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

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|  |                                                                                         
|- | ----------------------------------------------------------------------------------------
|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 
|  |                                                                                         
|  | FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003                                            
|  |                                                                                         
|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 20418

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KENNEDY-WILSON, INC.(Exact name of registrant as specified in its charter)

|                                                               |                                     
|-------------------------------------------------------------- | ------------------------------------
|Delaware                                                       | 95-4364537                          
|(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.)
|                                                               |                                     
|9601 Wilshire Blvd., Suite 220                                 |                                     
|Beverly Hills, CA                                              | 90210                               
|(Address of principal executive offices)                       | (Zip Code)                          
|                                                               |                                     

(310) 887-6400(Registrants telephone number, including area
code)

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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.

YesxNoo

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

YesoNox

Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest practicable date: Common stock, $.01 par value; 9,295,485 shares outstanding at July 31, 2003.

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KENNEDY-WILSON, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

JUNE 30, 2003

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|        |                                                                                                                | Page
|------- | -------------------------------------------------------------------------------------------------------------- | ----
|        |                                                                                                                |     
|PART I  | Financial Information                                                                                          |     
|        |                                                                                                                |     
|Item 1. | Financial Statements                                                                                           |     
|        |                                                                                                                |     
|        | Consolidated Balance Sheets as of June 30, 2003 (Unaudited) and December 31, 2002                              | 3   
|        |                                                                                                                |     
|        | Consolidated Statements of Income for the Three and Six-Month Periods ended June 30, 2003 and 2002 (Unaudited) | 4   
|        |                                                                                                                |     
|        | Consolidated Statements of Cash Flow for the Six-month Periods ended June 30, 2003 and 2002 (Unaudited)        | 5   
|        |                                                                                                                |     
|        | Notes to Consolidated Financial Statements (Unaudited)                                                         | 7   
|        |                                                                                                                |     
|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations                          | 17  
|        |                                                                                                                |     
|Item 3. | Quantitative and Qualitative Disclosure about Market Risk                                                      | 23  
|        |                                                                                                                |     
|Item 4. | Controls and Procedures                                                                                        | 23  
|        |                                                                                                                |     
|PART II | Other Information                                                                                              |     
|        |                                                                                                                |     
|Item 4. | Submission of Matters to a Vote of Security Holders                                                            | 24  
|        |                                                                                                                |     
|Item 6. | Exhibits and Reports on Form 8-K                                                                               | 24  

2



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Kennedy-Wilson, Inc. and SubsidiariesConsolidated Balance Sheets

|                                                                                                                                                                            |              |  |                  |             |   |   |             |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------ |  | ---------------- | ----------- | - | - | ----------- | -
|                                                                                                                                                                            | June 30,2003 |  | December 31,2002 |            
|                                                                                                                                                                            | (Unaudited)  |  |                  |            
|Assets                                                                                                                                                                      |              |  |                  |             |   |   |             |  
|Cash and cash equivalents                                                                                                                                                   |              |  | $                | 5,034,000   |   | $ | 11,852,000  |  
|Cash  restricted                                                                                                                                                           |              |  |                  |            |   |   | 42,000      |  
|Accounts receivable                                                                                                                                                         |              |  |                  | 3,648,000   |   |   | 4,788,000   |  
|Investment in Kennedy-Wilson Japan                                                                                                                                          |              |  |                  | 2,278,000   |   |   | 13,286,000  |  
|Notes receivable                                                                                                                                                            |              |  |                  | 19,445,000  |   |   | 15,662,000  |  
|Investments in joint ventures                                                                                                                                               |              |  |                  | 49,997,000  |   |   | 48,458,000  |  
|Contracts and other assets, net                                                                                                                                             |              |  |                  | 9,708,000   |   |   | 11,022,000  |  
|Goodwill, net                                                                                                                                                               |              |  |                  | 23,965,000  |   |   | 23,965,000  |  
|                                                                                                                                                                            |              |  |                  |            
|Total Assets                                                                                                                                                                |              |  | $                | 114,075,000 |   | $ | 129,075,000 |  
|                                                                                                                                                                            |              |  |                  |            
|Liabilities and Stockholders Equity                                                                                                                                        |              |  |                  |             |   |   |             |  
|Liabilities                                                                                                                                                                 |              |  |                  |             |   |   |             |  
|Accounts payable                                                                                                                                                            |              |  | $                | 704,000     |   | $ | 861,000     |  
|Accrued expenses and other liabilities                                                                                                                                      |              |  |                  | 3,358,000   |   |   | 2,850,000   |  
|Accrued salaries and benefits                                                                                                                                               |              |  |                  | 875,000     |   |   | 2,713,000   |  
|Deferred and accrued income taxes                                                                                                                                           |              |  |                  | 5,018,000   |   |   | 2,367,000   |  
|Notes payable                                                                                                                                                               |              |  |                  | 16,649,000  |   |   | 15,983,000  |  
|Borrowings under lines of credit                                                                                                                                            |              |  |                  | 15,463,000  |   |   | 24,224,000  |  
|Senior unsecured notes                                                                                                                                                      |              |  |                  | 10,000,000  |   |   | 14,606,000  |  
|Subordinated debt                                                                                                                                                           |              |  |                  | 2,773,000   |   |   | 2,773,000   |  
|                                                                                                                                                                            |              |  |                  |            
|Total liabilities                                                                                                                                                           |              |  |                  | 54,840,000  |   |   | 66,377,000  |  
|                                                                                                                                                                            |              |  |                  |            
|Commitments and Contingencies                                                                                                                                               |              |  |                  |             |   |   |             |  
|Stockholders Equity                                                                                                                                                        |              |  |                  |             |   |   |             |  
|Preferred stock, $0.01 par value: 5,000,000 shares authorized; none issued as of June 30, 2003 and December 31, 2002                                                        |              |  |                  |            |   |   |            |  
|Common stock, $0.01 par value: 50,000,000 shares authorized; 9,322,985 and 11,215,992 shares issued and outstanding as of June 30, 2003 and December
31, 2002, respectively |              |  |                  | 93,000      |   |   | 112,000     |  
|Additional paid-in capital                                                                                                                                                  |              |  |                  | 48,781,000  |   |   | 57,473,000  |  
|Restricted stock  deferred compensation                                                                                                                                    |              |  |                  | (7,126,000  | ) |   | (7,633,000  | )
|Retained earnings                                                                                                                                                           |              |  |                  | 17,237,000  |   |   | 12,461,000  |  
|Accumulated other comprehensive income                                                                                                                                      |              |  |                  | 250,000     |   |   | 285,000     |  
|                                                                                                                                                                            |              |  |                  |            
|Total stockholders equity                                                                                                                                                  |              |  |                  | 59,235,000  |   |   | 62,698,000  |  
|                                                                                                                                                                            |              |  |                  |            
|Total Liabilities and Stockholders Equity                                                                                                                                  |              |  | $                | 114,075,000 |   | $ | 129,075,000 |  
|                                                                                                                                                                            |              |  |                  |            

See accompanying notes to consolidated financial statements.

3



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Kennedy-Wilson, Inc. and SubsidiariesConsolidated Statements of Income(Unaudited)

|                                                               |                             |  |                           |            |      |   |            |   |   |            |   |   |            |  
|-------------------------------------------------------------- | --------------------------- |  | ------------------------- | ---------- | ---- | - | ---------- | - | - | ---------- | - | - | ---------- | -
|                                                               | Three months ended June 30, |  | Six months ended June 30, |           
|                                                               | 2003                        |  | 2002                      |            | 2003 |   | 2002       |  
|Revenue                                                        |                             |  |                           |            |      |   |            |   |   |            |   |   |            |  
|Property management and leasing fees                           |                             |  | $                         | 3,458,000  |      | $ | 5,748,000  |   | $ | 7,154,000  |   | $ | 11,520,000 |  
|Property management and leasing fees  related party           |                             |  |                           | 806,000    |      |   | 840,000    |   |   | 1,802,000  |   |   | 1,734,000  |  
|Commissions                                                    |                             |  |                           |           |      |   | 2,389,000  |   |   | 644,000    |   |   | 5,063,000  |  
|Commissions  related party                                    |                             |  |                           | 709,000    |      |   | 990,000    |   |   | 848,000    |   |   | 1,205,000  |  
|Interest and other income                                      |                             |  |                           | 1,232,000  |      |   | 1,724,000  |   |   | 1,916,000  |   |   | 2,211,000  |  
|                                                               |                             |  |                           |            |      |   |            |  
|Total revenue                                                  |                             |  |                           | 6,205,000  |      |   | 11,691,000 |   |   | 12,364,000 |   |   | 21,733,000 |  
|                                                               |                             |  |                           |            |      |   |            |  
|Operating Expenses                                             |                             |  |                           |            |      |   |            |   |   |            |   |   |            |  
|Commissions and marketing expenses                             |                             |  |                           | 866,000    |      |   | 1,371,000  |   |   | 1,745,000  |   |   | 2,498,000  |  
|Sale of residential real estate                                |                             |  |                           |           |      |   | 185,000    |   |   |           |   |   | 185,000    |  
|Compensation and related expenses                              |                             |  |                           | 5,134,000  |      |   | 6,631,000  |   |   | 9,450,000  |   |   | 12,519,000 |  
|General and administrative                                     |                             |  |                           | 3,361,000  |      |   | 2,313,000  |   |   | 5,577,000  |   |   | 5,388,000  |  
|Depreciation and amortization                                  |                             |  |                           | 786,000    |      |   | 788,000    |   |   | 1,480,000  |   |   | 1,668,000  |  
|Non-recurring, non-cash Japan IPO expense                      |                             |  |                           |           |      |   |           |   |   |           |   |   | 1,100,000  |  
|                                                               |                             |  |                           |            |      |   |            |  
|Total operating expenses                                       |                             |  |                           | 10,147,000 |      |   | 11,288,000 |   |   | 18,252,000 |   |   | 23,358,000 |  
|Equity income                                                  |                             |  |                           | 24,000     |      |   | 1,850,000  |   |   | 591,000    |   |   | 2,444,000  |  
|                                                               |                             |  |                           |            |      |   |            |  
|Total operating (loss) income                                  |                             |  |                           | (3,918,000 | )    |   | 2,253,000  |   |   | (5,297,000 | ) |   | 819,000    |  
|Non-operating income (expense)                                 |                             |  |                           |            |      |   |            |   |   |            |   |   |            |  
|Gain on sale of stock of subsidiary                            |                             |  |                           | 11,419,000 |      |   |           |   |   | 14,933,000 |   |   | 8,822,000  |  
|Interest expense                                               |                             |  |                           | (270,000   | )    |   | (695,000   | ) |   | (776,000   | ) |   | (1,228,000 | )
|Valuation adjustment  warrants                                |                             |  |                           |           |      |   | 195,000    |   |   | 35,000     |   |   | (285,000   | )
|(Loss) gain on extinguishment of debt                          |                             |  |                           | (514,000   | )    |   | 750,000    |   |   | (968,000   | ) |   | 750,000    |  
|                                                               |                             |  |                           |            |      |   |            |  
|Income before minority interest and provision for income taxes |                             |  |                           | 6,717,000  |      |   | 2,503,000  |   |   | 7,927,000  |   |   | 8,878,000  |  
|Minority interest                                              |                             |  |                           |           |      |   | (1,680,000 | ) |   |           |   |   | (1,882,000 | )
|                                                               |                             |  |                           |            |      |   |            |  
|Income before provision for income taxes                       |                             |  |                           | 6,717,000  |      |   | 823,000    |   |   | 7,927,000  |   |   | 6,996,000  |  
|Provision for income taxes                                     |                             |  |                           | (2,687,000 | )    |   | (294,000   | ) |   | (3,151,000 | ) |   | (2,502,000 | )
|                                                               |                             |  |                           |            |      |   |            |  
|Net Income                                                     |                             |  | $                         | 4,030,000  |      | $ | 529,000    |   | $ | 4,776,000  |   | $ | 4,494,000  |  
|                                                               |                             |  |                           |            |      |   |            |  
|Share Data:                                                    |                             |  |                           |            |      |   |            |   |   |            |   |   |            |  
|Net income per share, basic                                    |                             |  | $                         | 0.48       |      | $ | 0.06       |   | $ | 0.53       |   | $ | 0.51       |  
|Basic weighted average shares                                  |                             |  |                           | 8,421,085  |      |   | 8,935,703  |   |   | 8,940,037  |   |   | 8,865,385  |  
|Net income per share, diluted                                  |                             |  | $                         | 0.48       |      | $ | 0.06       |   | $ | 0.53       |   | $ | 0.47       |  
|Diluted weighted average shares                                |                             |  |                           | 8,473,471  |      |   | 9,890,344  |   |   | 8,978,217  |   |   | 9,847,767  |  

See accompanying notes to consolidated financial statements.

4



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Kennedy-Wilson, Inc. and SubsidiariesConsolidated Statements of Cash Flow(Unaudited)

|                                                                                                 |                           |  |      |             |   |   |             |  
|------------------------------------------------------------------------------------------------ | ------------------------- |  | ---- | ----------- | - | - | ----------- | -
|                                                                                                 | Six months ended June 30, | 
|                                                                                                 | 2003                      |  | 2002 |            
|Cash flows from operating activities:                                                            |                           |  |      |             |   |   |             |  
|Net income                                                                                       |                           |  | $    | 4,776,000   |   | $ | 4,494,000   |  
|Adjustments to reconcile net income to net cash used in operating activities:                    |                           |  |      |             |   |   |             |  
|Depreciation and amortization                                                                    |                           |  |      | 1,480,000   |   |   | 1,668,000   |  
|Loss (gain) on extinguishment of debt  non-cash                                                 |                           |  |      | 394,000     |   |   | (750,000    | )
|Equity in joint venture income                                                                   |                           |  |      | (591,000    | ) |   | (2,444,000  | )
|Minority interest in income of subsidiary                                                        |                           |  |      |            |   |   | 1,882,000   |  
|Gain on sale of stock of subsidiary                                                              |                           |  |      | (14,933,000 | ) |   | (8,822,000  | )
|Non-recurring Japan IPO expense                                                                  |                           |  |      |            |   |   | 1,100,000   |  
|Valuation adjustment  warrants                                                                  |                           |  |      | (35,000     | ) |   | 285,000     |  
|Amortization of deferred compensation                                                            |                           |  |      | 507,000     |   |   | 286,000     |  
|Change in assets and liabilities:                                                                |                           |  |      |             |   |   |             |  
|Accounts receivable                                                                              |                           |  |      | 1,140,000   |   |   | (2,000      | )
|Contracts and other assets                                                                       |                           |  |      | (111,000    | ) |   | 243,000     |  
|Accounts payable                                                                                 |                           |  |      | (157,000    | ) |   | 450,000     |  
|Accrued expenses and other liabilities                                                           |                           |  |      | 1,356,000   |   |   | (1,760,000  | )
|                                                                                                 |                           |  |      |            
|Net cash used in operating activities                                                            |                           |  |      | (6,174,000  | ) |   | (3,370,000  | )
|                                                                                                 |                           |  |      |            
|Cash flows from investing activities:                                                            |                           |  |      |             |   |   |             |  
|Purchase of contracts and other assets                                                           |                           |  |      | (55,000     | ) |   |            |  
|Collections of notes receivable                                                                  |                           |  |      | 8,506,000   |   |   | 5,257,000   |  
|Purchases of notes receivable and redemption of joint venture partner in note receivable venture |                           |  |      | (12,289,000 | ) |   | (6,841,000  | )
|Reduction of real estate                                                                         |                           |  |      |            |   |   | 2,128,000   |  
|Purchases of and additions to real estate                                                        |                           |  |      |            |   |   | (11,065,000 | )
|Distributions from joint ventures                                                                |                           |  |      | 1,399,000   |   |   | 4,443,000   |  
|Contributions to joint ventures                                                                  |                           |  |      | (2,957,000  | ) |   | (9,353,000  | )
|Proceeds from sale of investment in Kennedy-Wilson Japan                                         |                           |  |      | 26,551,000  |   |   | 18,718,000  |  
|Cash  restricted decrease                                                                       |                           |  |      | 42,000      |   |   | 495,000     |  
|                                                                                                 |                           |  |      |            
|Net cash provided by investing activities                                                        |                           |  |      | 21,197,000  |   |   | 3,782,000   |  
|                                                                                                 |                           |  |      |            
|Cash flow from financing activities:                                                             |                           |  |      |             |   |   |             |  
|Borrowings under notes payable                                                                   |                           |  |      | 10,474,000  |   |   | 2,660,000   |  
|Repayment of notes payable                                                                       |                           |  |      | (12,553,000 | ) |   | (3,375,000  | )
|Borrowings under lines of credit                                                                 |                           |  |      | 4,005,000   |   |   | 33,420,000  |  
|Repayment of lines of credit                                                                     |                           |  |      | (12,766,000 | ) |   | (31,208,000 | )
|Issuance of mortgage loans payable                                                               |                           |  |      |            |   |   | 8,528,000   |  
|Repayment of mortgage loans payable                                                              |                           |  |      |            |   |   | (1,993,000  | )
|Borrowings under senior unsecured notes                                                          |                           |  |      | 5,000,000   |   |   | 74,000      |  
|Repayment of senior unsecured notes                                                              |                           |  |      | (10,000,000 | ) |   |            |  
|Issuance of common stock                                                                         |                           |  |      |            |   |   | 461,000     |  
|Repurchase of common stock                                                                       |                           |  |      | (5,966,000  | ) |   |            |  
|                                                                                                 |                           |  |      |            
|Net cash (used in) provided by financing activities                                              |                           |  |      | (21,806,000 | ) |   | 8,567,000   |  
|                                                                                                 |                           |  |      |            
|Effect of exchange rate changes on cash and cash equivalents                                     |                           |  |      |            |   |   | 2,392,000   |  
|Accumulated other comprehensive loss  foreign currency translation, net of taxes                |                           |  |      | (35,000     | ) |   |            |  
|                                                                                                 |                           |  |      |            
|Net (decrease) increase in cash and cash equivalents                                             |                           |  |      | (6,818,000  | ) |   | 11,371,000  |  
|Cash and cash equivalents, beginning of period                                                   |                           |  |      | 11,852,000  |   |   | 11,121,000  |  
|                                                                                                 |                           |  |      |            
|Cash and cash equivalents, end of period                                                         |                           |  | $    | 5,034,000   |   | $ | 22,492,000  |  
|                                                                                                 |                           |  |      |            

5



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Kennedy-Wilson, Inc. and Subsidiaries Consolidated Statements of Cash Flow (continued) (Unaudited)

Supplemental
disclosure of non-cash financing activity:

Stock was repurchased by issuing a note payable in the amount of $2,745,000.

See accompanying notes to
consolidated financial statements.

6



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Kennedy-Wilson, Inc. and Subsidiaries Notes to Consolidated Financial Statements Three months ended June 30, 2003 and 2002 (Unaudited)

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 and six month periods ended June 30, 2003 and 2002 have been
made. The results of operations for these periods are not necessarily indicative of results that might be expected for the full year. 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 in the Companys 2002 Annual Report on Form 10-K.

BASIS OF PRESENTATION  The
consolidated financial statements include the accounts of the Company and its consolidated subsidiaries. All material intercompany balances and transactions have been eliminated. Assets and liabilities denominated in foreign currencies are
translated at rates of exchange prevailing on the date of the consolidated balance sheet, while income statement items are translated at average rates of exchange for the period.

USE OF ESTIMATES  The
preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The Company bases its estimates on historical experience and assumptions
that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.

RECLASSIFICATION  Certain amounts for prior periods have been reclassified to conform to the current period presentation.

REVENUE RECOGNITION  The Companys real estate services revenues are generally recorded when the related services are performed or at closing in the case of real estate sales commissions. Property management fees
are recognized over time as earned based upon the terms of the management agreement.

Leasing commission revenues are accounted for in accordance with the provisions of SAB 101. Accordingly, leasing
commissions that are payable upon tenant occupancy, payment of rent or other events beyond the Companys control are recognized upon the occurrence of such event. In accordance with EITF 99-19, Reporting Revenue Gross as a Principal versus Net
as an Agent, the Company records brokerage commission revenues and expenses on a gross basis. Of the criteria listed in the EITF, the Company is the primary obligor in the transaction, does not have

7



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inventory risk, performs all, or part, of the service, has credit risk, and has wide latitude in establishing the price of services rendered, discretion in selection of agents and
determination of service specifications. Due to these factors, management concluded that gross reporting is appropriate.

Revenues on notes receivable are recognized on an effective interest basis under the
provisions of Practice Bulletin 6 and are reported as interest and other income in the accompanying consolidated statements of income. Whenever the expected future cash flows can not be reasonably estimated, a cost recovery basis is applied in which
payments received are applied against the Companys basis in the note before any revenue is recognized. Any increases in the estimated future cash flows to be received from notes receivable, including changes resulting from restructuring or
creation of a new note, are reported as interest income prospectively under the effective interest method.

INVESTMENTS IN JOINT VENTURES  The Company has a number of partnership and joint venture
interests ranging from 2% to 50% that were formed to acquire, manage, develop and/or sell real estate. These investments are accounted for under the equity method.

The Company reviews each of its
investments on a periodic basis for evidence of impairment. Impairment losses are recognized whenever events or changes in circumstances indicate declines in value of an investment below its carrying value and the related undiscounted cash flows are
not sufficient to recover the assets carrying amount. No impairment losses were recorded by the Company in the three and six month periods ended June 30, 2003 and 2002.

GOODWILL  Goodwill is
reviewed for impairment on an annual basis, and more frequently if there is a triggering event, by Company management in accordance with the provisions of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible
Assets (SFAS 142). During the three and six month periods ended June 30, 2003, no impairment was identified based on this review.

CASH AND CASH EQUIVALENTS  Cash and cash equivalents
consists of cash and all highly liquid investments purchased with maturities of three months or less.

RESTRICTED CASH  Restricted cash consists of non-refundable deposits on acquisitions of real
estate, marketing funds advanced by clients and reserve amounts required in connection with real estate related loans.

LONG-LIVED 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 three or six month periods ended June 30, 2003 and 2002.

NOTES
RECEIVABLE  The Company accounts for any impairment to its basis in notes receivable in accordance with Statement of Financial Accounting Standards No. 114, Accounting by Creditors for Impairment of a Loan, as amended by Statement of
Financial Accounting Standards No. 118, Accounting by Creditors for Impairment of a Loan  Income Recognition and

8



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Disclosures. Accordingly, impaired loans are measured based upon the present value of expected future cash flows, discounted at the loans effective interest rate or, if
readily determinable, the loans observable market price or the fair value of the collateral if the loan is collateral dependant.

CAPITALIZED INTEREST  The Company capitalizes interest in
accordance with FAS 58 for qualifying equity investments. Interest is capitalized on investment assets that are undergoing construction or entitlement activities in preparation for their planned principal operations. An appropriate interest rate is
applied to the Companys cash investment in the qualifying asset. The interest is credited against interest expense and added to the basis in the investment. Interest is capitalized when the development or entitlement activity commences and
ceases when the investment has begun its planned principal operations or development is halted for any reason.

EARNINGS PER SHARE  Basic earnings per share is computed based upon the weighted average
number of shares of common stock outstanding during the periods presented. Diluted earnings per share is computed based upon the weighted average number of shares of common stock and dilutive securities outstanding during the periods presented. The
diluted earnings per share computation also includes the dilutive impact of options and warrants to purchase common stock which were outstanding during the period calculated by the treasury stock method, unvested restricted stock grants
and the assumed conversion of the Companys convertible subordinated debt in 2002 as if conversion to common shares had occurred at the beginning of the year. Earnings have also been adjusted for interest expense on the convertible subordinated
debt in 2002.

RECENT ACCOUNTING PRONOUNCEMENTS  In November 2002, the FASB issued FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34 (FIN 45). FIN 45 requires that upon issuance of a guarantee, the entity must
recognize a liability for the fair value of the obligation it assumes under that guarantee. FIN 45 requires disclosure about each guarantee even if the likelihood of the guarantors having to make any payments under the guarantee is remote. The
provisions for initial recognition and measurement are effective on a prospective basis for guarantees that are issued or modified after December 31, 2002. The Company has certain guarantees associated with loans secured by assets held in various
joint venture partnerships. The maximum potential amount of future payments (undiscounted) the Company could be required to make under the guarantees is approximately $32 million. The guarantees expire through 2005 and the Companys performance
under the guarantees would be required to the extent there is a shortfall in liquidation between the principal amount of the loan and the net sales proceeds of the property. In one joint venture partnership, the entire loan of approximately $9
million is collateralized by the property and the Company is obligated to indemnify the lender under certain conditions such as fraud or bankruptcy. The Company also has a leasing guarantee agreement which expires in 2009. The maximum amount that
the Company could be responsible for under the guarantee is approximately $2.6 million. During the three month period ended June 30, 2003, the Company issued no new guarantees to unconsolidated entities.

9



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In December 2002, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of ARB 51 (FIN 46). The primary
objectives of FIN 46 are to provide guidance on the identification of entities for which control is achieved through means other than through voting rights (variable interest entities, or VIEs) and how to determine when and which business enterprise
should consolidate the VIE (the primary beneficiary). The provisions of FIN 46 are effective immediately for VIEs created after January 31, 2003 and no later than July 1, 2003 for VIEs created before February 1, 2003. In addition, FIN 46 requires
that both the primary beneficiary and all other enterprises with a significant variable interest make additional disclosure in financial statements issued after January 31, 2003. We expect a certain previously unconsolidated special purpose entity
to be consolidated under the provisions of this interpretation. The special purpose entity which is expected to be consolidated under the provisions of FIN 46 comprises $1,419,000 of the Companys total $49,997,000 investments in joint ventures
as of June 30, 2003. This investment is engaged in the development, operation and ultimate disposition of two office buildings located in San Antonio, Texas. The Companys maximum exposure to loss as a result of its involvement is limited to
its capital investment and loan guarantee of up to $3.6 million. The total assets and liabilities of this entity are approximately $11.4 million and $7.3 million, respectively.

In April 2003, the FASB
issued Statement of Financial Accounting Standards No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. The standard amends and clarifies financial reporting for derivative instruments and for hedging
activities accounted for under SFAS No. 133 and is effective for contracts entered into or modified, and for hedges designated, after June 30, 2003. Adoption of the standard is not expected to have a material impact on the Companys
consolidated financial position, results of operations or cash flows.

In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150, Accounting for Certain Instruments with
Characteristics of Both Liabilities and Equity. The standard establishes how an issuer classifies and measures certain freestanding financial instruments with characteristics of liabilities and equity and requires that such instruments be
classified as liabilities. The standard is effective for financial instruments entered into or modified after May 31, 2003 and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. Adoption of this
standard is not expected to have a material impact on the Companys consolidated financial position, results of operations or cash flows.

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 for options granted under the
Companys stock option plans, as options granted under the plans have exercise prices equal to the market value of the Companys common shares on the date of grant. Restricted stock grants are valued at the market value of the stock on the
date of the

10



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grant. This amount is recorded as deferred compensation and is amortized over the vesting period of the grant. The following table illustrates the effect on net income and net income
per share as if the Company had applied the fair value provisions of SFAS No. 123, Accounting for Stock-Based Compensation to stock-based employee compensation.

|                                                   |                                                                                                                                     |   |                           |          |      |         |          |   |           |          |   |           |          |  
|-------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------- | - | ------------------------- | -------- | ---- | ------- | -------- | - | --------- | -------- | - | --------- | -------- | -
|                                                   | Three months ended June 30,                                                                                                         |   | Six months ended June 30, |         
|                                                   | 2003                                                                                                                                |   | 2002                      |          | 2003 |         | 2002     |  
|Net income, as reported                            |                                                                                                                                     | $ | 4,030,000                 |          | $    | 529,000 |          | $ | 4,776,000 |          | $ | 4,494,000 |         
|Add:                                               | Stock-based employee compensation expense included in reported net income, net of related tax effects                               |   |                           | 152,000  |      |         | 136,000  |   |           | 304,000  |   |           | 184,000  |  
|Deduct:                                            | Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects |   |                           | (177,000 | )    |         | (205,000 | ) |           | (355,000 | ) |           | (321,000 | )
|                                                   |                                                                                                                                     |   |                           |          |      |         |          |  
|Net income, pro forma - Basic                      |                                                                                                                                     |   | 4,005,000                 |          |      | 460,000 |          |   | 4,725,000 |          |   | 4,357,000 |         
|Income effect of dilutive securities, tax effected |                                                                                                                                     |   |                          |          |      | 70,000  |          |   |          |          |   | 149,000   |         
|                                                   |                                                                                                                                     |   |                           |          |      |         |          |  
|Net income, pro forma - Diluted                    |                                                                                                                                     | $ | 4,005,000                 |          | $    | 530,000 |          | $ | 4,725,000 |          | $ | 4,506,000 |         
|                                                   |                                                                                                                                     |   |                           |          |      |         |          |  
|Net income per share:                              |                                                                                                                                     |   |                           |          |      |         |          |   |           |          |   |           |         
|Basic, as reported                                 |                                                                                                                                     | $ | 0.48                      |          | $    | 0.06    |          | $ | 0.53      |          | $ | 0.51      |         
|Basic, pro forma                                   |                                                                                                                                     | $ | 0.48                      |          | $    | 0.06    |          | $ | 0.53      |          | $ | 0.51      |         
|Diluted, as reported                               |                                                                                                                                     | $ | 0.48                      |          | $    | 0.06    |          | $ | 0.53      |          | $ | 0.47      |         
|Diluted, pro forma                                 |                                                                                                                                     | $ | 0.47                      |          | $    | 0.05    |          | $ | 0.53      |          | $ | 0.46      |         

NOTE 2  INVESTMENT IN KENNEDY-WILSON JAPAN

During the second quarter
of 2003, the Company sold 15,600 shares (as adjusted for a 2-for-1 stock split) of its investment in Kennedy-Wilson Japan at per share prices ranging from approximately $1,230 to $1,420 for total gross cash consideration of approximately $20.7
million. After the share sales, the Companys ownership of Kennedy-Wilson Japan was 6.1%. For the six month period ended June 30, 2003, the Company sold 20,600 shares (as adjusted for a 2-for-1 stock split) of Kennedy-Wilson Japan at per share
prices ranging from $1,210 to $1,420 for total gross cash consideration of approximately $27 million.

For the three and six month periods ended June 30, 2003, the Companys equity in earnings of
Kennedy-Wilson Japan was $170,000 and $610,000, respectively, and is included in equity income in the accompanying consolidated statements of income. During the three and six month periods ended June 30, 2002, the Company consolidated its investment
in Kennedy-Wilson Japan, accordingly there was no equity in earnings from this investment in those periods.

During 2002, the Company entered into an option agreement to sell its remaining 4,000 shares of
Kennedy-Wilson Japan at a split-adjusted price of approximately $825 per share. The option expires in March 2004.

11



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NOTE 3  NOTES RECEIVABLE

Notes receivable consists primarily of discounted loan portfolios and other related assets acquired from
financial institutions, and notes resulting from the sale of assets to third parties or joint ventures. A majority of these notes are collateralized by real estate, personal property or guarantees.

NOTE 4
 INVESTMENTS IN JOINT VENTURES

The Company has a number of partnership and joint venture interests ranging from 2% to 50% that were formed to acquire, manage, develop and/or sell real estate. As of
June 30, 2003, the Company also had an investment in one special purpose entity in which it had a 97% ownership interest. Under the provisions of FASB Interpretation No. 46, Consolidation of Variable Interest Entities, we expect to
consolidate this entity, but do not expect it to materially impact our financial position and to have no impact on net income. For the three and six month periods ended June 30, 2003, the Companys equity in losses of joint ventures was
$146,000 and $19,000, respectively. For the three and six month periods ended June 30, 2002, the Companys equity in income of joint ventures was $1,850,000 and $2,444,000, respectively.

During the
second quarter of 2003, an agreement relating to a joint venture investment that had been consolidated by the Company was modified such that the investment is accounted for under the equity method.

NOTE 5
 NOTES PAYABLE

Notes payable were incurred primarily in connection with the acquisition of discounted loan portfolios, redemption of a joint venture investment partner, and in connection with a stock
repurchase.

NOTE 6  SENIOR UNSECURED NOTES

During the second quarter of 2003, the remaining $5 million balance of the 12% Senior Notes was repaid. The
Company recorded a loss on the extinguishment of the debt in the amount of $514,000. For the six month period ended June 30, 2003, the Company repaid $10 million of the 12% Senior Notes and recorded a loss on extinguishment of debt in the amount of
$968,000.

NOTE 7  CAPITAL STOCK TRANSACTIONS

During the second quarter of 2003, the Company repurchased approximately 954,000 shares of its common stock.
The total consideration of the share repurchases was $4,324,000. During the six month period ended June 30, 2003, the Company repurchased approximately 1,893,000 shares of its common stock for a total consideration of approximately $8.7
million.

12



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NOTE 8  COMPREHENSIVE INCOME

Comprehensive income consists of net income and other comprehensive income. Accumulated other
comprehensive income consists of foreign currency translation adjustments. During the second quarter of 2003, there was no foreign currency translation adjustment. The tax benefit associated with items included in other comprehensive income for the
Company was $22,000 for the three and six month periods ended June 30, 2003, which results from the $35,000 (net of tax benefit) foreign currency translation adjustment in the first quarter. The following table provides a summary of the
comprehensive income:

|                                                |                             |  |                           |           |      |   |         |  |   |           |   |   |          
|----------------------------------------------- | --------------------------- |  | ------------------------- | --------- | ---- | - | ------- |  | - | --------- | - | - | ---------
|                                                | Three months ended June 30, |  | Six months ended June 30,
|                                                | 2003                        |  | 2002                      |           | 2003 |   | 2002   
|Net income                                      |                             |  | $                         | 4,030,000 |      | $ | 529,000 |  | $ | 4,776,000 |   | $ | 4,494,000
|Foreign currency translation loss, net of taxes |                             |  |                           |          |      |   |        |  |   | (35,000   | ) |   |         
|                                                |                             |  |                           |           |      |   |        
|Comprehensive income                            |                             |  | $                         | 4,030,000 |      | $ | 529,000 |  | $ | 4,741,000 |   | $ | 4,494,000
|                                                |                             |  |                           |           |      |   |        

NOTE 9  SEGMENT INFORMATION

The Companys business activities currently consist of property management, commercial and residential brokerage, and various types of real estate and note pool investments. The Companys segment disclosure with
respect to the determination of segment profit or loss and segment assets is based on these services and its various investments:

PROPERTY MANAGEMENT  The Company is a nationwide commercial and
residential property management and leasing Company, providing a full range of services relating to property management. The Company also provides asset management services for some of its joint ventures.

BROKERAGE  Through its various offices, the Company provides specialized brokerage services for both commercial and residential real estate and provides other real estate services such as property valuations,
development and implementation of marketing plans, arranging financing, sealed bid auctions and open bid auctions.

INVESTMENTS  With joint venture partners and on its own, the Company invests in
commercial and residential real estate and purchases and manages pools of discounted notes.

The Company did not generate material intersegment revenues for the three and six month periods ended June 30,
2003 and 2002. The Company does not include capital expenditures by segment as part of the decision making process. The amounts representing investments with related parties and non-affiliates are included in the investment segment. No single
external customer provided the Company with 10% or more of its revenues during any period presented in these financial statements.

13



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| |                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The following tables reconcile the Companys income and expense activity for the three and six month periods ended June 30, 2003 and balance sheet data as of June 30, 2003.

2003 Reconciliation of Reportable Segment Information

|                                                |                                          |  |           |           |             |   |           |   |              |           |   |   |            |   |   |            |  
|----------------------------------------------- | ---------------------------------------- |  | --------- | --------- | ----------- | - | --------- | - | ------------ | --------- | - | - | ---------- | - | - | ---------- | -
|                                                | For the three months ended June 30, 2003
|                                                | PropertyManagement                       |  | Brokerage |           | Investments |   | Corporate |   | Consolidated |          
|Property management and leasing fees            |                                          |  | $         | 3,759,000 |             | $ | 243,000   |   | $            | 216,000   |   | $ | 46,000     |   | $ | 4,264,000  |  
|Commissions                                     |                                          |  |           | 429,000   |             |   | (145,000  | ) |              | 425,000   |   |   |           |   |   | 709,000    |  
|Interest and other income                       |                                          |  |           |          |             |   |          |   |              | 1,190,000 |   |   | 42,000     |   |   | 1,232,000  |  
|                                                |                                          |  |           |           |             |   |           |   |              |          
|Total revenue                                   |                                          |  |           | 4,188,000 |             |   | 98,000    |   |              | 1,831,000 |   |   | 88,000     |   |   | 6,205,000  |  
|Operating expenses                              |                                          |  |           | 4,050,000 |             |   | 369,000   |   |              | 1,054,000 |   |   | 4,674,000  |   |   | 10,147,000 |  
|Equity income                                   |                                          |  |           |          |             |   | 100,000   |   |              | (76,000   | ) |   |           |   |   | 24,000     |  
|                                                |                                          |  |           |           |             |   |           |   |              |          
|                                                |                                          |  |           | 138,000   |             |   | (171,000  | ) |              | 701,000   |   |   | (4,586,000 | ) |   | (3,918,000 | )
|Non-operating income (expense)                  |                                          |  |           |          |             |   |          |   |              |          |   |   | 10,635,000 |   |   | 10,635,000 |  
|                                                |                                          |  |           |           |             |   |           |   |              |          
|Income (loss) before provision for income taxes |                                          |  | $         | 138,000   |             | $ | (171,000  | ) | $            | 701,000   |   | $ | 6,049,000  |   | $ | 6,717,000  |  
|                                                |                                          |  |           |           |             |   |           |   |              |          



|                                                                      |                                        |  |           |           |             |   |           |   |              |            |  |   |            |   |   |             |  
|--------------------------------------------------------------------- | -------------------------------------- |  | --------- | --------- | ----------- | - | --------- | - | ------------ | ---------- |  | - | ---------- | - | - | ----------- | -
|                                                                      | For the six months ended June 30, 2003
|                                                                      | PropertyManagement                     |  | Brokerage |           | Investments |   | Corporate |   | Consolidated |           
|Property management and leasing fees                                  |                                        |  | $         | 7,892,000 |             | $ | 491,000   |   | $            | 540,000    |  | $ | 33,000     |   | $ | 8,956,000   |  
|Commissions                                                           |                                        |  |           | 868,000   |             |   | 60,000    |   |              | 564,000    |  |   |           |   |   | 1,492,000   |  
|Interest and other income                                             |                                        |  |           |          |             |   |          |   |              | 1,890,000  |  |   | 26,000     |   |   | 1,916,000   |  
|                                                                      |                                        |  |           |           |             |   |           |   |              |           
|Total revenue                                                         |                                        |  |           | 8,760,000 |             |   | 551,000   |   |              | 2,994,000  |  |   | 59,000     |   |   | 12,364,000  |  
|Operating expenses                                                    |                                        |  |           | 8,513,000 |             |   | 750,000   |   |              | 1,842,000  |  |   | 7,147,000  |   |   | 18,252,000  |  
|Equity income                                                         |                                        |  |           |          |             |   | 157,000   |   |              | 434,000    |  |   |           |   |   | 591,000     |  
|                                                                      |                                        |  |           |           |             |   |           |   |              |           
|                                                                      |                                        |  |           | 247,000   |             |   | (42,000   | ) |              | 1,586,000  |  |   | (7,088,000 | ) |   | (5,297,000  | )
|Non-operating income (expense)                                        |                                        |  |           |          |             |   |          |   |              |           |  |   | 13,224,000 |   |   | 13,224,000  |  
|                                                                      |                                        |  |           |           |             |   |           |   |              |           
|Income (loss) before minority interest and provision for income taxes |                                        |  | $         | 247,000   |             | $ | (42,000   | ) | $            | 1,586,000  |  | $ | 6,136,000  |   | $ | 7,927,000   |  
|                                                                      |                                        |  |           |           |             |   |           |   |              |           
|Total assets                                                          |                                        |  | $         | 9,238,000 |             | $ | 3,906,000 |   | $            | 75,853,000 |  | $ | 25,078,000 |   | $ | 114,075,000 |  
|                                                                      |                                        |  |           |           |             |   |           |   |              |           

14



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| |                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The following tables reconcile the Companys income and expense activity for the three and six month periods ended June 30, 2002 and balance sheet data as of June 30, 2002.

2002 Reconciliation of Reportable Segment Information

|                                                                      |                                          |  |           |           |             |   |           |  |              |           |   |   |           |   |   |           
|--------------------------------------------------------------------- | ---------------------------------------- |  | --------- | --------- | ----------- | - | --------- |  | ------------ | --------- | - | - | --------- | - | - | ----------
|                                                                      | For the three months ended June 30, 2002
|                                                                      | Property Management                      |  | Brokerage |           | Investments |   | Corporate |  | Consolidated
|Property management and leasing fees                                  |                                          |  | $         | 5,214,000 |             | $ | 932,000   |  | $            | 442,000   |   |   |           |   | $ | 6,588,000 
|Commissions                                                           |                                          |  |           | 505,000   |             |   | 2,261,000 |  |              | 531,000   |   | $ | 82,000    |   |   | 3,379,000 
|Interest and other income                                             |                                          |  |           |          |             |   | 1,403,000 |  |              | (28,000   | ) |   | 349,000   |   |   | 1,724,000 
|                                                                      |                                          |  |           |           |             |   |           |  |             
|Total revenue                                                         |                                          |  |           | 5,719,000 |             |   | 4,596,000 |  |              | 945,000   |   |   | 431,000   |   |   | 11,691,000
|Operating expenses                                                    |                                          |  |           | 5,507,000 |             |   | 3,533,000 |  |              | 864,000   |   |   | 1,384,000 |   |   | 11,288,000
|Equity income                                                         |                                          |  |           | (2,000    | )           |   | 981,000   |  |              | 871,000   |   |   |          |   |   | 1,850,000 
|                                                                      |                                          |  |           |           |             |   |           |  |             
|                                                                      |                                          |  |           | 210,000   |             |   | 2,044,000 |  |              | 952,000   |   |   | (953,000  | ) |   | 2,253,000 
|Non-operating income (expense)                                        |                                          |  |           |          |             |   |          |  |              | 52,000    |   |   | 198,000   |   |   | 250,000   
|                                                                      |                                          |  |           |           |             |   |           |  |             
|Income (loss) before minority interest and provision for income taxes |                                          |  | $         | 210,000   |             | $ | 2,044,000 |  | $            | 1,004,000 |   | $ | (755,000  | ) | $ | 2,503,000 
|                                                                      |                                          |  |           |           |             |   |           |  |             

|                                                                      |                                        |  |           |            |             |   |            |  |              |            |  |   |            |   |   |            
|--------------------------------------------------------------------- | -------------------------------------- |  | --------- | ---------- | ----------- | - | ---------- |  | ------------ | ---------- |  | - | ---------- | - | - | -----------
|                                                                      | For the six months ended June 30, 2002
|                                                                      | Property Management                    |  | Brokerage |            | Investments |   | Corporate  |  | Consolidated
|Property management and leasing fees                                  |                                        |  | $         | 10,580,000 |             | $ | 1,860,000  |  | $            | 814,000    |  |   |            |   | $ | 13,254,000 
|Commissions                                                           |                                        |  |           | 772,000    |             |   | 4,594,000  |  |              | 738,000    |  | $ | 164,000    |   |   | 6,268,000  
|Interest and other income                                             |                                        |  |           |           |             |   | 1,684,000  |  |              | 403,000    |  |   | 124,000    |   |   | 2,211,000  
|                                                                      |                                        |  |           |            |             |   |            |  |             
|Total revenue                                                         |                                        |  |           | 11,352,000 |             |   | 8,138,000  |  |              | 1,955,000  |  |   | 288,000    |   |   | 21,733,000 
|Operating expenses                                                    |                                        |  |           | 10,429,000 |             |   | 5,645,000  |  |              | 1,779,000  |  |   | 5,505,000  |   |   | 23,358,000 
|Equity income                                                         |                                        |  |           | (2,000     | )           |   | 981,000    |  |              | 1,465,000  |  |   |           |   |   | 2,444,000  
|                                                                      |                                        |  |           |            |             |   |            |  |             
|                                                                      |                                        |  |           | 921,000    |             |   | 3,474,000  |  |              | 1,641,000  |  |   | (5,217,000 | ) |   | 819,000    
|Non-operating income (expense)                                        |                                        |  |           |           |             |   |           |  |              |           |  |   | 8,059,000  |   |   | 8,059,000  
|                                                                      |                                        |  |           |            |             |   |            |  |             
|Income (loss) before minority interest and provision for income taxes |                                        |  | $         | 921,000    |             | $ | 3,474,000  |  | $            | 1,641,000  |  | $ | 2,842,000  |   | $ | 8,878,000  
|                                                                      |                                        |  |           |            |             |   |            |  |             
|Total assets                                                          |                                        |  | $         | 14,748,000 |             | $ | 58,948,000 |  | $            | 42,275,000 |  | $ | 40,765,000 |   | $ | 156,736,000
|                                                                      |                                        |  |           |            |             |   |            |  |             

15



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Note 10    Earnings per Share

The following table sets forth the computation of basic and diluted net income per
share:

|                                                   |                             |  |                           |           |      |   |           |  |   |           |  |   |          
|-------------------------------------------------- | --------------------------- |  | ------------------------- | --------- | ---- | - | --------- |  | - | --------- |  | - | ---------
|                                                   | Three months ended June 30, |  | Six months ended June 30,
|                                                   | 2003                        |  | 2002                      |           | 2003 |   | 2002     
|Basic earnings per share:                          |                             |  |                           |           |      |   |           |  |   |           |  |   |          
|Net income available to stockholders               |                             |  | $                         | 4,030,000 |      | $ | 529,000   |  | $ | 4,776,000 |  | $ | 4,494,000
|                                                   |                             |  |                           |           |      |   |          
|Weighted average shares                            |                             |  |                           | 8,421,085 |      |   | 8,935,703 |  |   | 8,940,037 |  |   | 8,865,385
|                                                   |                             |  |                           |           |      |   |          
|Net income per share, basic                        |                             |  | $                         | 0.48      |      | $ | 0.06      |  | $ | 0.53      |  | $ | 0.51     
|                                                   |                             |  |                           |           |      |   |          
|Diluted earnings per share:                        |                             |  |                           |           |      |   |           |  |   |           |  |   |          
|Net income                                         |                             |  | $                         | 4,030,000 |      | $ | 529,000   |  | $ | 4,776,000 |  | $ | 4,494,000
|Income effect of dilutive securities, tax effected |                             |  |                           |          |      |   | 70,000    |  |   |          |  |   | 149,000  
|                                                   |                             |  |                           |           |      |   |          
|Net income available to stockholders               |                             |  | $                         | 4,030,000 |      | $ | 599,000   |  | $ | 4,776,000 |  | $ | 4,643,000
|                                                   |                             |  |                           |           |      |   |          
|Weighted average shares                            |                             |  |                           | 8,421,085 |      |   | 8,935,703 |  |   | 8,940,037 |  |   | 8,865,385
|Convertible debentures                             |                             |  |                           |          |      |   | 725,275   |  |   |          |  |   | 737,569  
|Options                                            |                             |  |                           | 52,386    |      |   | 229,366   |  |   | 38,180    |  |   | 244,813  
|                                                   |                             |  |                           |           |      |   |          
|Total diluted shares                               |                             |  |                           | 8,473,471 |      |   | 9,890,344 |  |   | 8,978,217 |  |   | 9,847,767
|                                                   |                             |  |                           |           |      |   |          
|Net income per share, diluted                      |                             |  | $                         | 0.48      |      | $ | 0.06      |  | $ | 0.53      |  | $ | 0.47     
|                                                   |                             |  |                           |           |      |   |          

Potentially dilutive securities excluded from the diluted earnings per share
calculation because they are anti-dilutive are as follows:

|                            |                             |           |                           |           |      |           |      |          
|--------------------------- | --------------------------- | --------- | ------------------------- | --------- | ---- | --------- | ---- | ---------
|                            | Three months ended June 30, |           | Six months ended June 30,
|                            | 2003                        |           | 2002                      |           | 2003 |           | 2002
|Options                     |                             | 547,270   |                           | 480,230   |      | 714,983   |      | 556,831  
|Warrants                    |                             | 727,727   |                           | 927,023   |      | 727,727   |      | 927,023  
|Restricted stock  unvested |                             | 1,376,062 |                           | 1,571,062 |      | 1,376,062 |      | 1,571,062

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Item   2.     
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

We are an integrated real estate services
and investment Company with headquarters in Beverly Hills, California. Through our subsidiaries, we provide a complementary array of real estate services, including fund management, property management and leasing, real estate brokerage services
including auction marketing, and asset management. We also invest in commercial and residential real estate and discounted loan portfolios. Our investments in real estate are made primarily through joint ventures.

In 2002, the Company completed two public stock offerings and two private sales of shares of its formerly wholly-owned subsidiary, Kennedy-Wilson Japan. The sale of stock reduced the Companys ownership in the Japan
subsidiary to 37% at December 31, 2002. This change in ownership necessitated a change in the accounting treatment for Kennedy-Wilson Japan from a consolidated entity to an equity investment beginning in the fourth quarter of 2002. Instead of
including the various components of Kennedy-Wilson Japans revenue and expenses in the individual revenue and expense categories on the income statement, the Companys share of the net income of the Japan subsidiary is included in equity
income. Likewise, on the balance sheet the Companys investment in Kennedy-Wilson Japan is shown as a single separate line item. Subsequent sales of shares in 2003 have reduced the Company ownership to 6.1% at June 30, 2003.

Our current real estate investment strategy favors joint venture investments; however, in the future, we may still acquire and sell commercial real estate on a wholly owned basis. We are no longer involved in single-family
residential development and sales but are investing, through joint venture partnerships, in multi-family apartment projects. We also invest on our own account and through joint venture partnerships in discounted loan portfolios secured primarily by
real estate.

COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2003 AND 2002

Total operating revenue for the three months ended June 30, 2003 was approximately $6.2
million compared to approximately $11.7 million for the three months ended June 30, 2002. The decrease was due primarily to the revenue generated from the Japan subsidiary during the second quarter of 2002 being recorded as property management and
commission revenues but, as previously discussed, being accounted for under equity income in 2003. Total operating expenses for the three months ended June 30, 2003 decreased 10% to approximately $10.1 million compared to approximately $11.3 million
for the same period in 2002. This decrease in expenses was also due primarily to the change in accounting for the Kennedy-Wilson Japan subsidiary from consolidation to the equity method. Net income for the second quarters of 2003 and 2002 was
approximately $4 million and $529,000, respectively.

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REVENUE

Property management and leasing operations generated approximately $4.3 million of revenue (including related party fees of $806,000),
in the second quarter of 2003, representing 69% of our total revenue, compared to approximately $6.6 million (including related party fees of $840,000), and 56% of total revenue for the same period in 2002. The Japan subsidiary, which is now being
accounted for as an equity method investment, contributed approximately $693,000 of property management related fees in the second quarter of 2002. During the second quarter of 2003, property management revenue in the U.S., which includes property
management and leasing revenue, asset management, construction management, and engineering services, declined 35% compared to the second quarter of 2002. The decline in revenue was due, in part, to the decrease in the total square footage of
properties under management. Lower interest rates and favorable loan terms during 2003 resulted in a number of sales of buildings managed by the Company. Leasing commission revenue, construction management and development fees, and engineering
services have similarly declined as a result of the building sales and were also effected by the overall downturn in the economy.

Brokerage commission revenue for the second quarter of 2003 was $709,000
(all of which was related party fees), representing 11% of total revenue compared to approximately $3.4 million (including related party fees of $990,000) and 29% of total revenue for the second quarter of 2002. The Japan subsidiary, which is now
being accounted for as an equity investment, contributed approximately $2.1 million of brokerage commissions in the second quarter of 2002.

Interest and other income totaled approximately $1.2 for the three
months ended June 30, 2003, compared to approximately $1.7 million for the same period in 2002. The Japan subsidiary contributed $1.2 million of the interest and other income during the second quarter of 2002. Interest income generated from notes in
the U.S. increased by 140% in the second quarter of 2003 compared to the same period in 2002 due to the addition of three new loan pools purchased during 2003 and the buy-out of a partner in a joint venture investment which owns note pool
assets.

OPERATING EXPENSES

As discussed above, the Companys formerly wholly-owned subsidiary, Kennedy-Wilson Japan, was consolidated through September 2002.
Subsequent to September 2002, the investment is accounted for on the equity method. Therefore, operating expenses for 2003 do not include activity on a consolidated basis compared to the consolidated activity of Kennedy-Wilson Japan included for the
first three quarters of 2002.

Brokerage commissions and marketing expenses were $866,000 for the three months ended June 30, 2003, compared to approximately $1.4 million for the same period in 2002. The
decline relates to the decline in U.S. brokerage commission revenue discussed above.

Compensation and related expenses were approximately $5.1 million for the second quarter of 2003, a decrease of 23% when
compared to

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approximately $6.6 million for the second quarter of 2002. $1.3 million of the decrease relates to the effect of the deconsolidation of our Japan subsidiary; however, there was also a
decline of approximately 3.6% in compensation related expense in the U.S. as the result of the Companys continued cost cutting measures.

General and administrative expenses were approximately $3.4
million for the second quarter of 2003, compared to approximately $2.3 million in the same period in 2002. The U.S operations experienced an increase in the period due to non-recurring legal expense for the settlement of disputes relating to a
development project and an employment contract.

Depreciation and amortization expense was $786,000 for the three months ended June 30, 2003, as compared to $788,000 for the same period in 2002.

Equity income totaled $24,000 for the second quarter of 2003, compared to approximately $1.9 million realized in the second quarter of 2002. Equity income for the second quarter of 2003 included approximately $170,000
from the Companys investment in Kennedy-Wilson Japan. The decrease was due to the deconsolidation of our Japan subsidiary which had its own equity in income of subsidiaries contributing $1.1 million of equity income during the second quarter
of 2002 and equity income of approximately $571,000 from an investment partnership that recorded income from large note settlements during 2002. During the second quarter of 2003, no significant property transactions closed any of our joint venture
investments.

NON-OPERATING ITEMS

Gain on sale of stock of subsidiary was approximately $11.4 million for the second quarter of 2003. There were no stock sales
during the same period of 2002. The gain in the second quarter of 2003 resulted from the sale of 15,600 shares owned in Kennedy-Wilson Japan at per share prices ranging from approximately $1,230 to $1,420.

Interest expense was $270,000 for the three months ended June 30, 2003, compared to $695,000 during the same period in 2002. The decrease is due to an overall reduction in debt and a reduction of interest rates, and is net of
interest capitalized in the amount of $644,000.

The loss on extinguishment of debt in the amount of $514,000 related primarily to prepayment penalties and write-off of unamortized capitalized loan fees
associated with the early retirement of the balance of the 12% senior notes payable.

The provision for income taxes is $2,687,000 for the second quarter of 2003, compared to approximately $294,000 for the
same period in 2002. The higher provision in 2003 relates to the increased income resulting primarily from the gain on the sale of the Japan subsidiarys shares of stock.

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COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002

Total revenue for the six months ended June 30, 2003 was approximately $12.4
million, as compared to $21.7 million during the same period in 2002. The decrease related primarily to a decrease in property management and commission revenue, due in part, to the deconsolidation of our Japan subsidiary which accounted for
approximately $5.2 million of property management and commission revenue during the second quarter of 2002. Earnings before minority interest and taxes for the six months ended June 30, 2003 were approximately $7.9 million, compared to approximately
$8.9 million for the same period in 2002. Net income for the six months ended June 30, 2003 was approximately $4.8 million, compared to approximately $4.5 million for the same period in 2002.

REVENUE

Property management and leasing operations generated approximately $9.0 million of revenue (including approximately $1.8 million of related party fees) in the first six months
of 2003, representing 72% of our total revenue as compared to approximately $13.3 million (including approximately $1.7 million in related party fees) for the same period in 2002. The deconsolidation of the Japan subsidiary, which contributed
approximately $1.4 million of property management revenue during the first six months of 2002, had a significant effect on the decline in revenue during the first six months of 2003. The decrease also corresponds with the decline in leasing revenue,
and property management and related fees due to the sale of some of the properties managed by the Company.

Brokerage commission revenue for the first six months of 2003 was approximately $1.5 million
(including $848,000 of related party fees) representing 12% of total revenue, compared to brokerage commission revenue for the same period of 2002 of approximately $6.3 million (including approximately $1.2 million of related party fees). The
decrease was substantially due to the deconsolidation of our Japan subsidiary, which contributed approximately $3.8 million of commission revenue during the first six months of 2002. Brokerage commissions in the U.S declined 38.7% due to a decrease
in the number and size of sales transactions. Brokerage commissions are reported net of outside brokers commission expense but not commissions paid to employees which are recorded as marketing and commission expense.

Interest and other income for the first six months of 2003 totaled approximately $1.9 million, compared to approximately $2.2 million, of which $1.2 million related to the Japan subsidiary, for the same period in 2002.
Interest income generated from notes in the U.S. increased by 90% for the first six months of 2003 over the same period in 2002 due to the addition of three new loan pools purchased during 2003 and the buy-out of a joint venture investment which
owned note pool assets.

OPERATING EXPENSES

Operating expenses for the first six months of 2003 were approximately $18.3 million, representing a 22% decrease from
approximately $23.4 million for the same period in 2002. The decrease was due to exclusion

20



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of costs related to the deconsolidation of our Japan subsidiary and the continued implementation of cost reduction initiatives by the Company.

Brokerage commissions and marketing expenses were approximately $1.7 million for the six months ended June 30, 2003 compared to approximately $2.5 million during the same period in 2002. The reduction in commission expense
correlates with the reduction in leasing and brokerage commission revenue.

There was no cost of residential real estate sold for the six months ended June 30, 2003, compared to $185,000 for the same period
in 2002. The expense in 2002 related to sales in Japan.

Compensation and related expenses were approximately $9.5 million for the first six months of 2003 representing a 25% decrease from approximately
$12.5 million for the same period of 2002. Compensation expense relating to the Japan subsidiary totaled approximately $1.9 million for the first six months of 2002. Additionally, compensation in the U.S. decreased by 10.7% due to staff reductions
and the Companys continued cost cutting measures.

General and administrative expenses were approximately $5.6 million for the first six months of 2003, compared to the same period in 2002 expenses of
approximately $5.4 million. The U.S. operations experienced an increase in the period due to non-recurring legal expense for the settlement of disputes relating to a development project and an employment contract.

Depreciation and amortization expense was approximately $1.5 million for the six months ended June 30, 2003 compared to approximately $1.7 million during the same period of 2002. Most of the change relates to the
deconsolidation of the Japan subsidiary.

The non-recurring, non-cash Japan IPO expense of $1.1 million occurred during the first six months of 2002 and is directly related to the gain on the sale of stock.
There was no such expense during the first six months of 2003.

Equity in income of joint venture investments totaled $591,000 for the first six months of 2003 compared to approximately $2.4 million realized
in the same period of 2002. Revenue earned during the first six months of 2002 included approximately $957,000 relating to investments by our Japan subsidiary, and approximately $710,000 relating to a joint venture investment in note assets which is
now wholly owned by the Company and is being recorded as interest income. During the first six months of 2003, no significant property transactions closed from any of our joint venture investments.

NON-OPERATING ITEMS

Gain on sale of stock of subsidiary was approximately $14.9 million for the six months ended June 30, 2003, compared to approximately $8.8 million earned in the
same period of 2002. The gain in 2003 resulted from the sale of 20,600 shares owned in our Japan subsidiary as compared to the sale of 5,000 shares (adjusted for a 2-for-1 stock split) as part of the successful initial public offering of that
subsidiarys shares in Japan.

21



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Interest expense was $776,000 for the first six months of 2003, compared to approximately $1.2 million during the same period in 2002, representing a 37% decrease. The decline is due,
in part, to the reduced average interest rates on variable rate loans and a substantial repayment of debt including the repayment of the 12% senior unsecured notes.

The provision for income taxes was
approximately $3.2 million for the first six months of 2003, compared to approximately $2.5 million for the same period of 2002 due to the increase in net income before taxes.

LIQUIDITY AND CAPITAL
RESOURCES

Our liquidity and capital resource requirements include expenditures for joint venture fund investments, distressed note pools, real estate, and working capital needs. Historically, we have not
required significant capital resources to support our brokerage operations. We finance our operations with internally generated funds and borrowings under our revolving lines of credit as described below. Our recent acquisitions of note pools are
financed with notes payable.

Cash used in operating activities during the six months ended June 30, 2003 was approximately $6.2 million, compared to approximately $3.4 million in cash used in operating
activities for the same period in 2002. Although net income for the first six months of 2003 was approximately $4.8 million, net cash generated from operations excludes gains on the sale of the shares Kennedy-Wilson Japan of approximately $11.4
million. In the same period of 2002, the Company had net income of approximately $4.5 million which also excludes the $8.8 million gain on the sale of shares in Kennedy-Wilson Japan.

Cash provided by
investing activities during the six months ended June 30, 2003 was approximately $21.2 million, compared to approximately $3.8 million in cash provided by investing activities during the same period in 2002. In 2003, approximately $27 million in
proceeds was received from the sale of shares in Kennedy-Wilson Japan, offset by the acquisition of note pools and the redemption of a joint venture partner in a note receivable venture.

Cash used in
financing activities was approximately $21.8 million for the first six months of 2003, compared to approximately $8.6 million in cash provided by financing activities for the same period of 2002. In 2003, the proceeds from the sale of shares in
Kennedy-Wilson Japan described above were used to repay debt and repurchase shares of the Companys common stock.

To the extent that we engage in additional strategic investments, we may need to obtain
third party financing which could include bank financing or the public sale or private placement of debt or equity securities. We believe that existing cash, plus capital generated from property management and leasing, brokerage, sales of real
estate owned, collections from notes receivable, as well as our current unsecured lines of credit, will provide us with sufficient capital requirements for at least the next twelve months.

22



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Our need, if any, to raise additional funds to meet our working capital and capital requirements will depend on numerous factors, including the success and pace of the implementation of
our strategy for growth. We regularly monitor capital raising alternatives to be able to take advantage of other available avenues to support our working capital and investment needs, including strategic partnerships and other alliances, bank
borrowings, and the sale of equity or debt securities. We intend to retain earnings to finance our growth and, therefore, do not anticipate paying any dividends.

Item 3.    
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Companys exposure to market risk has not materially changed from what was reported on the Companys Form 10-K
for the year ended December 31, 2002.

FORWARD LOOKING STATEMENTS

This report contains forward-looking statements as well as historical information. Forward looking
statements, which are included in accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, may involve known and unknown risks, uncertainties and other factors that may cause the companys
actual results and performance to be materially different from any results or performance suggested by the statements in this report. When used in our documents or oral presentations, the words plan, believe,
anticipate, estimate, expect, objective, projection, forecast, goal, or similar words are intended to identify forward-looking statements.

Item 4.    
CONTROLS AND PROCEDURES

An evaluation of the effectiveness of the design and operation of Kennedy-Wilson, Inc.s disclosure controls and procedures pursuant to Exchange Act Rule
13a-14 was carried out under the supervision and with the participation of Kennedy-Wilson, Inc.s management, including Kennedy-Wilson, Inc.s Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that Kennedy-Wilson, Inc.s disclosure controls and procedures are effective in timely alerting them to material information relating to Kennedy-Wilson, Inc. required to be included in
Kennedy-Wilson, Inc.s periodic Securities and Exchange Commission filings. There have been no significant changes in Kennedy-Wilson, Inc.s internal controls or in other factors that could significantly affect these controls subsequent to
the evaluation date.

23



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PART II  OTHER INFORMATION

|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At the annual meeting of shareholders of registrant on June 19, 2003, the following matters were voted
upon:

| |     |                       
| | --- | ----------------------
| | (a) | Election of Directors:

| |                   |           |                | 
| | ----------------- | --------- | -------------- | 
| | Nominee           | Votes For | Votes Withheld | 
| |                   |           |                | 
| | Mary Ricks        | 7,098,605 | 242,218        | 
| | Barry Schlesinger | 7,098,350 | 240,274        | 
| |                   |           |                | 

|        |                  
|------- | -----------------
|Item 5. | OTHER INFORMATION

The following information is provided pursuant to the requirements of Item 9 of Schedule 14A.

Independent Accountant Fees:

The following table presents fees for professional audit services rendered by KPMG LLP for the audit of the Companys financial statements for the
year ended December 31, 2002, and fees billed for other services rendered by KPMG LLP:

|Audit fees     |  |  | $ | 213,000
|-------------- |  |  | - | -------
|All other fees |  |  |   | 19,000 
|               | 
|Total fees     |  |  | $ | 232,000
|               | 



|        |                                 
|------- | --------------------------------
|        |                                 
|Item 6. | EXHIBITS AND REPORTS ON FORM 8-K

| |     |         
| | --- | --------
| |     |         
| | (a) | Exhibits

The following exhibits are included
herein:

| |      |  |                                                                                                                                                    
| | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------
| | ITEM |  | DESCRIPTION                                                                                                                                        
| |      |  |                                                                                                                                                    
| | 31.1 |  | Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
| |      |  |                                                                                                                                                    
| | 31.2 |  | Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
| |      |  |                                                                                                                                                    
| | 32.1 |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                             

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

| |     
| | ----
| |     
| | None

SIGNATURE

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.

| |                      | 
| | -------------------- | 
| | KENNEDY-WILSON, INC. | 
| |                      | 
| | Registrant           | 

Date:  August 13, 2003

|                                                   | 
|-------------------------------------------------- | 
|/s/ FREEMANA. LYLE                                 | 
|                                                   | 
|Freeman A. Lyle                                    | 
|Executive Vice President & Chief Financial Officer | 
|(Principal Financial and Accounting Officer)       | 

24