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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

OR

Commission file number: 0-16467

RANCON REALTY FUND V,

Partnership’s telephone number, including area code (650) 343-9300
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:

Units of Limited Partnership Interest

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

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 [  ]

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

No market for the Limited Partnership units exists and therefore a market value for such units cannot be determined.

DOCUMENTS INCORPORATED BY REFERENCE:

Exhibits: The index of exhibits is contained in Part IV herein on page number 15.

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Part I

Item 1. Business

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 ultimately selling real property. The Partnership was organized in 1985 and completed its public offering of limited partnership units (“Units”) in February 1989. The General Partners of the Partnership are Daniel L. Stephenson (“DLS”) and Rancon Financial Corporation (“RFC”), collectively, the “General Partner”. RFC is wholly owned by DLS. The Partnership has no employees.

The Partnership’s initial acquisition of property in June 1985 consisted of approximately 76.21 acres of partially developed and unimproved land located in San Bernardino, California. The property is part of a master-planned development of 153 acres known as Tri-City Corporate Centre (“Tri-City”) and is zoned for mixed commercial, office, hotel, transportation-related, and light industrial uses. The balance of Tri-City is owned by Rancon Realty Fund IV (“Fund IV”), a partnership sponsored by the General Partner of the Partnership. Since the acquisition of the land, the Partnership has constructed nine projects at Tri-City consisting of five office projects, one industrial property, a 25,000 square foot health club, a 6,500 square foot restaurant, and a 6,004 square foot retail space. In 2001, one property was sold. The Partnership’s properties are more fully described in Item 2.

As of December 31, 2002, the Partnership owned eight rental properties (“Tri-City Properties”) and approximately 14 acres of land (“Tri-City land”). Construction has commenced on approximately 6.5 acres. The other 7.5 acres remains undeveloped.

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 Partnership considers all assets owned by RRF V, Inc. and RRF V Tri-City to be owned by the Partnership.

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 $284 per Unit. In 2001, a total of 590 Units were redeemed at an average price of $290. In 2002, a total of 2,944 Units were redeemed at an average price of $357. As of December 31, 2002, there were 90,917 Units outstanding.

Competition Within the Market

The Partnership competes in the leasing of its properties primarily with other available properties in the local real estate market. Management is not aware of any specific competitors of the Partnership’s properties doing business on a significant scale in the local market. Management believes that characteristics influencing the competitiveness of a real estate project are the geographic location of the property, the professionalism of the property manager and the maintenance and appearance of the property, in addition to external factors such as general economic circumstances, trends, and the existence of new, competing properties in the vicinity. Additional competitive factors with respect to commercial and industrial properties, are the ease of access to the property, the adequacy of related facilities, such as parking, and the ability to provide rent concessions and tenant improvements commensurate with local market conditions. Although management believes the Partnership’s properties are competitive with comparable properties as to those factors within the Partnership’s control, over-building and other external factors could adversely affect the ability of the Partnership to attract and retain tenants. The marketability of the properties may also be affected (either positively or negatively) by these factors as well as by changes in general or local economic conditions, including prevailing interest rates. Depending on market and economic conditions, the Partnership may be required to retain ownership of its properties for periods longer than anticipated, or may need to sell earlier than anticipated or refinance a property at a time or under terms and conditions that are less advantageous than would be the case if unfavorable economic or market conditions did not exist.

Working Capital

The Partnership’s practice is to maintain cash reserves for normal repairs, replacements, working capital and other contingencies.

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Item 2. Properties

Tri-City Corporate Centre

On June 3, 1985, the Partnership acquired 76.21 acres of partially developed land in Tri-City for a total acquisition price of $14,118,000. In 1984 and 1985, a total of 76.56 acres within Tri-City was acquired by Fund IV.

Tri-City Corporate Centre is located at the northeastern quadrant of the intersection of Interstate 10 (San Bernardino Freeway) and Waterman Avenue in the southernmost part of the City of San Bernardino, and is in the heart of the Inland Empire, the most densely populated area of San Bernardino and Riverside counties.

Tri-City Properties

The Partnership’s improved properties in the Tri-City Corporate Centre are as follows:

These eight properties total approximately 448,000 rentable square feet and offer a wide range of commercial, R & D and office product to the market.

The Inland Empire is generally broken down into two major markets, Inland Empire East and Inland Empire West. Tri-City Corporate Centre is located within the Inland Empire East market, which consists of approximately 12 million square feet of office space and an overall vacancy rate of approximately 12% as of December 31, 2002, according to research conducted by an independent broker.

Within the Tri-City Corporate Centre at December 31, 2002, the Partnership has 359,094 square feet of office space with a vacancy rate of 4%, 50,867 square feet of R & D space with a vacancy rate of 9% and 37,504 square feet of retail space with no vacancy.

Occupancy levels for the Partnership’s Tri-City buildings for each of the five years ended December 31, 2002 expressed as a percentage of the total net rentable square feet, were as follows:

In 2002, management renewed 13 leases, totaling 77,454 square feet, expanded 4 existing tenants by 7,146 square feet, and executed 8 new leases totaling 32,401 square feet of space. In 2003, 12 leases, totaling 55,142 square feet, are due to expire. Of these, management has renewed eight tenants’ leases totaling 42,105 square feet, while one tenant occupying 4,224 square feet has indicated that they will vacate upon expiration of their lease. The remaining tenants occupied a total of 8,813 square feet of space have not yet indicated whether they plan to renew their leases or vacate the premises. Management, along with independent leasing brokers, is aggressively marketing the space.

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The annual effective rents per square foot for each of the five years ended December 31, 2002 were as follows:

Annual effective rent is calculated by dividing the aggregate of annualized current monthly rental income for each tenant by the total square feet occupied at the property.

The Partnership’s Tri-City properties had the following tenants that occupied a significant portion of the net rentable square footage as of December 31, 2002:

The Partnership’s Tri-City rental properties are owned by the Partnership, in fee, subject to the following note and deeds of trust:

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Tri-City Land

As of December 31, 2002 the Partnership owned approximately 14 acres of the Tri-City land. Construction has commenced on approximately 6.5 acres. The other 7.5 acres remains undeveloped. The Partnership’s intention is to develop parcels of this land on a build-to-suit basis, as tenants become available. The projects currently under construction are Two Parkside and Harriman Plaza.

The construction cost for the three-story office building of 80,750 square feet, known as Two Parkside, is approximately $6,150,000, and the construction is estimated to be completed in September 2003. A 53,000 square-foot space is leased to one new tenant who, it is estimated, will occupy the space in October 2003.

The site improvement cost for Harriman Plaza, is approximately $550,000. The building site is leased to one new tenant who will pay for the cost of the building core, shell and other improvement of the property. The site will be used as a restaurant. Ground lease rent will start in March 2003.

Item 3. Legal Proceedings

None

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

None

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Part II

Item 5. Market for Partnership’s Common Equity and Related Stockholder Matters

Market Information

There is no established trading market for the Units issued by the Partnership.

Holders

As of December 31, 2002, there were 10,070 holders of Partnership Units.

Distributions

Distributions are paid from either Cash From Operations or Cash From Sales or Refinancing (as such terms are defined in the Partnership Agreement).

Cash From Operations includes all cash receipts from operations in the ordinary course of business (except for the sale, exchange or other disposition of real property in the ordinary course of business) after deducting payments for operating expenses. All distributions of Cash From Operations are paid in the ratio of 90% to the Limited Partners and 10% to the General Partner.

Cash From Sales or Refinancing is the net cash realized by the Partnership from the sale, disposition or refinancing of any property after retirement of applicable mortgage debt and all expenses related to the transaction, together with interest on any notes taken back by the Partnership upon the sale of a property. All distributions of Cash From Sales or Refinancing are generally allocated as follows: (i) first, 1 percent to the General Partner and 99 percent to the Limited Partners until the Limited Partners have received an amount equal to their capital contributions; (ii) second, 1 percent to the General Partner and 99 percent to the Limited Partners until the Limited Partners have received a 12 percent return on their unreturned capital contributions including prior distributions of Cash From Operations; plus their Limited Incremental Preferred Return for the twelve month period following the purchase date of each Unit and following admission as a Limited Partner, (iii) third, 99 percent to the General Partner and 1 percent to the Limited Partners until the General Partner has received an amount equal to 20 percent of all distributions of Cash From Sales or Refinancing previously made under clauses (ii) and (iii) above, reduced by the amount of prior distributions made to the General Partner under clauses (ii) and (iii); and (iv) fourth, the balance 20 percent to the General Partner and 80 percent to the Limited Partners. A more explicit statement of the distribution policies is set forth in the Partnership Agreement.

In 2002, the Partnership distributed $1,228,000 and $136,000 to the Limited Partners and General Partner, respectively.

In 2001, the Partnership distributed $1,082,000 and $11,000 to the Limited Partners and General Partner, respectively, from the proceeds of the sale of the Santa Fe property as discussed below.

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Item 6. Selected Financial Data

The following is selected financial data for each of the five years ended December 31, 2002 (in thousands, except per Unit data):

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

NEW ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board (FASB) has 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. These new accounting standards are as follows:

In June 2001, the FASB approved for issuance SFAS 143, “Accounting for Asset Retirement Obligations.” SFAS 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 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 May 2002, the FASB approved for issuance SFAS 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 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 145 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 and results of operations.

In June 2002, the FASB approved for issuance SFAS 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. Management does not expect this standard to have a material impact on the Partnership’s consolidated financial position and results of operations.

In November 2002, the FASB approved for issuance FASB Interpretation 45 (FIN 45), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements of interim and annual periods ending after December 15, 2002. The Partnership does not provide for any guarantees,

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therefore, the pronouncement is not expected to have any impact on the Partnership’s financial position or results of operations.

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 created after January 31, 2003, and to variable interest entities 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 variable interest entities 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 disclosures provided reflect management’s understanding and analysis of FIN 46 based upon information currently available. The evaluation of the Partnership’s various arrangements is ongoing and is subject to change in the event additional interpretive guidance is provided by the Financial Accounting Standards Board or others.

LIQUIDITY AND CAPITAL RESOURCES

The following discussion should be read in conjunction with the financial statements and the notes thereto as listed in Item 15 of Part IV.

At December 31, 2002, the Partnership had cash of $3,588,000. The remainder of the Partnership’s assets consisted primarily of its net investments in real estate of approximately $33,056,000 which includes $27,305,000 of rental properties, $3,678,000 of construction in progress and $2,073,000 of land held for development within the Tri-City area.

The Partnership’s primary liability is a note payable of approximately $8,742,000 at December 31, 2002, which consists of a secured fixed rate loan encumbering properties with an aggregate net book value of approximately $14,896,000 and maturity date of August 1, 2006. This note requires monthly principal and interest payments, and bears a fixed annual interest rate of 9.39%. The Partnership’s other note payable was paid off in November 2001.

The Partnership is contingently liable for subordinated real estate commissions payable to the General Partner in the amount of $102,000 at December 31, 2002, 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 balance at December 31, 2002, 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 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

During the year ended December 31, 2002, the Partnership’s cash provided by operating activities totaled $1,514,000.

The $122,000 increase in accounts receivable at December 31, 2002, compared to December 31, 2001, was primarily due to an accrual of a reimbursement from the reserve impound account for tenant improvements paid for previously by the Partnership at Lakeside Tower, One Parkside and Two Carnegie.

The $96,000 increase in deferred costs at December 31, 2002, compared to December 31, 2001, was primarily due to $411,000 in lease commissions paid for new and renewal leases, offset by $315,000 of amortization expense.

The $15,000 decrease in prepaid expenses and other assets at December 31, 2002, compared to December 31, 2001, was primarily due to a decrease in reserve impound account at Lakeside Tower, One Parkside and Two Carnegie, offset by an increase in mortgage impound accounts.

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The $91,000 increase in accounts payable and other liabilities at December 31, 2002, compared to December 31, 2001, was primarily due to an increase in accruals for unit redemptions.

Investing Activities

During the year ended December 31, 2002, the Partnership’s cash used for investing activities totaled $3,766,000 which consisted of $829,000 for lobby renovations and building improvements, and $810,000 for tenant improvements at One Carnegie Plaza, Two Carnegie Plaza, Carnegie Business Center II and Lakeside Tower, $20,000 for cost of grading plan at East Lake Restaurant Pad, and $2,107,000 for construction costs at Two Parkside and Harriman Plaza (see Item 2 for discussion).

Financing Activities

During the year ended December 31, 2002, the Partnership’s cash used for financing activities totaled $2,584,000, which consisted of $168,000 in principal payments on the note payable, $1,364,000 of distributions to the Limited Partners and General Partners, and $1,052,000 paid to redeem 2,944 limited partnership units (“Units”).

RESULTS OF OPERATIONS

2002 versus 2001

Revenue

Rental income increased slightly for the year ended December 31, 2002, compared to the year ended December 31, 2001, primarily due to the increases in occupancy at One Carnegie Plaza and Two Carnegie Plaza, offset by the sale of the Santa Fe property in 2001.

Occupancy rates at the Partnership’s Tri-City properties for each of the five years ended December 31, 2002 were as follows:

As of December 31, 2002, 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 December 2012. These six tenants, in aggregate, occupy approximately 140,000 square feet of the 448,000 total rentable square feet at Tri-City and account for approximately 33% of the rental income generated at Tri-City for the Partnership.

The 17% increase in occupancy at One Carnegie Plaza from December 31, 2001 to December 31, 2002 was primarily due to the expansion of three existing tenants into approximately 19,000 square feet of vacant space.

The 11% increase in occupancy at Two Carnegie Plaza from December 31, 2001 to December 31, 2002 was primarily due to the leasing of approximately 8,000 square feet of previously vacant space to several new tenants.

In August 2001, the Santa Fe property was purchased by BNSF, the sole tenant at the property, for a price of $4,820,000. The sale generated a gain of approximately $2,663,000 and net proceeds of approximately $4,316,000 which were initially added to the Partnership’s cash reserves. $1,093,000 of these sales proceeds were ultimately distributed to the partners in 2001.

Interest and other income for the year ended December 31, 2002 decreased $251,000 from the year ended December 31, 2001, primarily due to a lower invested cash balance which resulted from the November 2001 payoff of a $4 million note payable secured by One Carnegie Plaza, the distributions to the partners in November 2001 and 2002, and decreases in interest rates, offset by an increase in invested cash balance resulting from the sale of the Santa Fe property in August 2001.

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Expenses

Operating expenses increased $111,000, or 3%, during the year ended December 31, 2002, compared to the year ended December 31, 2001, primarily due to increases in occupancy at One Carnegie and Two Carnegie, and an increase in utility costs, partially offset by the sale of the Santa Fe property in 2001.

Interest expense decreased $328,000, or 28%, during the year ended December 31, 2002, compared to the year ended December 31, 2001, primarily due to the payoff of a $4 million loan in November 2001 as discussed above.

Depreciation and amortization expense increased $122,000, or 7%, during the year ended December 31, 2002, compared to the year ended December 31, 2001, primarily due to additions to real estate, partially offset by the sale of the Santa Fe property in 2001.

General and administrative expenses decreased $94,000, or 8%, during the year ended December 31, 2002, compared to the year ended December 31, 2001, primarily due to a decrease in investor relation service expenses related to the redemption of partnership units.

2001 versus 2000

Revenue

Rental income varied slightly for the year ended December 31, 2001, compared to the year ended December 31, 2000, primarily due to increases in occupancy at Two Carnegie Plaza, Carnegie Business Center II, and Palm Court Retail #3, offset by the sale of the Santa Fe property in 2001.

Occupancy rates at the Partnership’s Tri-City properties for each of the five years ended December 31, 2001 were as follows:

As of December 31, 2001, 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 December 2005, (v) Lewis, D’amato & Brisbois et al with a lease through December 2012 and (vi) Holiday Spa Health Club with a lease through December 2010. These six tenants, in aggregate, occupy approximately 136,000 square feet of the 448,000 total rentable square feet at Tri-City and account for approximately 31% of the rental income generated at Tri-City for the Partnership.