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SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the quarterly period ended June 30, 2003

OR

Commission file number: 0-16467

RANCON REALTY FUND V,

(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.

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes  o   No  x

Total number of units outstanding as of August 12, 2003: 89,758

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INDEX
RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

RANCON REALTY FUND V,
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.

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RANCON REALTY FUND V,
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.

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RANCON REALTY FUND V,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statement of Partners’ Equity
For the six months ended June 30, 2003
(in thousands)
(Unaudited)

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

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

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

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RANCON REALTY FUND V
A CALIFORNIA LIMITED PARTNERSHIP

Notes to Consolidated Financial Statements

June 30, 2003
(Unaudited)

Note 1. ORGANIZATION

Rancon Realty Fund V, a California Limited Partnership, (“the Partnership”), was organized in accordance with the provisions of the California Revised 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 collectively referred to as the Sponsor or the General Partner. RFC is wholly owned by Daniel L. Stephenson. The Partnership reached final funding in February 1989.

During the six months ended June 30, 2003, a total of 915 Units were redeemed at an average price of $375. As of June 30, 2003, there were 90,002 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, 2003 and December 31, 2002, and the related consolidated statements of operations for the three and six months ended June 30, 2003 and 2002, partners’ equity for the six months ended June 30, 2003, and cash flows for the six months ended June 30, 2003 and 2002.

Allocation of Net Income and Net Loss

Allocations of net income and net losses are made pursuant to the terms of the Partnership Agreement. Generally, net income and net losses from operations are allocated 90% to the limited partners and 10% to the general partners; however, if the limited partners and the general partners have, as a result of an allocation of net loss, a deficit balance in their capital accounts, net loss shall not be allocated to the limited partners and general partners in excess of the positive balance until the balances of the limited partners’ and general partners’ capital accounts are reduced to zero. Capital accounts shall be determined after taking into account the other allocations and distributions for the fiscal year.

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 Unitholder’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 12% 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 losses other than net losses from operations are allocated 99% to the limited partners and 1% to the general partners. Such net losses will be allocated among limited partners as necessary to equalize their capital accounts in proportion to their Units, and thereafter will be allocated in proportion to their Units.

The terms of the Partnership agreement call for the general partner to restore any deficit 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 Agreement

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 January 1, 1998, the agreement was amended to eliminate GC’s responsibilities for providing investor relation services. Preferred Partnership Services, Inc., a California corporation unaffiliated with the Partnership, contracted to assume the investor relation services. In October 2000, GC merged into Glenborough.

The Partnership will pay Glenborough for its services as follows: (i) a specified asset administration fee ($326,000 and $322,000 as of June 30, 2003 and 2002, respectively); (ii) sales fees of 2% for improved properties and 4% for land; (iii) a refinancing fee of 1%

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RANCON REALTY FUND V
A CALIFORNIA LIMITED PARTNERSHIP

Notes to Consolidated Financial Statements

June 30, 2003
(Unaudited)

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 POLICIES

Basis of Accounting

The accompanying 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 reported results of operations during the reporting period. Actual results could differ from those estimates.

New Accounting Pronouncements

In January 2003, the FASB approved for issuance FASB Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities.” FIN 46 clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements” to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 applies immediately to variable interest entities (VIEs) created after January 31, 2003, and to VIEs in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to VIEs in which an enterprise holds a variable interest that it acquired before February 1, 2003. FIN 46 may be applied prospectively with a cumulative-effect adjustment as of the date on which it is first applied or by restating previously issued financial statements for one or more years with a cumulative-effect adjustment as of the beginning of the first year restated. The disclosure requirements of FIN 46 are effective for all financial statements initially issued after January 31, 2003. The adoption of FIN 46 will not have a material impact on the financial statements of the Partnership.

Consolidation

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

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RANCON REALTY FUND V
A CALIFORNIA LIMITED PARTNERSHIP

Notes to Consolidated Financial Statements

June 30, 2003
(Unaudited)

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 the five to forty year 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 certificates of deposit and money market funds with original maturities of less than ninety days to be cash equivalents.

Deferred Financing Costs and Other Fees

Deferred financing costs 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 (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 (loss).

Income Taxes

No provision for income taxes is included in the accompanying consolidated financial statement, 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 for financial reporting purposes will differ from the Partnership’s income tax return because of different accounting methods used for

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RANCON REALTY FUND V
A CALIFORNIA LIMITED PARTNERSHIP

Notes to Consolidated Financial Statements

June 30, 2003
(Unaudited)

certain items, including depreciation expense, capitalization of development period interest, income recognition and provisions for impairment of investments in real estate.

Concentration risk

No single tenant or affiliated group of tenants occupied more than 10 percent of total rentable square feet or represented more than 10 percent of rental income for the six months ended June 30, 2003, and 2002, respectively.

Reference to 2002 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, 2002 audited consolidated financial statements on Form 10-K.

Note 3. INVESTMENTS IN REAL ESTATE

Rental properties consisted of the following at June 30, 2003 and December 31, 2002 (in thousands):

RANCON REALTY FUND V
A CALIFORNIA LIMITED PARTNERSHIP

Notes to Consolidated Financial Statements

June 30, 2003
(Unaudited)

the Limited Partners have received distributions equal to their original invested capital plus a cumulative non-compounded return of six percent 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.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Occupancy rates at the Partnership’s Tri-City properties (excluding Two Parkside which was in lease up) were as follows:

As of June 30, 2003, tenants at Tri-City Corporate Centre occupying substantial portions of leased rental space included: (i) Chicago Title with a lease through February 2004; (ii) New York Life Insurance with a lease through May 2004; (iii) Paychex with a lease through July 2004; (iv) Computer Associates with a lease through November 2005; (v) Holiday Spa Health Club with a lease through December 2010; and (vi) Lewis, D’amato & Brisbois et al with a lease through November 2012. These six tenants, in the aggregate, occupy approximately 136,000 square feet of the 542,000 total rentable square feet at Tri-City and account for approximately 32% of the rental income generated at Tri-City for the Partnership.

The 9% increase in occupancy from June 30, 2002 to June 30, 2003 at One Carnegie Plaza was due to leasing 6,216 square feet to a new tenant, and expansion of two existing tenants into approximately 3,432 square feet of previously vacant space.

The 7% increase in occupancy from June 30, 2002 to June 30, 2003 at Two Carnegie Plaza was due to leasing 3,336 square feet to two new tenants, and expansion of one existing tenant into approximately 1,670 square feet of previously vacant space.

The 4% decrease in occupancy from June 30, 2002 to June 30, 2003 at Lakeside Tower was due to two tenants moving out of approximately 5,000 square feet upon their lease expirations.

Site improvement at Harriman Plaza was completed, and costs were transferred from construction in progress to land in June 2003. A new tenant is occupying the whole site as a restaurant and started paying ground lease rent in June 2003.

Construction for the core and shell of a three-story building at Two Parkside was completed in June and costs were transferred from construction in progress to land and building. An anchor tenant is expected to occupy two stories of the three-story property (approximately 65% of the rentable space) by September 2003.

Comparison of the six months ended June 30, 2003 to the six months ended June 30, 2002

Revenue

Rental income for the six months ended June 30, 2003 increased $314,000, or 9%, compared to the six months ended June 30, 2002, primarily due to an increase in occupancy at One and Two Carnegie Plaza and an increase in rental rates, partially offset by a decrease in occupancy at Lakeside Tower.

Interest and other income decreased $73,000, or 54%, for the six months ended June 30, 2003, compared to the six months ended June 30, 2002, primarily due to a lower invested cash balance resulting from payment of the construction costs at Two Parkside and Harriman Plaza.

Expenses

Operating expenses increased $123,000, or 8%, for the six months ended June 30, 2003, compared to the six months ended June 30, 2002 primarily due to an increase in occupancy at One and Two Carnegie Plaza and an increase in utility and janitorial costs, partially offset by a decrease in occupancy at Lakeside Tower.

Interest expense decreased $261,000, or 61%, during the six months ended June 30, 2003, compared to the six months ended June 30, 2002, primarily due to interest capitalized during construction at Two Parkside and Harriman Plaza.

Depreciation and amortization increased $199,000, or 23%, for the six months ended June 30, 2003, compared to the six months ended June 30, 2002, primarily due to depreciation of capital and tenant improvements.

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Expenses associated with undeveloped land decreased $41,000, or 21%, for the six months ended June 30, 2003, compared to the six months ended June 30, 2002, primarily due to capitalization of property taxes and insurance at Two Parkside and Harriman Plaza during the construction period.

Comparison of the three months ended June 30, 2003 to the three months ended June 30, 2002

Revenue

Rental income for the three months ended June 30, 2003 increased $168,000, or 9%, compared to the three months ended June 30, 2002, primarily due to an increase in occupancy at One Carnegie Plaza and Two Carnegie Plaza and an increase in rental rates, partially offset by a decrease in occupancy at Lakeside Tower.

Interest and other income decreased $42,000, or 63%, for the three months ended June 30, 2003, compared to the three months ended June 30, 2002, primarily due to a lower invested cash balance resulting from payment of the construction costs at Two Parkside and Harriman Plaza.

Expenses

Operating expenses increased $37,000, or 5%, for the three months ended June 30, 2003, compared to the three months ended June 30, 2002 primarily due to an increase in occupancy at One Carnegie Plaza and Two Carnegie Plaza.

Interest expense decreased $135,000, or 63%, during the three months ended June 30, 2003, compared to the three months ended June 30, 2002, primarily due to interest capitalized during construction at Two Parkside and Harriman Plaza.

Depreciation and amortization increased $102,000, or 23%, for the three months ended June 30, 2003, compared to the three months ended June 30, 2002, primarily due to depreciation of capital and tenant improvements.

Expenses associated with undeveloped land decreased $20,000, or 20%, for the three months ended June 30, 2003, compared to the three months ended June 30, 2002, primarily due to capitalization of property taxes and insurance at Two Parkside and Harriman Plaza during the construction period.

Liquidity and Capital Resources

The following discussion should be read in conjunction with the Partnership’s December 31, 2002 audited consolidated financial statements and the notes thereto.

As of June 30, 2003, the Partnership had cash and cash equivalents of $708,000. The remainder of the Partnership’s assets consisted primarily of its net investments in real estate, totaling approximately $37,125,000, including $35,048,000 in rental properties and $2,077,000 of land held for development within the Tri-City area.

Rental properties increased primarily due to the transfer from construction in progress to land and building of Harriman Plaza and Two Parkside. Both projects were completed in June 2003. At Harriman Plaza, a new tenant is occupying the whole site as a restaurant and started paying ground lease rent in June 2003. Construction of the core and shell of a three-story building at Two Parkside was completed in June 2003. A new tenant is expected to occupy two stories of the three-story property (approximately 65% of the rentable area) by September 2003.

The Partnership’s liabilities at June 30, 2003, included a note payable and a line of credit totaling approximately $10,222,000 and encumbering properties with an aggregate net book value of approximately $22,850,000. The note requires monthly principal and interest payments of $83,000, bears a fixed interest rate of 9.39%, and has a maturity date of August 1, 2006. The line of credit has a total availability of $6,000,000, requires monthly interest-only payments, bears an interest rate of prime plus 0.75% points, with a floor set at 5.5% (5.5% as of June 30, 2003), and has a maturity date of March 5, 2005.

The Partnership is contingently liable for subordinated real estate commissions payable to the General Partner in the amount of $102,000 at June 30, 2003 for sales that occurred 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 six percent 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 development of other properties or distribution to the partners.

Management believes that the Partnership’s cash and cash equivalents at June 30, 2003, together with cash from operations, sales and financings will be sufficient to finance the Partnership’s and the properties’ continued operations and development plans on

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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 affect 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

For the six months ended June 30, 2003, the Partnership’s cash provided by operating activities totaled $977,000.

The $248,000 decrease in accounts receivable at June 30, 2003, compared to December 31, 2002, was primarily due to the collection of tenant improvement receivables and the reimbursement of tenant improvements from the reserve impound account.

The $516,000 increase in deferred financing costs and other fees at June 30, 2003, compared to December 31, 2002, was primarily due to lease commissions paid for two new leases totaling approximately 59,000 square feet at One Carnegie Plaza and Two Parkside.

The $12,000 decrease in prepaid expenses and other assets at June 30, 2003, compared to December 31, 2002, was primarily due to amortization of prepaid insurance.

The $372,000 decrease in accounts payable and other liabilities at June 30, 2003, compared to December 31, 2002, was primarily due to payment of construction costs, partially offset by accruals of building operating expenses.

The $145,000 increase in prepaid rents at June 30, 2003, compared to December 31, 2002, was due to payments of July 2003 rents received in June 2003.

Investing Activities

During the three months ended June 30, 2003, the Partnership’s cash used for investing activities totaled $4,994,000, which consisted of $3,948,000 for core and shell at Two Parkside, $380,000 for site improvement at Harriman Plaza, $146,000 for building improvements at Lakeside, and $520,000 for tenant improvements at Lakeside and Two Parkside.

Financing Activities

During the three months ended June 30, 2003, the Partnership’s cash provided by financing activities totaled $1,137,000, which consisted of a $1,570,000 draw on the line of credit (as discussed above), offset by $90,000 in principal payments on the note payable, and $343,000 paid to redeem 915 limited partnership Units.

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 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.

Carrying value of rental properties and land held for development

The Partnership’s 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 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.

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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’s 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.

New Accounting Pronouncements

In January 2003, the FASB approved for issuance FASB Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities.” FIN 46 clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements” to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 applies immediately to variable interest entities (VIEs) created after January 31, 2003, and to VIEs in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to VIEs in which an enterprise holds a variable interest that it acquired before February 1, 2003. FIN 46 may be applied prospectively with a cumulative-effect adjustment as of the date on which it is first applied or by restating previously issued financial statements for one or more years with a cumulative-effect adjustment as of the beginning of the first year restated. The disclosure requirements of FIN 46 are effective for all financial statements initially issued after January 31, 2003. The adoption of FIN 46 will not have a material impact on the financial statements of the Partnership.

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, 2003.

A change of 1/8% in the index rate to which the Partnership’s variable rate debt is tied would not have a material impact on the annual interest incurred by the Partnership, based upon the balances outstanding on variable rate instruments at June 30, 2003.

As of June 30, 2003, the Partnership had no investments in interest-bearing certificates of deposit. The Partnership does not own any derivative instruments.

Item 4. Controls and procedures

(a)  Evaluation of disclosure controls and procedures.

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The General Partner’s chief executive officer and chief financial officer, after evaluating the effectiveness of the Partnership’s “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15-d-14(c)) as of a date (the “Evaluation Date”) within 90 days before the filing date of this quarterly report, has concluded that as of the Evaluation Date, the Partnership’s disclosure controls and procedures were effective and designed to ensure that material information relating to the Partnership and its consolidated subsidiaries would be made known to him by others within those entities.

(b)  Changes in internal controls.

There were no significant changes in the Partnership’s internal controls or in other factors that could significantly affect those controls subsequent to the Evaluation Date.

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		(b) Reports on Form 8-K (incorporated herein by reference):
		None.

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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.

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EXHIBIT INDEX

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