Back to GetFilings.com

Table of Contents

SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2002
 
OR

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 0-14207

RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP

(650) 343-9300

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

Yes  [X]  No  [   ]

Total number of units outstanding as of August 14, 2002: 73,751

1

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
 
Consolidated Balance Sheets
(in thousands, except unit amounts)
(Unaudited)

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

2

Table of Contents

RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
 
Consolidated Statements of Operations
(in thousands, except per unit amounts and units outstanding)
(Unaudited)

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

3

Table of Contents

RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
 
Consolidated Statement of Partners’ Equity
For the six months ended June 30, 2002
(in thousands)
(Unaudited)

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

4

Table of Contents

RANCON REALTY FUND IV,
A CALIFORNIA LIMITED PARTNERSHIP
 
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)

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

5

Table of Contents

RANCON REALTY FUND IV
A California Limited Partnership
 
Notes to Consolidated Financial Statements
 
June 30, 2002
(Unaudited)

Note 1. ORGANIZATION

Rancon Realty Fund IV, a California Limited Partnership, (“the Partnership”), was organized in accordance with the provisions of the California Uniform Limited Partnership Act for the purpose of acquiring, developing, operating and disposing of real property. The general partners of the Partnership are Daniel L. Stephenson and Rancon Financial Corporation (“RFC”), hereinafter referred to as the Sponsor or the General Partner. RFC is wholly-owned by Daniel L. Stephenson. The Partnership reached final funding in July 1987.

In November 2000, the Partnership offered to redeem the units of limited partnership interest (the “Units”) in the Partnership held by investors who own no more than four Units in total under any single registered title (the “Small Investments”) at a purchase price of $292 per Unit. In 2001, a total of 574 Units were redeemed. During the six months ended June 30, 2002, a total of 172 Units were repurchased. As of June 30, 2002, there were 73,862 Units outstanding.

In the opinion of RFC, the General Partner and Glenborough Realty Trust Incorporated (“Glenborough”), the Partnership’s asset and property manager, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal accruals) necessary to present fairly the consolidated financial position of the Partnership as of June 30, 2002 and December 31, 2001, and the related consolidated statements of operations, partners’ equity and cash flows for the six months ended June 30, 2002 and 2001.

Allocation of Net Income and Net Loss

Allocation of profits and losses are made pursuant to the terms of the Partnership Agreement. Generally, net income from operations is allocated 90% to the limited partners and 10% to the general partners. Net losses from operations are allocated 99% to the limited partners and 1% to the general partners until such time as a partner’s capital account is reduced to zero. Additional losses will be allocated entirely to those partners with positive capital account balances until such balances are reduced to zero.

Net income other than net income from operations shall be allocated as follows: (i) first, to the partners who have a deficit balance in their capital account, provided that, in no event shall the general partners be allocated more than 5% of the net income other than net income from operations until the earlier of sale or disposition of substantially all of the assets or the distribution of cash (other than cash from operations) equal to the limited partner’s original invested capital; (ii) second, to the limited partners in proportion to and to the extent of the amounts required to increase their capital accounts to an amount equal to the sum of the adjusted invested capital of their units plus an additional cumulative non-compounded 6% return per annum (plus additional amounts depending on the date units were purchased); (iii) third, to the partners in the minimum amount required to first equalize their capital accounts in proportion to the number of units owned, and then, to bring the sum of the balances of the capital accounts of the limited partners and the general partners into the ratio of 4 to 1; and (iv) the balance, if any, 80% to the limited partners and 20% to the general partners. In no event shall the general partners be allocated less than 1% of the net income other than net income from operations for any period. Net loss other than net loss from operations shall be allocated 99% to the limited partners and 1% to the general partners.

The terms of the Partnership agreement call for the general partner to restore any deficits that may exist in its capital account after allocation of gains and losses from the sale of the final property owned by the Partnership, but prior to any liquidating distributions being made to the partners.

General Partner and Management Matters

Effective January 1, 1995, Glenborough Corporation (“GC”) entered into an agreement with the Partnership and other related Partnerships (collectively, the “Rancon Partnerships”) to perform or contract on the Partnership’s behalf for financial, accounting, data processing, marketing, legal, investor relations, asset and development management and consulting services for a period of ten years or until the liquidation of the Partnership, whichever comes first. Effective

6

Table of Contents

RANCON REALTY FUND IV
A California Limited Partnership
 
Notes to Consolidated Financial Statements
 
June 30, 2002
(Unaudited)

January 1, 1998, the agreement was amended to eliminate GC’s responsibility for providing investor relation services and Preferred Partnership Services, Inc., a California corporation unaffiliated with the Partnership, contracted to assume the investor relations service. In October 2000, GC merged into Glenborough. The agreement expires upon the dissolution of the Partnership.

The Partnership will pay Glenborough for its services as follows: (i) a specified asset administration fee ($350,000 and $338,000 as of June 30, 2002 and 2001); (ii) sales fees of 2% for improved properties and 4% for land ($175,000 and $8,000 as of June 30, 2002 and 2001); (iii) a refinancing fee of 1% ($200,000 as of June 30, 2001) and (iv) a management fee of 5% of gross rental receipts. As part of this agreement, Glenborough will perform certain duties for the General Partner of the Rancon Partnerships. RFC agreed to cooperate with Glenborough, should Glenborough attempt to obtain a majority vote of the limited partners to substitute itself as the Sponsor for the Rancon Partnerships. Glenborough is not an affiliate of RFC or the Partnership.

Risks and Uncertainties

The Partnership’s ability to (i) achieve positive cash flow from operations, (ii) meet its debt obligations, (iii) provide distributions either from operations or the ultimate disposition of the Partnership’s properties or (iv) continue as a going concern, may be impacted by changes in interest rates, property values, local and regional economic conditions, or the entry of other competitors into the market. The accompanying consolidated financial statements do not provide for adjustments with regard to these uncertainties.

Note 2. SIGNIFICANT ACCOUNTING POLICES

Basis of Accounting — The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States. They include the accounts of certain wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the results of operations during the reporting period. Actual results could differ from those estimates.

New Accounting Pronouncements

In June 2001, the FASB approved for issuance SFAS No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred and that the associated asset retirement costs be capitalized as part of the carrying value of the related long-lived asset. SFAS No. 143 will be effective January 1, 2003 for the Partnership. Management does not expect this standard to have a material impact on the Partnership’s consolidated financial position or results of operations.

In August 2001, the FASB approved for issuance SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 broadens the presentation of discontinued operations to include more transactions and eliminates the need to accrue for future operating losses. Additionally, SFAS No. 144 prohibits the retroactive classification of assets as held for sale and requires revisions to the depreciable lives of long-lived assets to be abandoned. SFAS No. 144 was effective January 1, 2002 for the Partnership, and resulted in the presentation of sold real estate as discontinued operations for all periods.

In May 2002, the FASB approved for issuance SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” SFAS 145 requires gains and losses from

7

Table of Contents

RANCON REALTY FUND IV
A California Limited Partnership
 
Notes to Consolidated Financial Statements
 
June 30, 2002
(Unaudited)

extinguishment of debt to be classified as an extraordinary item only if the criteria in APB No. 30 has been met. Further, lease modifications with economic effects similar to sale-leaseback transactions must be accounted for in the same manner as sale-leaseback transactions. While the technical corrections to existing pronouncements are not substantive in nature, in some instances they may change accounting practice. SFAS No. 145 will be effective January 1, 2003 for the Partnership. Management is currently assessing the impact of this new standard on the Partnership’s consolidated financial position and results of operations.

In June 2002, the FASB approved for issuance SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS 146 addresses accounting and reporting for costs associated with exit and disposal activities and supercedes Emerging Issues Task Force Issue No. 94-3 (EITF 94-3), “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, as defined by the Statement. Under EITF 94-3, an exit cost was recognized at the date an entity committed to an exit plan. Additionally, SFAS 146 provides that exit and disposal costs should be measured at fair value and that the associated liability will be adjusted for changes in estimated cash flows. The provisions of SFAS 146 are effective for exit and disposal activities that are initiated after December 31, 2002.

Consolidation — In April 1996, the Partnership formed Rancon Realty Fund IV Tri-City Limited Partnership, a Delaware limited partnership (“RRF IV Tri-City”). The limited partner of RRF IV Tri-City is the Partnership and the general partner is Rancon Realty Fund IV, Inc. (“RRF IV, Inc.”), a corporation wholly owned by the Partnership. Since the Partnership owns 100% of RRF IV, Inc. and indirectly owns 100% of RRF IV Tri-City, the financial statements of RRF IV, Inc. and RRF IV Tri-City have been consolidated with those of the Partnership. All inter-company balances and transactions have been eliminated in the consolidation.

Rental Properties — Rental properties, including the related land, are stated at cost unless events or circumstances indicate that cost cannot be recovered, in which case, the carrying value of the property is reduced to its estimated fair value. Estimated fair value: (i) is based upon the Partnership’s plans for the continued operations of each property; and (ii) is computed using estimated sales price, as determined by prevailing market values for comparable properties and/or the use of capitalization rates multiplied by annualized rental income based upon the age, construction and use of the building. The fulfillment of the Partnership’s plans related to each of its properties is dependent upon, among other things, the presence of economic conditions which will enable the Partnership to continue to hold and operate the properties prior to their eventual sale. Due to uncertainties inherent in the valuation process and in the economy, it is reasonably possible that the actual results of operating and disposing of the Partnership’s properties could be materially different than current expectations.

Depreciation is provided using the straight line method over five to forty years of the useful lives of the respective assets.

Land Held for Development — Land held for development is stated at cost unless events or circumstances indicate that cost cannot be recovered, in which case, the carrying value is reduced to estimated fair value. Estimated fair value: (i) is based on the Partnership’s plans for the development of each property; (ii) is computed using estimated sales price, based upon market values for comparable properties; and (iii) considers the cost to complete and the estimated fair value of the completed project. The fulfillment of the Partnership’s plans related to each of its properties is dependent upon, among other things, the presence of economic conditions which will enable the Partnership to either hold the properties for eventual sale or obtain financing to further develop the properties.

Cash and Cash Equivalents — The Partnership considers short-term investments (including certificates of deposit and money market funds) with a maturity of less than ninety days when purchased at the time of investment to be cash equivalents.

8

Table of Contents

RANCON REALTY FUND IV
A California Limited Partnership
 
Notes to Consolidated Financial Statements
 
June 30, 2002
(Unaudited)

Fair Value of Financial Instruments — For certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and other liabilities, recorded amounts approximate fair value due to the relatively short maturity period. Based on interest rates available to the Partnership for debt with comparable maturities, the carrying value of the Partnership’s notes payable approximates fair value.

Deferred Financing Costs and Other Fees — Deferred loan fees are amortized on a straight-line basis over the life of the related loan and deferred lease commissions are amortized over the initial fixed term of the related lease agreement.

Revenues

All leases are classified as operating leases. Rental revenue is recognized as earned over the terms of the related leases.

Reimbursements from tenants for real estate taxes and other recoverable operating expenses are recognized as revenue in the period the applicable expenses are incurred. Differences between estimated and actual amounts are recognized in the subsequent year.

The Partnership’s portfolio of leases turns over continuously, with the number and value of expiring leases varying from year to year. The Partnership’s ability to re-lease the space to existing or new tenants at rates equal to or greater than those realized historically is impacted by, among other things, the economic conditions of the market in which a property is located, the availability of competing space, and the level of improvements which may be required at the property. No assurance can be given that the rental rates that the Partnership will obtain in the future will be equal to or greater than those obtained under existing contractual commitments

Sales of Real Estate — The Partnership recognizes sales of real estate when a contract is in place, a closing has taken place, the buyer’s investment is adequate to demonstrate a commitment to pay for the property and the Partnership does not have a substantial continuing involvement in the property. Each property is considered a separately identifiable component of the Partnership and is reported in discontinued operations when the operations and cash flows of the Property have been (or will be) eliminated from the ongoing operations of the Partnership as a result of the disposal transaction and the Property will not have any significant continuing involvement in the operations of the Partnership after the disposal transaction.

Net Income/Loss Per Limited Partnership Unit — Net income or loss per limited partnership unit is calculated using the weighted average number of limited partnership units outstanding during the period and the Limited Partners’ allocable share of the net income or loss.

Income Taxes — No provision for income taxes is included in the accompanying consolidated financial statements as the Partnership’s results of operations are allocated to the partners for inclusion in their respective income tax returns. Net income (loss) and partners’ equity (deficit) for financial reporting purposes will differ from the Partnership income tax return because of different accounting methods used for certain items, including depreciation expense, provisions for impairment of investments in real estate, capitalization of development period interest and rental income and loss recognition.

Concentration Risk — One tenant represented 18 percent of rental income for the six months ended June 30, 2002. Two tenants represented 29 percent of rental income for the six months ended June 30, 2001.

Reference to 2001 audited consolidated financial statements — These unaudited consolidated financial statements should be read in conjunction with the notes to audited consolidated financial statements included in the December 31, 2001 audited consolidated financial statements on Form 10-K.

9

Table of Contents

RANCON REALTY FUND IV
A California Limited Partnership
 
Notes to Consolidated Financial Statements
 
June 30, 2002
(Unaudited)

Note 3. INVESTMENTS IN REAL ESTATE

Rental properties consisted of the following at June 30, 2002 and December 31, 2001 (in thousands):

On March 20, 2002, the Partnership sold the Two Vanderbilt property to an anchor tenant, Inland Empire Health Plan, who occupied 78% of the property for a sales price of $8,750,000. The sale generated net proceeds of approximately $8,382,000 and a gain on sale of approximately $5,120,000. The Partnership made a pay down on the line of credit of $4,200,000 from the sales proceeds and added the remaining cash to its cash reserves.

At June 30, 2002, the Partnership’s rental properties included seven retail and four office/R & D projects at the Tri-City Corporate Centre in San Bernardino, California.

Land held for development consists of the following at June 30, 2002 and December 31, 2001 (in thousands):

Note 4. NOTES PAYABLE

Notes payable as of June 30, 2002 and December 31, 2001 were as follows (in thousands):

10

Table of Contents

RANCON REALTY FUND IV
A California Limited Partnership
 
Notes to Consolidated Financial Statements
 
June 30, 2002
(Unaudited)

Note 5. COMMITMENTS AND CONTINGENT LIABILITIES

Environmental Matters — The Partnership follows a policy of monitoring its properties for the presence of hazardous or toxic substances. The Partnership is not aware of any environmental liability with respect to the properties that would have a material adverse effect on the Partnership’s business, assets or results of operations. There can be no assurance that such a material environmental liability does not exist. The existence of any such material environmental liability could have an adverse effect on the Partnership’s results of operations and cash flows.

Approximately 15 acres of the Tri-City Corporate Centre land owned by the Partnership was part of a landfill operated by the City of San Bernardino (“the City”) from approximately 1950 to 1960. There are no records of which the Partnership is aware disclosing that hazardous wastes exist at the landfill. The Partnership’s landfill monitoring program currently meets or exceeds all regulatory requirements and no material capital expenditures have been incurred. The Partnership is working with the Santa Ana Region of the California Regional Water Quality Control Board and the City to determine the need and responsibility for any further testing. There is no current requirement to ultimately clean up the site; however, no assurance can be made that circumstances will not arise which could impact the Partnership’s responsibility related to the property.

General Uninsured Losses — The Partnership carries comprehensive liability, fire, flood, extended coverage and rental loss insurance with policy specifications, limits and deductibles customarily carried for similar properties. There are, however, certain types of extraordinary losses, which may be either uninsurable, or not economically insurable. Further, certain of the properties are located in areas that are subject to earthquake activity. Should a property sustain damage as a result of an earthquake, the Partnership may incur losses due to insurance deductibles, co-payments on insured losses or uninsured losses. Should an uninsured loss occur, the Partnership could lose its investment in, and anticipated profits and cash flows from, a property.

Other Matters — The Partnership is contingently liable for subordinated real estate commissions payable to the Sponsors in the aggregate amount of $643,000 at June 30, 2002, for sales that transpired in previous years. The subordinated real estate commissions are payable only after the Limited Partners have received distributions equal to their original invested capital plus a cumulative non-compounded return of 6% per annum on their adjusted invested capital. Since the circumstances under which these commissions would be payable are limited, the liability has not been recognized in the accompanying consolidated financial statements; however, the amount will be recorded when and if it becomes payable.

11

Table of Contents

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

New Accounting Pronouncements

During 2001, the Financial Accounting Standards Board (FASB) approved for issuance a number of new accounting standards. Management does not expect these new accounting standards to have a material impact on the Partnership’s consolidated financial position or results of operations other than to modify the presentation of the operating results of sold property to recognize such activity as “discontinued operations”. These new accounting standards are discussed in more detail in the notes to the accompanying consolidated financial statements.

Liquidity and Capital Resources

The following discussion should be read in conjunction with the Partnership’s December 31, 2001 audited consolidated financial statements and the notes thereto.

At June 30, 2002, the Partnership had cash of $5,292,000. The remainder of the Partnership’s assets consist primarily of its net investments in real estate, totaling approximately $29,844,000 which includes $28,630,000 in rental properties and $1,214,000 of land held for development.

The Partnership’s primary liabilities at June 30, 2002 include notes payable, totaling approximately $8,058,000 which consist of two secured loans encumbering properties with an aggregate net book value of approximately $13,654,000 and with maturity dates ranging from January 1, 2005 to May 1, 2006. These notes require monthly principal and interest payments ranging from $20,000 to $53,000 and bear fixed interest at rates between 8.74% and 9%. A line of credit, which bears interest at lender’s Prime Rate, has no outstanding balance at June 30, 2002.

On March 20, 2002, the Partnership sold the Two Vanderbilt property to an anchor tenant, Inland Empire Health Plan, who occupied 78% of the property for a sales price of $8,750,000. The sale generated net proceeds of approximately $8,382,000 and a gain on sale of approximately $5,120,000. The Partnership made a pay down on the line of credit of $4,200,000 from the sales proceeds and added the remaining cash to its cash reserves.

The Partnership is contingently liable for subordinated real estate commissions payable to the Sponsors in the aggregate amount of $643,000 at June 30, 2002, for sales that transpired in previous years. The subordinated real estate commissions are payable only after the Limited Partners have received distributions equal to their original invested capital plus a cumulative non-compounded return of 6% per annum on their adjusted invested capital. Since the circumstances under which these commissions would be payable are limited, the liability has not been recognized in the accompanying consolidated financial statements; however, the amount will be recorded when and if it becomes payable.

Operationally, the Partnership’s primary source of funds consists of cash provided by its rental activities. Other sources of funds may include permanent financing, property sales, interest income on certificates of deposit and other deposits of funds invested temporarily. Cash generated from property sales is generally added to the Partnership’s cash reserves, pending use in the development of properties or distribution to the partners.

Management believes that the Partnership’s cash balance as of June 30, 2002, together with cash from operations, sales and financing, will be sufficient to finance the Partnership’s and the properties’ continued operations and development plans on a short-term basis and for the reasonably foreseeable future. There can be no assurance that the Partnership’s results of operations will not fluctuate in the future and at times affect its ability to meet its operating requirements.

The Partnership knows of no demands, commitments, events or uncertainties, which might effect its capital resources in any material respect. In addition, the Partnership is not subject to any covenants pursuant to its secured debt that would constrain its ability to obtain additional capital.

Operating Activities

During the six months ended June 30, 2002, the Partnership’s cash provided by operating activities totaled $125,000.

12

Table of Contents

The $96,000 decrease in accounts receivable at June 30, 2002, compared to December 31, 2001, was primarily due to the collection of tenant rents receivable.

The $22,000 increase in deferred financing costs and other fees at June 30, 2002, compared to December 31, 2001, was primarily due to lease commissions.paid for new and renewal leases

The $16,000 increase in prepaid expenses and other assets at June 30, 2002, compared to December 31, 2001, was primarily due to prepayment of the third quarter investor service fees.

The $400,000 decrease in accounts payable and other liabilities at June 30, 2002, compared to December 31, 2001, was primarily due to payments of accrued building operating expenses, interest and tax preparation fees, as well as the refund of security deposits related to the sale of the Two Vanderbilt property.

Investing Activities

During the six months ended June 30, 2002, the Partnership’s cash provided by investing activities totaled $8,043,000, which included $8,382,000 of net cash proceeds from the sale of the Two Vanderbilt property, and $339,000 of cash used primarily for tenant improvements at One Vanderbilt, Carnegie Business Center I and Palm Court Retail #2.

Financing Activities

During the six months ended June 30, 2002, the Partnership’s cash used for financing activities totaled $4,338,000, which consisted of $4,284,000 in principal payments on the line of credit and other notes payable and $54,000 paid to redeem 172 limited partnership units (“Units”).

Results of Operations

Revenues

Rental income increased $94,000, or 6%, and $175,000, or 6%, for the three and six months ended June 30, 2002, compared to the three and six months ended June 30, 2001, respectively, primarily due to an increase in occupancy at Carnegie Business Center I and Palm Court Retail #1, offset by a decrease in occupancy at Service Retail Center.

Occupancy rates at the Partnership’s Tri-City properties as of June 30, 2002 and 2001 were as follows:

As of June 30, 2002, tenants at Tri-City occupying substantial portions of leased rental space included: (i) CompUSA with a lease through August 2003; (ii) ITT Educational Services with a lease through December 2004; (iii) PetsMart with a lease through January 2009; (iv) Inland Regional Center with a lease through July 2009; (v) Office Max with a lease through October 2013; and (vi) Circuit City with a lease through January 2018. These six tenants, in the aggregate, occupied approximately 229,000 square feet of the 395,000 total leasable square feet at Tri-City and accounted for approximately 47% of the rental income of the Partnership during the second quarter of 2002.

13

Table of Contents

The 7% decrease in occupancy from June 30, 2001 to June 30, 2002 at Service Retail Center was due to a 1,400 square foot tenant moving out upon its lease expiration.

The 18% increase in occupancy from June 30, 2001 to June 30, 2002 at Carnegie Business Center I was due to leasing 9,700 square feet to a new tenant, and an 1,800 square foot expansion for an existing tenant.

The 40% increase in occupancy from June 30, 2001 to June 30, 2002 at Palm Court Retail # 1 was due to leasing 2,000 square feet to a new tenant.

Interest and other income decreased $5,000 and $52,000 for the three and six months ended June 30, 2002, compared to the three and six months ended June 30, 2001, respectively, primarily due to a lower average invested cash balance resulting from distributions to General and Limited Partners in November 2001 and paydowns on the line of credit in April 2001 and March 2002.

Expenses

Operating expenses increased $59,000, or 11%, and $84,000, or 8%, for the three and six months ended June 30, 2002, compared to the three and six months ended June 30, 2001, respectively, primarily due to increases in utility costs and increases in occupancy at Carnegie Business Center I and Palm Court Retail #1, slightly offset by a decrease in occupancy at Service Retail Center.

Interest expense decreased $171,000, or 46%, and $308,000, or 41%, for the three and six months ended June 30, 2002, compared to the three and six months ended June 30, 2001, respectively, primarily due to the replacement of two higher rate loans with a line of credit with a lower variable rate in April 2001, and paydowns on the line of credit in April 2001 and March 2002.

Depreciation and amortization increased $16,000, or 5%, for the three months ended June 30, 2002, compared to the three months ended June 30, 2001, primarily due to additions to real estate.

Expenses associated with undeveloped land increased $493,000 and $492,000 for the three and six months ended June 30, 2002, compared to the three and six months ended June 30, 2001, respectively, primarily due to a bond payoff to the City of San Bernardino for the land parcels which was paid in the second quarter of 2002.

General and administrative expenses increased $14,000, or 4%, for the three months ended June 30, 2002, compared to the three months ended June 30, 2001, primarily due to an increase in asset management fees and in investor service expenses related to the redemption of Partnership Units in the second quarter. General and administrative expenses decreased $23,000, or 4%, for the six months ended June 30, 2002, compared to the six months ended June 30, 2001, primarily due to a decrease in investor service expenses related to the redemption of Partnership Units in the first quarter, offset by an increase in asset management fees.

Income from discontinued operations

Income from discontinued operations totaled $5,172,000, which included $5,120,000 of gain on sale from the sale of the Two Vanderbilt property, and $20,000 of net operating loss and $52,000 of net operating income from the Two Vanderbilt property for the three and six months ended June 30, 2002.

Critical Accounting Policies

Revenue recognized on a straight-line basis

The Partnership recognizes rental revenue on a straight-line basis at amounts that it believes it will collect on a tenant by tenant basis. The estimation process may result in higher or lower levels from period to period as the Partnership’s collection experience and the credit quality of the Partnership’s tenants changes. Actual amounts collected could be lower or higher than the amounts recognized on a straight-line basis if specific tenants are unable to pay rent that the Partnership has previously recognized as revenue, or if other tenants remain whom the Partnership previously believed would not.

14

Table of Contents

Carrying value of rental properties and land held for development

The Partnership’s rental properties, including the related land, are stated at depreciated cost unless events or circumstances indicate that depreciated cost cannot be recovered, in which case, the carrying value of the property is reduced to its estimated fair value. Estimated fair value is based upon (i) the Partnership’s plans for the continued operations of each property, and (ii) is computed using estimated sales price, as determined by prevailing market values for comparable properties and/or the use of capitalization rates multiplied by annualized rental income based upon the age, construction and use of the building. The fulfillment of the Partnership’s plans related to each of its properties is dependent upon, among other things, the presence of economic conditions which will enable the Partnership to continue to hold and operate the properties prior to their eventual sale. Due to uncertainties inherent in the valuation process and in the economy, it is reasonably possible that the actual results of operating and disposing of the Partnership’s properties could be materially different than current expectations.

Land held for development is stated at cost unless events or circumstances indicate that cost cannot be recovered, in which case, the carrying value is reduced to estimated fair value. Estimated fair value: (i) is based on the Partnership’s plans for the development of each property; (ii) is computed using estimated sales price, based upon market values for comparable properties; and (iii) considers the cost to complete and the estimated fair value of the completed project. The fulfillment of the Partnership’s plans related to each of its properties is dependent upon, among other things, the presence of economic conditions which will enable the Partnership to either hold the properties for eventual sale or obtain financing to further develop the properties.

The actual value of the Partnership’s portfolio of properties and land held for development could be significantly higher or lower than their carrying amounts.

Provision for income taxes

No provision for income taxes is included in the consolidated financial statements as the Partnership’s results of operations are allocated to the partners for inclusion in their respective income tax returns. Net income (loss) and partners’ equity (deficit) for financial reporting purposes will differ from the Partnership income tax return because of different accounting methods used for certain items, including depreciation expense, provisions for impairment of investments in real estate, capitalization of development period interest, and rental income and loss recognition.

The Partnership’s tax returns, the qualification of the Partnership as a partnership for federal income tax purposes, and the amount of income or loss are subject to examination by federal and state taxing authorities. If such examinations result in changes to the Partnership’s taxable income or loss, the tax liability of the partners could change accordingly.

Item 3. Qualitative and Quantitative Information About Market Risk

Interest Rates

The Partnership’s primary market risk exposure is to changes in interest rates obtainable on its secured borrowings. The Partnership does not believe that changes in market interest rates will have a material impact on the performance or fair value of its portfolio.

For debt obligations, the table below presents principal cash flows and interest rates by expected maturity dates.

The Partnership believes that the interest rates given in the table for fixed rate borrowings approximate the rates the Partnership could currently obtain for instruments of similar terms and maturities and that the fair values of such instruments approximate carrying value at June 30, 2002.

15

Table of Contents

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

     None.

Item 2. Changes in Securities and Use of Proceeds

     Not applicable.

Item 3. Defaults Upon Senior Securities

     Not applicable.

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

     None.

Item 5. Other Information

     None.

Item 6. Exhibits and Reports on Form 8-K

          (a) Exhibits

          None

          (b) Reports on Form 8-K (incorporated herein by reference).

	On July 25, 2002, the Partnership filed a report on Form 8-K regarding changes in registrant’s certifying accountant.

16

Table of Contents

SIGNATURES

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

	RANCON REALTY FUND IV, a California limited partnership
	By	Rancon Financial Corporation a California corporation, its General Partner

Date: August 14, 2002	By:	/s/ DANIEL L. STEPHENSON
		Daniel L. Stephenson, President

Date: August 14, 2002	By:	/s/ DANIEL L. STEPHENSON
		Daniel L. Stephenson, General Partner

17