excluding 13,254 units in treasury (cost-$330,358), at December 31, 2002 |                                                                     |                   | 143,068 |                   |        
|Accumulated other comprehensive income                                                                                                                                                                 |                                                                     |                   | (1,278  | )                 |        
|                                                                                                                                                                                                       |                                                                     |                   |         |                   |        
|                                                                                                                                                                                                       |                                                                     |                   | 141,790 |                   |        
|                                                                                                                                                                                                       |                                                                     |                   |         |                   |        
|                                                                                                                                                                                                       |                                                                     | $                 | 374,937 |                   | $      
|                                                                                                                                                                                                       |                                                                     |                   |         |                   |        

3

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Consolidated Statements of Cash Flow
(Unaudited)

|                                                                      |                                                                                             | Three Months Ended
March 31,                                         |       
|--------------------------------------------------------------------- | ------------------------------------------------------------------------------------------- | -------------------------------------------------------------------- | ------
|
|
|CASH FLOWS FROM OPERATING ACTIVITIES:                                 |                                                                                             |                                                                      |       
|                                                                      | Net income                                                                                  |                                                                      | $     
|                                                                      | Adjustments to reconcile net income to net cash provided by (used in) operating activities: |                                                                      |       
|                                                                      |                                                                                             | Depreciation and amortization                                        |       
|                                                                      |                                                                                             | Increase in land under development                                   |       
|                                                                      |                                                                                             | Cost of sales and other inventory changes                            |       
|                                                                      |                                                                                             | Increase in accounts and notes receivable                            |       
|                                                                      |                                                                                             | Increase in accounts payable, accrued expenses and deferred revenues |       
|                                                                      |                                                                                             | Cost of property sold                                                |       
|                                                                      |                                                                                             | Other adjustments, net                                               |       
|                                                                      |                                                                                             |                                                                      |       
|                                                                      | Net cash provided by (used in) operating activities                                         |                                                                      |       
|                                                                      |                                                                                             |                                                                      |       
|CASH FLOWS FROM INVESTING ACTIVITIES:                                 |                                                                                             |                                                                      |       
|                                                                      | Development of income-producing properties                                                  |                                                                      |       
|                                                                      | Purchase of property and equipment                                                          |                                                                      |       
|                                                                      | Investment in joint venture                                                                 |                                                                      |       
|                                                                      |                                                                                             |                                                                      |       
|                                                                      | Net cash used in investing activities                                                       |                                                                      |       
|                                                                      |                                                                                             |                                                                      |       
|CASH FLOWS FROM FINANCING ACTIVITIES:                                 |                                                                                             |                                                                      |       
|                                                                      | Distributions paid                                                                          |                                                                      |       
|                                                                      | (Decrease) increase in mortgage and other debt                                              |                                                                      |       
|                                                                      | Increase in advances and contributions from developers for utility construction             |                                                                      |       
|                                                                      | Purchase of partnership units                                                               |                                                                      |       
|                                                                      | Issuance of partnership units                                                               |                                                                      |       
|                                                                      |                                                                                             |                                                                      |       
|                                                                      | Net cash (used in) provided by financing activities                                         |                                                                      |       
|                                                                      |                                                                                             |                                                                      |       
|Net increase in cash and cash equivalents                             |                                                                                             |                                                                      | 26,615
|Cash and cash equivalents, beginning of period                        |                                                                                             |                                                                      | 25,403
|                                                                      |                                                                                             |                                                                      |       
|Cash and cash equivalents, end of period                              |                                                                                             | $                                                                    | 52,018
|                                                                      |                                                                                             |                                                                      |       
|Supplemental schedule of non-cash investing and financing activities: |                                                                                             |                                                                      |       
|                                                                      | Payable for unit repurchases                                                                |                                                                      | $     
|                                                                      |                                                                                             |                                                                      |       

4

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Notes to Consolidated Financial Statements

Note 1. Accounting Policies

The Company's unaudited interim financial statements have been prepared in conformity with generally accepted accounting principles used in the preparation of the
Company's annual financial statements. In the opinion of the Company, all adjustments, consisting of normal and recurring items, necessary for a fair presentation of the results of operations for the
three months ended March 31, 2003 and 2002 have been made. The interim statements are condensed and do not include some of the information necessary for a more complete understanding of the
financial data. Accordingly, your attention is directed to the footnote disclosures found on pages 32 through 45 of the Company's 2002 Annual Report on Form 10-K. In addition, a
summary of the accounting policies that management considers significant in the preparation of the Company's consolidated financial statements is included below and inItem 2:
Management's Discussion and Analysis of Financial Condition and Results of Operations.

Interim
financial information for the Company has substantial limitations as an indicator for the calendar year because:



Basis of Consolidation:The consolidated financial statements include the accounts of The Newhall Land and Farming Company
and its subsidiaries, which are wholly-owned or controlled by the Company (collectively, "the Company"). All significant intercompany balances and transactions are eliminated.

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

Joint Ventures:The equity method is used to account for an investment in a joint venture with Hilton Inns, Inc.,
which is not controlled by the Company.

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

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

Impairment of Assets:Long-lived assets and assets held for sale are reviewed for impairment whenever events or
changes in circumstances indicate that an impairment may have occurred. No impairment loss was recorded in the 2003 first quarter or in fiscal year 2002.

Stock-based employee compensation:Stock-based employee compensation is accounted for using the intrinsic value method
allowed under APB Opinion No. 25,Accounting for Stock Issued to Employees. No stock-based employee compensation expense is reflected in net
income, as options

5

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granted
under the Company's plans have an exercise price equal to the market value of the Company's partnership units on the date of grant. The following table illustrates the effect on net income and
net income per unit if the Company had applied the fair value provisions of SFAS No. 123,Accounting for Stock-Based Compensationto stock-based
employee compensation.

|                                                |                     | Three Months Ended March 31, |       
|----------------------------------------------- | ------------------- | ---------------------------- | ------
|
|
|Net income, as reported                         |                     | $                            | 11,777
|Total stock-based employee compensation expense |                     |                              | (912  
|                                                |                     |                              |       
|Pro forma net income                            |                     | $                            | 10,865
|                                                |                     |                              |       
|Net income per unit                             |                     |                              |       
|                                                | Basicas reported   |                              | $     
|                                                | Basicpro forma     |                              |       
|                                                | Dilutedas reported |                              |       
|                                                | Dilutedpro forma   |                              |       
|                                                |                     |                              |       

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

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

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

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

Note 2. Details of Land Under Development

|(In $000)                                  |  | March 31,
2003 |        | December 31,
2002
|------------------------------------------ |  | -------------- | ------ | -----------------
|Residential development                    |  | $              | 19,721 |                  
|Industrial and commercial land development |  |                | 7,324  |                  
|Agriculture                                |  |                | 467    |                  
|                                           |  |                |        |                  
|Total land under development               |  | $              | 27,512 |                  
|                                           |  |                |        |                  

6

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Note 3. Details for Earnings per Unit Calculation

|(In 000's except per unit)            |                                     | Income
(numerator) |        | Units
(denominator) |        | Per Unit |  
|------------------------------------- | ----------------------------------- | ------------------ | ------ | ------------------- | ------ | -------- | -
|For three months ended March 31, 2003 |                                     |                    |        |                     |        |          |  
|Net income per unit                   |                                     |                    |        |                     |        |          |  
|                                      | Net income available to unitholders |                    | $      | 11,777              |        | 23,203   |  
|Effect of dilutive securities         |                                     |                    |        |                     |        |          |  
|                                      | Unit options                        |                    |        |                    |        | 296      |  
|                                      |                                     |                    |        |                     |        |          |  
|Net income per unitdiluted           |                                     | $                  | 11,777 |                     | 23,499 |          | $
|                                      |                                     |                    |        |                     |        |          |  
|For three months ended March 31, 2002 |                                     |                    |        |                     |        |          |  
|Net income per unit                   |                                     |                    |        |                     |        |          |  
|                                      | Net income available to unitholders |                    | $      | 11,123              |        | 24,224   |  
|Effect of dilutive securities         |                                     |                    |        |                     |        |          |  
|                                      | Unit options                        |                    |        |                    |        | 420      |  
|                                      |                                     |                    |        |                     |        |          |  
|Net income per unitdiluted           |                                     | $                  | 11,123 |                     | 24,644 |          | $
|                                      |                                     |                    |        |                     |        |          |  

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

|(In $000)                   |                                          | March 31,
2003 |         | December 31,
2002 |  
|--------------------------- | ---------------------------------------- | -------------- | ------- | ----------------- | -
|Income-producing properties |                                          |                |         |                   |  
|                            | Land                                     |                | $       | 36,600            |  
|                            | Buildings                                |                |         | 132,420           |  
|                            | Other                                    |                |         | 11,544            |  
|                            | Properties under development             |                |         | 28,448            |  
|                            |                                          |                |         |                   |  
|                            |                                          |                | 209,012 |                   |  
|                            | Accumulated depreciation                 |                |         | (45,378           | )
|                            |                                          |                |         |                   |  
|                            |                                          | $              | 163,634 |                   | $
|                            |                                          |                |         |                   |  
|Property and equipment      |                                          |                |         |                   |  
|                            | Land                                     |                | $       | 3,760             |  
|                            | Buildings                                |                |         | 6,082             |  
|                            | Equipment                                |                |         | 8,623             |  
|                            | Water supply systems, orchards and other |                |         | 93,440            |  
|                            | Construction in progress                 |                |         | 5,486             |  
|                            |                                          |                |         |                   |  
|                            |                                          |                | 117,391 |                   |  
|                            | Accumulated depreciation                 |                |         | (41,001           | )
|                            |                                          |                |         |                   |  
|                            |                                          | $              | 76,390  |                   | $
|                            |                                          |                |         |                   |  

Note 5. Disclosure about Certain Financial Statement Captions

Land under developmentThe $19.9 million decrease in land under development at March 31,
2003 compared to the prior year end was primarily due to $31.4 million in cost allocations to residential lot sales and commercial and industrial land sales reported in the financial results
for the period. This was partially offset by $11.5 million in project costs capitalized during the 2003 first quarter. (See definitions of project costs and cost allocations in the "Critical
Accounting Policies and

7

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Estimates"
section ofItem 2: Management's Discussion and Analysis of Financial Condition and Results of Operations.)

Deferred revenuesThe $10.5 million increase in deferred revenues for the 2003 first quarter compared to the prior year
end was primarily attributable to $16.3 million in deferred revenues for certain commercial land and residential lot sales recorded under percentage of completion accounting in the period. (See
definition of percentage of completion in the "Critical Accounting Policies and Estimates" section ofItem 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations.) Deferred revenues recorded at December 31, 2002 for certain commercial land and residential lot sales in the prior year decreased
$6.2 million as a result of the recognition of revenue in the 2003 first quarter in accordance with percentage of completion accounting.

Note 6. Business Segment Reporting

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

|                        |                             | Three months ended March 31, 2003
|----------------------- | --------------------------- | ---------------------------------
|
|Real Estate             |                             |                                  
|                        | Residential                 |                                  
|                        | Industrial and commercial   |                                  
|                        | Community development       |                                  
|                        | Income-producing properties |                                  
|                        | Valencia Water Company      |                                  
|Agriculture             |                             |                                  
|Central administration  |                             |                                  
|Other                   |                             |                                  
|                        |                             |                                  
|                        |                             |                                  
|Interest and other, net |                             |                                  
|                        |                             |                                  
|                        |                             | $                                
|                        |                             |                                  

|                        |                             | Three months ended March 31, 2002
|----------------------- | --------------------------- | ---------------------------------
|
|Real Estate             |                             |                                  
|                        | Residential                 |                                  
|                        | Industrial and commercial   |                                  
|                        | Community development       |                                  
|                        | Income-producing properties |                                  
|                        | Valencia Water Company      |                                  
|Agriculture             |                             |                                  
|Central administration  |                             |                                  
|Other                   |                             |                                  
|                        |                             |                                  
|                        |                             |                                  
|Interest and other, net |                             |                                  
|                        |                             |                                  
|                        |                             | $                                
|                        |                             |                                  

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Note 7. New Accounting Pronouncements

On January 1, 2003, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 146,Accounting for Costs
Associated with Exit or Disposal Activities.SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force Issue No. 94-3,Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. The adoption of
this statement will not have a material effect on the Company's results of operations and financial condition for the year ended December 31, 2003.

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

On
January 1, 2003, the Company adopted FASB Interpretation No. (FIN) 45,Guarantor's Accounting and Disclosure Requirements for Guarantees Including
Indirect Guarantees of Indebtedness of Others. FIN 45 changes the current practice in accounting for, and disclosure of, guarantees. Guarantees and indemnification agreements
meeting the characteristics described in FIN 45 are required to be initially recorded as a liability at fair value. The adoption of this interpretation will not have a material effect on the Company's
results of operations and financial condition for the year ended December 31, 2003.

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

9

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Part 1. Financial Information
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

The
interim statements are condensed and do not include some of the information necessary for a more complete understanding of the financial data. Accordingly, your attention is directed
to the footnote disclosures found on pages 32 through 45 of the Company's 2002 Annual Report on Form 10-K. The accounting policies used by the Company in the preparation of its
consolidated financial statements as they relate to its business segments are presented above in Note 1 to the consolidated financial statements. A summary of the accounting policies management
considers significant in the preparation of the Company's consolidated financial statements follows. In 2002, the Company's audit committee reviewed the selection, application and disclosure of the
Company's critical accounting policies.

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

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

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

Cost allocationsThe Company generally allocates onsite costs to individual parcels within a project on a square foot basis if
the parcels in the project are of similar value. In mixed-use projects, where there may be both a residential and a commercial component with varying fair values, onsite costs are
allocated to the respective parcels using the relative sales value method. Under the relative

10

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sales
value method, each parcel in the project under development is allocated onsite costs in proportion to the estimated overall sales prices of the project such that each parcel to be sold reflects
the same gross profit margin. Since this method requires the Company to estimate the expected sales prices for the entire project, the profit margin on subsequent parcels sold will be impacted by both
changes in the estimated total revenues as well as any changes in the estimated total costs of the project.

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

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

11

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RESULTS OF OPERATIONS

Comparison of First Quarter of 2003 to First Quarter of 2002
(Unaudited)

The amounts of increase or decrease in revenues and net income from the prior year first quarter are as follows (in 000s, except per unit):

|                                                                     |                        | Three months
Increase (Decrease) |                            
|-------------------------------------------------------------------- | ---------------------- | -------------------------------- | ---------------------------
|
|Revenues                                                             |                        |                                  |                            
|                                                                     | Real estate            |                                  |                            
|                                                                     |                        | Residential land sales           |                            
|                                                                     |                        | Industrial and commercial sales  |                            
|                                                                     |                        | Commercial operations            |                            
|                                                                     |                        |                                  | Income-producing properties
|                                                                     |                        |                                  | Valencia Water Company     
|                                                                     | Agriculture operations |                                  |                            
|                                                                     |                        |                                  |                            
|Total revenues                                                       |                        | $                                | 15,735                     
|                                                                     |                        |                                  |                            
|Contribution to Income                                               |                        |                                  |                            
|                                                                     | Real estate            |                                  |                            
|                                                                     |                        | Residential land sales           |                            
|                                                                     |                        | Industrial and commercial sales  |                            
|                                                                     |                        | Community development            |                            
|                                                                     |                        | Commercial operations            |                            
|                                                                     |                        |                                  | Income-producing properties
|                                                                     |                        |                                  | Valencia Water Company     
|Agriculture operations                                               |                        |                                  | 30                         
|General and administrative expense                                   |                        |                                  | (1,683                     
|                                                                     |                        |                                  |                            
|Operating income                                                     |                        |                                  | 110                        
|Interest and other, net                                              |                        |                                  | 544                        
|                                                                     |                        |                                  |                            
|Net income                                                           |                        | $                                | 654                        
|                                                                     |                        |                                  |                            
|Net income per unit                                                  |                        | $                                | 0.05                       
|                                                                     |                        |                                  |                            
|Net income per unitdiluted                                          |                        | $                                | 0.05                       
|                                                                     |                        |                                  |                            
|Weighted average number of units used in computing per unit amounts: |                        |                                  |                            
|Net income per unit                                                  |                        |                                  | (1,021                     
|                                                                     |                        |                                  |                            
|Net income per unitdiluted                                          |                        |                                  | (1,145                     
|                                                                     |                        |                                  |                            

The
Company's results for the 2003 first quarter reflect the continuance the strong residential market experienced in fiscal year 2002. During the 2003 first quarter, escrows closed on
the entire 759 residential lots in the Company's Creekside community, which completes the residential lots being marketed for sale to merchant builders in 2003. Additionally, during the period,
escrows closed on four custom estate lots in the Westridge golf course community. During the three months ended March 31, 2003, merchant builders sold 239 new homes on lots previously purchased
from the Company compared to 426 new homes for the same period in the prior year. The reduction in new home sales during the 2003 first quarter was due primarily to the pent-up demand
after the September 11, 2001 tragedy,

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which
resulted in record first quarter home sales in 2002. At March 31, 2003, merchant builders had 433 homes in escrow and unsold inventory of 2,101 lots previously purchased from the Company,
compared to 445 homes in escrow and unsold inventory of 1,124 lots at the end of the 2002 first quarter. While the Company does not participate directly in profits generated from escrow closings by
merchant builders, indirectly the Company generally shares with the merchant builders in the overall revenues and profits of home building projects above agreed upon thresholds. The sale of previously
sold lots to homebuyers is also key to the Company's future success in selling additional lots.

Industrial
and office land sales were not major contributors to the Company's 2003 first quarter results. However, demand in these sectors appears to be improving. As the regional
economy recovers, businesses are expected to look to Valencia to relocate to larger, more modern facilities to accommodate their growth.

For
the three months ended March 31, 2003, the Company reported revenues of $67.5 million compared to $51.8 million for the three months ended March 31, 2002.
Net income of $11.8 million, or $.50 per unit, was reported for the 2003 first quarter compared to net income of $11.1 million, or $.45 per unit, for the 2002 first quarter. Despite
revenues increasing 30% from the prior year, net income for the 2003 first quarter increased only 6% over the same period in 2002. This was primarily due to the mix of residential lot sales and
commercial and industrial land sales during the periods and their respective profit margins together with a temporary increase in general and administrative expenses for the 2003 first quarter.

The
sales of all 759 residential lots in the Company's Creekside community, of four custom home sites in the Westridge golf course community, and continuing operations of the Company's
income-producing portfolio were the primary contributors to the Company's 2003 first quarter results. Combined, these contributed $48.9 million to revenues and $17.3 million to net
income. In addition, the sale of 18.3 acres of industrial and commercial land contributed $7.9 million to revenues and $1.7 million to net income for the three months ended
March 31, 2003.

The
sale of 312 residential lots in the Company's Westridge golf course community and the sale of 39 acres of commercial land, together with continuing operations of the Company's
income-producing portfolio, were the primary contributors to the 2002 first quarter, which, combined, contributed $46.2 million to revenues and $18.5 million to net income.

The
Company's 2003 business plan anticipates that the majority of the Company's revenues will be generated from residential, commercial and industrial land sales and its portfolio of
income-producing properties. The entire community of Creekside, consisting of 759 entitled, improved residential lots, was sold to merchant builders during the first quarter of 2003. These 759 lots
complete the Company's residential lot sale offerings to merchant builders in 2003. The Company's residential focus for the balance of 2003 is on selling 26 custom, residential lots in Westridge. As
of March 31, 2003, four of these custom home sites had closed escrow. Combined, the sales price of these 785 residential lots is expected to total approximately $64 million. The business
plan for 2003 also includes the sale of 64 acres of industrial and commercial land with a combined expected sales price of $46 million. As of March 31, 2003, escrows had closed on 18.3
acres of commercial and industrial land, and 31 acres of commercial land were in escrow, with closings expected beginning later this year. The Company's portfolio of income-producing properties is
expected to generate net operating income of approximately $22 million, after accounting for approximately $700,000 in projected start-up expenses for the Tournament Players
Club® at Valencia championship golf course, which is planned for opening in the summer of 2003 in the Company's Westridge community. After deductions for administrative expenses and
depreciation, the portfolio is expected to contribute approximately $10 million to net income in 2003.

The
ability of the Company to complete sales in 2003 will be dependent upon a variety of factors including, but not limited to, identification of suitable buyers for its land, reaching
agreement with the

13

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buyers
on definitive terms, the successful completion of the due diligence work by buyers, the availability of financing to suitable buyers, satisfactory resolution of regulatory and legal issues, and
market and other conditions, many of which are beyond the control of the Company. Generally, revenues and income from land sales are recorded under the percentage of completion method of accounting.
Accordingly, certain revenues and income from land sales may be deferred to future periods when the Company has an obligation to complete development on a property sold.

Residential Land Sales

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

The
entire 759 lots in the Creekside community were sold to merchant builders in the 2003 first quarter, contributing $37.2 million to revenues and $13.9 million to income
under the percentage of completion method of accounting. In addition, escrows closed on four custom estate lots in the Westridge community, contributing $1.7 million to revenues and
$1.0 million to income. Results for the three-month period ended March 31, 2003 also included recognition under percentage of completion accounting of $5.2 million in revenues and
$1.8 million in income from prior year lot sales and $1.1 million received from merchant builders under price and profit participation agreements related to prior year lot sales. At
March 31, 2003, seven custom estate lots were in escrow for a combined sales price of $3.3 million. No residential lots were in escrow to merchant builders at the end of the 2003 first
quarter. All escrow closings are subject to market and other conditions beyond the control of the Company.

A
total of 312 residential lots in the Company's Westridge golf course community were sold in the 2002 first quarter, contributing $14.8 million to revenues and
$4.2 million to income under percentage of completion accounting. Additionally, the results for the three-month period ended March 31, 2002 included recognition under percentage of
completion accounting of $2.0 million in revenues and $673,000 in income from prior year lot sales.

Residential
lots sales in 2004 are expected to be minimal due to the Court of Appeals ruling received on February 27, 2003 related to water availability for the Company's West
Creek community. The Court referred the issue of water availability back to the County of Los Angeles for further review. This will require the Company to participate in further public proceedings
before the County of Los Angeles. The Company anticipates this process and further court proceedings could take approximately 18 months. However, the actual time required will depend on a
number of factors that make it difficult to estimate the time required to complete court proceedings. Therefore, initial realization of value from West Creek lots may not occur until late 2005.

Industrial and Commercial Sales

Industrial Land Sales

One 5.7-acre industrial parcel closed escrow in the 2003 first quarter, contributing $2.8 million to revenues and $409,000 to income. No
industrial land was sold during the 2002 first quarter.

Industrial
land sales activity remained slow during the 2003 first quarter as the market continued to absorb space being brought to market from significant land sales in previous years.
At March 31,

14

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2003,
the Company had 365 net acres of entitled industrial land remaining in Valencia. There are indications the local market for industrial property is strengthening as the industrial vacancy rate in
Valencia continued to improve to a rate of less than 10% at March 31, 2003 compared to 12% at December 31, 2002. The Company expects to market for sale approximately 23 acres of
industrial land in 2003, including the 5.7-acre parcel which closed in the 2003 first quarter.

Commercial Land Sales

For the three-month period ended March 31, 2003, escrows closed on four commercial parcels totaling approximately 13 acres. These sales, combined,
contributed $5.1 million to revenues and $1.3 million to income under percentage of completion accounting.

During
the 2002 first quarter, six commercial parcels totaling approximately 39 acres closed escrow, contributing $21.7 million to revenues and $11.3 million to income
under percentage of completion accounting. These sales included three parcels located in the Westridge golf course community, which, combined, contributed $16.2 million to revenues and
$8.5 million to income. These Westridge sales included a 7.5-acre site for 230 apartment units, a 10.9-acre parcel for a neighborhood shopping center and a
3.9-acre parcel for an office building. Additional parcels that were sold in the 2002 first quarter included a 7.4-acre site for a retail center and a 7.8-acre
restricted-use parcel, planned for a tennis and recreation club, both located in the North River area of Valencia, which, combined, contributed $4.8 million to revenues and
$2.4 million to income.

At
March 31, 2003, five commercial parcels totaling approximately 31 acres were in escrow for about $25 million. Three of these escrows for approximately $17 million
are expected to close in 2003. The remaining escrows are expected to close in 2004. At March 31, 2002, two commercial parcels totaling 21 acres were in escrow. One of these escrows closed in
2002. The remaining escrow closed during the 2003 first quarter and is reflected in the results for the quarter. All escrow closings are subject to market and other conditions beyond the control of
the Company.

Community Development

Community development expenses for the first quarter of 2003 decreased 7% from the comparative prior year first quarter primarily due to a reduction in marketing
expenses related to the Company's
streamlining of its administration, sales and marketing efforts. For fiscal year 2003, community development expenses are expected to decrease about 40% over 2002 levels, due to the Company's
anticipated reduction in marketing expenses and a decrease in costs related to certain legal challenges, which expense reductions are anticipated to be partially offset by continuing expenses related
to obtaining entitlements and planning for the completion of the projected sellout of Valencia residential land, and positioning Newhall Ranch to commence development.

On
March 25, 2003, the Los Angeles County Board of Supervisors conducted a public hearing on the Newhall Ranch Specific Plan. At the conclusion of the public hearing, the Board of
Supervisors instructed County staff to prepare the proposed final environmental documentation and proposed resolutions, ordinance and findings and conditions for the project Specific Plan and continue
the matter to the Board of Supervisors' May 27, 2003 meeting for further consideration and possible action. The Board's proposed action would require a reduction of approximately 730 housing
units and 132,000 square feet of commercial and office space to reflect the removal of 64 acres from development in order to provide for the Spineflower preserves required under the terms of the
settlement agreement with the California Department of Fish and Game and the Los Angeles County District Attorney. Based on the Board of Supervisors' proposed conditions, the maximum number of housing
units would be reduced to 20,885 and the maximum amount of commercial, industrial and office space would be limited to 5,549,000 square feet. Subject to a favorable vote at the May 27, 2003
Board of Supervisors' meeting, the Company could return to the Kern County Superior Court later in 2003 for resolution of

15

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the
six issues that were identified by the Court as requiring further environmental review. The target date for the commencement of initial development of Newhall Ranch remains 2006. The length of
time necessary to obtain completion of governmental review and approvals necessary for the project, and the timing of any judicial processes that may result, are difficult to predict and actual
commencement of development may be delayed beyond the target date.

Income-Producing Properties

For the first three months of 2003, revenues and income generated by the Company's income-producing portfolio were $9.9 million and $2.4 million,
respectively. The 2% increase in revenue compared to the 2002 first quarter was primarily due to rent increases and increased occupancy for the retail master lease, 51,000 square feet of retail space
leased-back as part of the sale by the Company of four office buildings in 2000. The 22% decrease in income compared to the first three months of 2002 was primarily due to higher operating
expenses at the existing properties and to pre-opening and marketing expenses for the Tournament Players Club® at Valencia championship golf course, which is scheduled to open
in the summer of 2003.

At
March 31, 2003, NorthPark Village Square and River Oaks Shopping Center were 100% leased. Valencia Town Center regional shopping mall was 79% leased at the end of the 2003
first quarter. The primary contributor to the vacancy was approximately 12% of non-anchor gross leasable
area that was not available for occupancy due to the second phase of the remodel project commencing at the property. The second phase of the remodel is to create new retail space in the former food
court location. The Company's 244-room Hyatt Valencia Hotel showed improved performance in its occupancy rate with 75% during the 2003 first quarter compared to 72% for the 2002 first
quarter, while the occupancy rate for the 152-room Hilton Garden Inn decreased from 77% for the 2002 first quarter to 73% for the 2003 first quarter. In addition, the average daily rate
for the Hyatt Valencia Hotel for the 2003 first quarter was $114 compared to $115 for the 2002 first quarter. The average daily rate for the Hilton Garden Inn remained constant at $88 for the 2003 and
2002 first quarters.

For
2003, the Company expects the portfolio of income-producing properties to generate revenues approximately 8% higher and income approximately 11% lower than 2002's results. Increased
revenues are primarily due to the commencement of operation at the Tournament Players Club® at Valencia championship golf course in the summer of 2003 together with an increase in Valencia
Town Center regional shopping mall revenues due to the opening of the remodeled food court area and new retail space. The decrease in projected income is primarily the result of an anticipated loss
from operation of the golf course due to initial start-up costs and pre-opening expenses.

Results
for the 2002 first quarter included the favorable effect of the cessation of depreciation totaling $19,000 on income-producing properties held for sale. One minor income property
was sold in the 2002 fourth quarter. There were no properties held for sale at March 31, 2003.

Valencia Water Company

Valencia Water Company is a regulated public water utility and a wholly-owned subsidiary of the Company serving approximately 25,000 metered connections. Revenues
for the three months ended March 31, 2003 were $2.7 million compared to $2.8 million in the comparable 2002 period. The 2% decrease was primarily the result of a
February 2002 water rate reduction of 4.85%, partially offset by a 5% increase in the number of the water company's metered connections. Net income for the 2003 first quarter declined 55% to
$197,000 from $442,000 for the 2002 first quarter, primarily due to higher administrative expenses and expenses related to legal proceedings in which Valencia Water Company is involved.

In
January 2002, Valencia Water Company was notified by the California Public Utilities Commission (CPUC) of the Commission's desire to perform a review of the utility's
authorized rate of

16

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return
based upon its approved rate structure. The review was completed in February 2002 and resulted in a 4.85% reduction in Valencia Water Company's authorized water billing rates. In
March 2002, Valencia Water Company filed a general rate case with the CPUC. A proposed decision was received in April 2003 and a final decision is expected by the end of the second
quarter 2003. It is anticipated that the final decision from the CPUC will result in a slight increase to the water company's authorized revenues over current revenues.

Agricultural Operations

The Company's remaining agricultural properties include the 14,000-acre New Columbia Ranch in Madera County and the 1,250-acre Newhall
Orchard in Ventura County. In prior years, most of the remaining 14,750 acres in Ventura County owned by the Company has been leased for cattle grazing. At March 31, 2003, there was no lessee
for this land. The Company is currently seeking a new lessee. The Company has leased out a majority of the New Columbia Ranch to farming tenants in 2003 to minimize the Company's fixed overhead costs
and its exposure to crop commodity price fluctuations.

For
the quarter ended March 31, 2003, agriculture revenues and income, including the Company's energy operations, were $652,000 and $304,000, respectively, compared to revenues
and income of $623,000 and $274,000, respectively, for the same period in 2002. The 5% increase in revenues was primarily due to the increase in leased acreage at New Columbia Ranch combined with
higher oil and gas prices during the quarter. The 11% increase in income was due to the increased revenues and a reduction in overhead costs related to the leasing of land to farming tenants at New
Columbia Ranch.

17

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General and Administrative Expense

General and administrative expenses for the 2003 first quarter increased approximately 60% compared to the same period in the prior year primarily due to one time
expenses associated with separation pay and related charges connected with the Company's streamlining of its administration, sales and marketing efforts during the 2003 first quarter to better align
the Company with its strategic direction. However, for all of 2003, general and administrative expenses are expected to remain comparable to 2002 levels and to decrease by approximately 20% in 2004.

Interest and Other, net

Interest and other, net decreased 48% for the three-month period ended March 31, 2003 compared to the three-month period ended March 31, 2002. The
decrease is primarily due to lower interest expense on lines of credit due to lower outstanding balances combined with an increase in interest capitalized to the Company's active construction
projects, partially offset by a decrease in interest income from promissory notes accepted by the Company in conjunction with certain commercial land and residential lot sales. Interest expense in
2003 is expected to be approximately 5% higher than 2002 due to anticipated borrowings against available lines of credit.

FINANCIAL CONDITION

Liquidity and Capital Resources

At March 31, 2003, the Company had cash and cash equivalents of $52.0 million and $160.1 million in available lines of credit, net of
$23.9 million in outstanding letters of credit. At that date, there were no borrowings outstanding on unsecured lines of credit or a revolving mortgage facility. The Company had fixed rate debt
outstanding totaling $59.9 million. The Company believes it has adequate sources of cash from operations and debt capacity, combined with proceeds from anticipated land sales, to finance future
operations on both a short- and long-term basis and to fund unit repurchases. (See additional information on the unit repurchase program below.) The Company utilizes its available
debt capacity to fund ongoing operations, as well as to fund administration and legal costs to bring future projects online over the longer term in order to enable the Company to complete the
development of Valencia and to begin development of Newhall Ranch. As a guideline, the Company targets total debt not to exceed 60% of the appraised value of the income portfolio. The Company ended
the 2003 first quarter with a conservative debt to income portfolio value ratio of 22%, which the Company believes will provide adequate debt capacity to fund operations and continue unit repurchases.
At March 31, 2003, there was no debt secured by the Company's raw land or land under development inventories.

In
May 2001, the Board of Directors authorized a unit repurchase program of up to 2,520,000 units, or 10% of the then outstanding units. In accordance with the program, the
Company repurchases units from time to time at prevailing market prices and, depending on market conditions, either through the open market, or unsolicited negotiated transactions. Repurchases are
generally funded from cash flow generated from normal business operations. As of March 31, 2003, a total of 2,110,975 units had been repurchased under this program for $61.0 million, or
an average unit price of $28.91. Of this total, 153,790 units were repurchased during the 2003 first quarter for $4.4 million, or an average unit price of $28.67. A total of 409,025 units
remained to be repurchased under this program at March 31, 2003. Completion of the repurchase program is planned for 2003 and is expected to require approximately $12 million in addition
to the amounts expended through March 31, 2003. Factors that could affect the Company's ability to complete its unit repurchase program include, but are not limited to, governmental approvals,
changing market and economic conditions, changing interest rates, challenges to governmental approvals and finding suitable buyers for certain properties. The Company's

18

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Board
of Directors may approve additional repurchases of partnership units after completion of the current program after taking into account the Company's earnings, financial conditions and prospects.

For
the 2003 first quarter, the Company invested approximately $341,000 (net of $3.3 million in fee reimbursements received from the Valencia Bridge and Thoroughfare District) in
major roads and freeway infrastructure improvements primarily within Valencia, which amounts are included in land under development on the accompanying balance sheet. In addition, the Company invested
approximately $3 million in the remodel of the former Edwards Theatres' space in Valencia Town Center regional mall to relocate the existing food court and create retail space, and
approximately $4 million on the construction of Tournament Players Club® at Valencia championship golf course, in the Company's Westridge community, which amounts are included in
income-producing properties on the accompanying balance sheet. For the remainder of 2003, the Company expects to invest approximately $15 million in major roads and freeway infrastructure
improvements to enable the Company to continue its land sales program in Valencia. In addition, approximately $11 million is expected to be invested in Valencia Town Center regional mall to
complete the relocation of the existing food court and the creation of new retail space. Additionally, the Company expects to invest another approximately $7 million on the completion of the
golf course and clubhouse. At March 31, 2003, there were no other material commitments for capital expenditures.

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

Operating Activities

Net cash provided by operating activities totaled $39.8 million for the 2003 first quarter. Cash generated from operating activities included the sales of
the entire 759 residential lots in the Company's Creekside community, four custom home sites in the Westridge golf course community, and approximately 18 acres of commercial and industrial land.
Together, with revenue from the Company's portfolio of income-producing properties, these sources contributed $56.8 million to revenues. This was offset by the acceptance by the Company of
$2.0 million in promissory notes in conjunction with the terms of certain commercial land sales during the quarter. These notes have maturity dates prior to December 31, 2003. Cash used
in operating activities included the use of approximately $11.5 million for land development expenditures, primarily related to land preparation and infrastructure improvements to ready land
for development or sale. Additional uses of cash included payment of the Company's general and administrative expenses and interest expense.

Net
cash used by operating activities totaled $1.4 million for the 2002 first quarter. For the three months ended March 31, 2002, revenue generated from operating
activities included the sale of 312 residential lots, the sale of approximately 39 commercial acres and revenue from the Company's portfolio of income-producing properties, combined for a total of
$46.2 million. This was offset by the acceptance by the Company of $18.7 million in promissory notes in conjunction with the terms of certain commercial land and residential lot sales.
These notes matured prior to December 31, 2002. Cash used by operating activities also included $21.7 million of expenditures for land under development inventories mostly related to
land preparation and infrastructure improvements to ready land for development or sale. Additional uses of cash included payment of the Company's general and administrative expenses and interest
expense.

Investing Activities

For the three months ended March 31, 2003 and March 31, 2002, expenditures for development of income-producing properties totaled
$7.0 million and $3.4 million, respectively, and, for both periods were primarily for the Valencia Town Center food court remodel and expansion, and construction of Tournament Players
Club® at Valencia championship golf course, in the Company's Westridge community.

19

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Purchase
of property and equipment totaled $1.0 million for the three-month period ended March 31, 2003 compared to $1.4 million for the same 2002 period.
Investments in both periods were primarily for water utility construction.

Financing Activities

Distributions to unitholders totaling $2.4 million and $5.6 million were made in the 2003 and 2002 first quarters, respectively, consisting of a
$.10 per unit regular distribution in each quarter and a $.13 per unit special distribution in the 2002 first quarter. No special distribution was made in the 2003 first quarter. The Company declared
a regular quarterly distribution of $.10 per unit, payable June 9, 2003 to unitholders of record on May 2, 2003. The Company's usual practice is to provide sufficient distributions,
including special distributions, to pay the taxes associated with Company earnings. The declaration of distributions and the amount declared, are determined by the Board of Directors on a quarterly
basis taking into account the Company's earnings, financial condition and prospects.

At
March 31, 2003, the Company had outstanding balances in mortgage and other debt of $59.9 million versus $104.5 million at March 31, 2002. The
$44.6 million decrease was primarily due to the absence of any outstanding borrowings on the Company's available lines of credit at March 31, 2003 versus $42.8 million outstanding
at March 31, 2002. The reduced borrowings on the lines of credit were due to strong operating cash flow, primarily from residential lot sales, and a reduced pace of repurchases of partnership
units compared to the 2002 first quarter. The remaining decrease was due to principal payments on the Company's outstanding fixed rate debt based on contractual terms partially offset by an increase
in the outstanding principal on community facilities bonds due to the refinance of the bonds in October 2002. The Company's lines of credit are available to fund recurring operations,
distributions and repurchases of partnership units. The New Columbia Ranch secures a $9.6 million non-recourse mortgage, which matures on November 1, 2003. The Company plans
to refinance the mortgage this year.

During
the three months ended March 31, 2003, the Company repurchased 153,790 partnership units for $4.4 million, or an average unit price of $28.67. For the three-month
period ended March 31, 2002, a total of 286,935 partnership units were repurchased for the aggregate amount of $8.6 million, or an average unit price of $30.10 per unit.

New Accounting Pronouncements

On January 1, 2003, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 146,Accounting for Costs
Associated with Exit or Disposal Activities.SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force Issue No. 94-3,Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. The adoption of
this statement will not have a material effect on the Company's results of operations and financial condition for the year ended December 31, 2003.

On
January 1, 2003, the Company adopted SFAS No. 148,Accounting for Stock-Based CompensationTransition and
Disclosure. SFAS No. 148 amends SFAS No. 123,Accounting for Stock Based Compensation, to provide alternative
methods of transition for an entity that voluntarily changes to the fair value recognition provision of recording stock option expense. SFAS No. 148 also requires disclosure in the summary of
significant accounting policies of the effects of an entity's accounting policy with respect to stock options on reported net income and net income per unit in annual and interim financial statements.
The Company continues to account for stock-based employee compensation using the intrinsic value method allowed under APB Opinion No. 25,Accounting for Stock Issued to
Employees, and, as such, no expense will be recorded for stock options. Therefore, the

20

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adoption
of this statement by the Company will not have a material effect on the Company's results of operations or financial condition for the year ended December 31, 2003.

On
January 1, 2003, the Company adopted FASB Interpretation No. (FIN) 45,Guarantor's Accounting and Disclosure Requirements for Guarantees Including
Indirect Guarantees of Indebtedness of Others. FIN 45 changes the current practice in accounting for, and disclosure of, guarantees. Guarantees and indemnification agreements
meeting the characteristics described in FIN 45 are required to be initially recorded as a liability at fair value. The adoption of this interpretation will not have a material effect on the Company's
results of operations and financial condition for the year ended December 31, 2003.

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

21

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FORWARD-LOOKING INFORMATION AND RISK FACTORS

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

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

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

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

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

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

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

Competition:The sale and leasing of residential, industrial and commercial real estate is highly competitive, with
competition coming from numerous and varied sources. The degree of competition is

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

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

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

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

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

Environmental Remediation and Endangered Species:The Company owns or formerly owned properties with respect to which the
Company may be required to remediate environmental effects of prior releases of contamination. Future environmental costs are difficult to estimate because of factors such as, but not limited to, the
unknown magnitude of possible contamination, the unknown timing and extent of remediative actions that may be required, the determination of the Company's potential liability, and the extent to which
such costs are recoverable from third parties or from applicable

23

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insurance
coverages. In addition, the length of time to perform any required remediation or the successful pursuit of responsible third parties is difficult to predict. The ability to, or length of
time required to, remediate any property could increase the costs of, and restrict, prevent or delay the development of a new project. Additionally, the presence of endangered species on the Company's
property could delay and increase the cost of development, and, in limited circumstances, could prevent the development of some properties.

Part 1. Financial Information
Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company is exposed to market risk primarily due to fluctuations in interest rates. The Company utilizes both fixed rate and variable rate debt. At
March 31, 2003, the Company had no outstanding variable rate debt and $59.9 million of outstanding fixed rate debt with interest rates ranging from 5.76% to 8.45%.

The
table below presents principal cash flows and related weighted average interest rates of the Company's long-term fixed rate and variable rate debt at March 31,
2003 by expected maturity dates:

|Dollars in thousands    |                                | 2003 |   | 2004  |   | 2005 |      | 2006 |   | 2007 |   | Thereafter |        | Total |   | Fair
Value |  
|----------------------- | ------------------------------ | ---- | - | ----- | - | ---- | ---- | ---- | - | ---- | - | ---------- | ------ | ----- | - | ---------- | -
|Mortgage and Other Debt |                                |      |   |       |   |      |      |      |   |      |   |            |        |       |   |            |  
|                        | Fixed Rate Debt                |      | $ | 9,945 |   | $    | 499  |      | $ | 557  |   | $          | 22,314 |       | $ | 75         |  
|                        | Weighted Average Interest Rate |      |   | 8.41  | % |      | 7.41 | %    |   | 7.35 | % |            | 7.44   | %     |   | 5.76       | %
|                        | Variable Rate Debt(1)          |      |   |       |   |      |      |      |   |      |   |            |        |       |   |            |  
|                        | Weighted Average Interest Rate |      |   |       |   |      |      |      |   |      |   |            |        |       |   |            |  

---

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

|Dollars in thousands    |                                | 2003 |   | 2004   |   | 2005 |      | 2006 |   | 2007 |   | Thereafter |        | Total |   | Fair
Value
|----------------------- | ------------------------------ | ---- | - | ------ | - | ---- | ---- | ---- | - | ---- | - | ---------- | ------ | ----- | - | ----------
|Mortgage and Other Debt |                                |      |   |        |   |      |      |      |   |      |   |            |        |       |   |           
|                        | Fixed Rate Debt                |      | $ | 10,055 |   | $    | 499  |      | $ | 557  |   | $          | 22,314 |       | $ | 75        
|                        | Weighted Average Interest Rate |      |   | 8.40   | % |      | 7.41 | %    |   | 7.35 | % |            | 7.44   | %     |   | 5.76      
|                        | Variable Rate Debt (1)         |      |   |        |   |      |      |      |   |      |   |            |        |       |   |           
|                        | Weighted Average Interest Rate |      |   |        |   |      |      |      |   |      |   |            |        |       |   |           

There is inherent rollover risk for borrowings as they mature and are renewed at current market rates. The extent of this risk is not quantifiable
or predictable because of the variability of future interest rates and the Company's future financing requirements. The Company manages its interest rate risk by maintaining a conservative ratio of
fixed rate, long-term debt to total debt in order to maintain variable rate exposure at an acceptable level and by taking advantage of favorable market conditions for long-term
debt. In addition, the Company's guideline for total debt is not to exceed 60% of the appraised value of the income portfolio. As of March 31, 2003, the Company's debt to income portfolio value
ratio was 22%.

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Part 1. Financial Information
Item 4. Controls and Procedures.

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

Part II. Other Information
Item 1. Legal Proceedings.

Please refer to "Community Development" and "Litigation" sections underPart I, Item 2."Management's Discussion and
Analysis of Financial Condition and Results of Operations".

Item 5. Other Information

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

Item 6. Exhibits and Reports on Form 8-K

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

| |  | Additional Exhibits                                                                                                                                            
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In accordance with SEC Release No. 33-8212, Exhibits 99(a) and 99(b) are to be treated as "accompanying" this report rather than "filed" as part of the report.
| |  |                                                                                                                                                                
| |  | 99(a)                                                                                                                                                          
| |  | 99(b)                                                                                                                                                          

(b)       The
following reports on Form 8-K were filed in the 2003 first quarter.

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

25

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SIGNATURES

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

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

By:
Newhall Management Limited Partnership,
Managing General Partner

By:
Newhall Management Corporation,
Managing General Partner

|                  |  |     |                                                                                                                                                  
|----------------- |  | --- | -------------------------------------------------------------------------------------------------------------------------------------------------
|Date: May 7, 2003 |  | By: | /s/GARY M. CUSUMANOGary M. Cusumano,
President and Chief Executive Officer of
Newhall Management Corporation
(Principal Executive Officer)       
|                  |  |     |                                                                                                                                                  
|Date: May 7, 2003 |  | By: | /s/DONALD L. KIMBALLDonald L. Kimball,
Vice President and Chief Financial Officer of
Newhall Management Corporation
(Principal Financial Officer)
|                  |  |     |                                                                                                                                                  
|Date: May 7, 2003 |  | By: | /s/VICKI M. STILLERVicki M. Stiller,
Controller of Newhall Management Corporation
(Principal Accounting Officer)                                 

26

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

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

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

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

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

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

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

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

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

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

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

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

6.    The
registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that
could significantly affect

27

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internal
controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

|Date: May 7, 2003 |  | THE NEWHALL LAND AND FARMING COMPANY
(a California Limited Partnership)
Registrant
|----------------- |  | ----------------------------------------------------------------------------------
|                  |  |                                                                                   
|                  |  | By Newhall Management Limited Partnership,
Managing General Partner               
|                  |  |                                                                                   
|                  |  | By Newhall Management Corporation,
Managing General Partner                       
|                  |  |                                                                                   
|                  |  |                                                                                   

28

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

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

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

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

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

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

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

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

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

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

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

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

6.    The
registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that
could significantly affect

29

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internal
controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

|Date: May 7, 2003 |  | THE NEWHALL LAND AND FARMING COMPANY
(a California Limited Partnership)
Registrant
|----------------- |  | ----------------------------------------------------------------------------------
|                  |  |                                                                                   
|                  |  | By Newhall Management Limited Partnership,
Managing General Partner               
|                  |  |                                                                                   
|                  |  | By Newhall Management Corporation,
Managing General Partner                       
|                  |  |                                                                                   
|                  |  |                                                                                   

30

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THE NEWHALL LAND AND FARMING COMPANY
INDEX TO EXHIBITS

|Exhibit
Number |  | Description                                 
|-------------- |  | --------------------------------------------
|99(a)          |  | Certification of Principal Executive Officer
|99(b)          |  | Certification of Principal Financial Officer

31

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