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

                                    FORM 10-K

[ X ] ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
ACT OF 1934. For the year ended December 31, 1996

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934. For the transition period from to

                         Commission file number: 0-19438

                           RANCON PACIFIC REALTY L.P.,
                         A DELAWARE LIMITED PARTNERSHIP
             (Exact name of registrant as specified in its charter)

                  Delaware                                  33-0270528
        (State or other jurisdiction                     (I.R.S. Employer
      of incorporation or organization)                 Identification No.)

    400 South El Camino Real, Suite 1100                    94402-1708
                                                          ------------
            San Mateo, California                           (Zip Code)
            ---------------------
  (Address of principal executive offices)

        Registrant's telephone number, including area code (415) 343-9300
        Securities registered pursuant to Section 12(b) of the Act: None
           Securities registered pursuant to Section 12(g) of the Act:

                                 Exchange Units
                                (Title of Class)
                                 Preferred Units
                                (Title of Class)

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

State the aggregate market value of the voting stock held by  non-affiliates  of
the Registrant. Inapplicable

                      DOCUMENTS INCORPORATED BY REFERENCE:

Prospectus dated August 8, 1988, filed pursuant to Rule 424(b), File no. 2-17900
(the  Prospectus),  is  incorporated  by  reference  in Parts I, II,  III and IV
hereof.

          For additional items incorporated by reference, see Item 14.



                                  Page 1 of 31
<PAGE>



                                     PART I


Item 1.      Business

Incorporated by reference  herein is the information  regarding the organization
and  description  of the  business of Rancon  Pacific  Realty  L.P.,  a Delaware
Limited Partnership,  (the Partnership) included in the Prospectus (Exhibit 28.1
hereto)  under the captions  "The  Partnership"  and "The  Exchange  Properties"
commencing at pages 18 and 34 of the Prospectus,  respectively.  The Partnership
reached final funding in June,  1989.  During the year ended  December 31, 1992,
the  Partnership  repurchased  and retired 715 preferred  units and 828 exchange
units were  abandoned by a limited  partner.  During the year ended December 31,
1996,  2,373  exchange  units and 500 preferred  units were  abandoned.  Limited
Partners  abandon  their units when they desire to no longer  receive a K-1 from
the  Partnership.  The equity of the  abandoned  limited  partner units has been
allocated  to  the  remaining  limited  partners.  At  December  31,  1996,  the
Partnership had 704,299 exchange units and 2,121,285  preferred units issued and
outstanding. The Partnership has no employees.

At December 31, 1996, the  Partnership  owned three  properties,  which are more
fully described in Item 2.

Competition within the 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.   Although   management   believes  the  Partnership   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 at  acquisition,  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. The Partnership knows of
no statistical information which allows comparison of its cash reserves to those
of its competitors.
<TABLE>
<CAPTION>

Item 2.           Properties
<S>                  <C>                         <C>            <C>              <C>              <C>
                                                                                 # of Units          Encumbrances at
     Name                  Location                Type            Size             Owned           December 31, 1996
     ----                  --------                ----            ----             -----           -----------------
Pacific Bay Club     San Diego, California       Residential    103,275 sq. ft.       159         $     4,494,000
  Apartments

La Jolla Canyon      San Diego, California       Residential     83,164 sq. ft.       157         $     5,469,000
  Apartments

Villa La Jolla       San Diego, California       Residential    271,369 sq. ft.       385         $    13,374,000
  Condominiums

</TABLE>


                                  Page 2 of 31
<PAGE>


Pacific Bay Club Apartments

Pacific Bay Club Apartments is a 159-unit garden  apartment  complex situated on
approximately  4.4 acres in San Diego,  California.  The property is located two
blocks  east of  Morena  Boulevard,  a major  north-south  frontage  road  along
Interstate  Highway  5. The  property  is  approximately  eight  miles  north of
downtown San Diego at 4070 Huerfano  Avenue,  San Diego,  California  92117. The
area  surrounding  the property is  primarily  single-family  residential,  with
middle and upper-middle income housing.  Immediately adjacent to the property to
the south and east are two condominium projects.

The  Pacific  Bay  Club  Apartments  complex  is  comprised  of two  three-story
buildings  with  elevators.  The unit mix is 66 studio  apartments at 475 square
feet each, 42 one-bedroom/one-bathroom apartments at 650 square feet each and 51
two-bedroom/two bathroom apartments at 875 square feet each. There are clubhouse
and barbecue  facilities,  a heated  swimming pool, spa and sauna,  four laundry
facilities and 222 parking spaces.

All of the units are rented  unfurnished.  Each  apartment  is  equipped  with a
refrigerator,  electric range,  garbage disposal,  dishwasher  (except studios),
private patio, wall-to-wall carpeting and custom window coverings. All utilities
are paid by the landlord except  electricity and cable. There is one office used
for leasing  activities.  The property was  constructed in 1972 using wood frame
construction and stucco exteriors, with flat, built-up roofs.

According to the Partnership's  property  manager,  Pacific Bay Club's strongest
competition is located approximately 10 miles away, closer to the coast. Pacific
Bay  Club  Apartments  is  approximately  24  years  old and is  competing  with
properties  which  were built an  average  of seven  years  ago.  In order to be
competitive,  Pacific Bay Club's units offer  upgraded  amenities and continuing
efforts are devoted to the outside appearance of the complexes. Pacific Bay Club
is 98% leased at December 31, 1996, which is equal to the market average.

The  occupancy  levels at  December  31,  1996,  1995 and 1994,  expressed  as a
percentage of the total  apartments  available for rent,  were 98%, 96% and 89%,
respectively.  The average  monthly  rental rates for the apartments at December
31, 1996 are as follows:

         Rental rate:
           Studio                                   $572
           One bedroom/one bathroom                 $662
           Two bedroom/two bathroom                 $771

In the opinion of management, the property is adequately covered by insurance.

At December 31, 1996, the Pacific Bay Club  Apartments  property  secures a note
payable in the amount of $4,494,000. The note matures November 1, 2018.

During 1996, the property was assessed  property taxes of approximately  $79,000
based on a tax rate of 1.12%.

La Jolla Canyon Apartments

La Jolla Canyon  Apartments is a 157-unit garden  apartment  complex situated on
approximately  4.7 acres in San  Diego,  California.  The  property  is  located
approximately  11 miles north of downtown San Diego and five miles  northeast of
La  Jolla  at 9515  Genessee  Avenue,  San  Diego,  California  92122 in an area
referred  to as "The  Golden  Triangle".  The Golden  Triangle  is formed by the
intersection  of  Interstate  5 and 805  and  Highway  52.  The  immediate  area
surrounding  the  property  is  primarily  single-family  homes and  condominium
projects.

The La Jolla Canyon Apartments  complex is comprised of six two story buildings.
The unit mix is 112 one-bedroom/one-bathroom  apartments at 487 square feet each
and 45  two-bedroom/one-bathroom  apartments at 636

                                  Page 3 of 31
<PAGE>

square feet each. There are recreation facilities, a solar-heated swimming pool,
spa and sauna, modern laundry facility and 205 parking spaces.

All of the units are rented  unfurnished.  Each  apartment  is  equipped  with a
refrigerator,  electric range,  garbage  disposal,  private patio,  wall-to-wall
carpeting  and  custom  window  coverings.  Some  units  have  dishwashers.  All
utilities  are paid by the  landlord  except  electricity  and cable.  A leasing
office and one decorated  model  apartment are used in leasing  activities.  The
property  was  constructed  in 1976  using wood  frame  construction  and stucco
exteriors, with sloping, asphalt shingle roofs.

According to research conducted by the property manager, there are approximately
5,000  residential  units within the Golden  Triangle that compete with La Jolla
Canyon. La Jolla Canyon is approximately 22 years old yet remains competitive in
the market.  The property is 98%  occupied at December 31, 1996,  which is above
the market average of 94%.

La Jolla  Canyon is close to the  University  of  California  San Diego  Campus,
Scripps  Clinic,  research  facilities such as the Salk Institute and many major
pharmaceutical and biotech companies.  Therefore although quite small, the units
have  been  easy to rent to the  surrounding  community.  A 500 unit  high  rise
apartment building is slated for construction in the spring of 1997 within three
blocks of the La Jolla Canyon Apartments complex.  Management is unaware at this
time how the  completion  of the high rise  apartment  complex  will  affect the
property.

The  occupancy  levels at  December  31,  1996,  1995 and 1994,  expressed  as a
percentage of the total  apartments  available for rent,  were 98%, 95% and 99%,
respectively.  The average  monthly  rental rates for the apartments at December
31, 1996 were:

         Rental rate:
           One bedroom/one bathroom                 $683
           Two bedroom/two bathroom                 $788

In the opinion of management, the property is adequately covered by insurance.

At December 31, 1996,  the La Jolla Canyon  Apartments  property  secures a note
payable in the amount of $5,469,000. The note matures October 1, 2018.

During 1996, the property was assessed  property taxes of approximately  $88,000
based on a tax rate of 1.12%.

Villa La Jolla Condominiums

Villa La Jolla is part of a condominium  complex  consisting of 500 garden-style
residential  units, of which the Partnership owns 385 units; the other 115 units
were sold to individual  owners prior to the  acquisition of the property by the
Partnership. The condominium complex is situated on approximately 18.28 acres in
La Jolla,  California.  The complex was built and opened as an apartment complex
in 1972  and  converted  to  condominiums  in  1980.  The  property  is  located
approximately  11 miles north of downtown San Diego, two miles north of downtown
La Jolla and one mile east of the Pacific Ocean at 8540 Villa Mallorca Drive, La
Jolla, California 92037. The immediate area surrounding the property consists of
residential  condominium  projects and  single-family  homes.

The portion of the complex owned by the Partnership is comprised of 52 two-story
buildings,  including  101  studio  apartments  at 505  square  feet  each,  222
one-bedroom/one-bathroom   apartments   at  710   square   feet   each   and  62
two-bedroom/two-bathroom  apartments  at 1,012  square feet each.  There are two
swimming pools, two spas, six laundry facilities, a recreation facility (fitness
center and club house) and 395 parking spaces.

                                  Page 4 of 31
<PAGE>

All  of  the  units  are  rented  unfurnished.  Each  unit  is  equipped  with a
refrigerator,  electric oven and range,  garbage  disposal,  private patio (with
storage),  wall-to-wall carpeting and custom window coverings. A majority of the
units have dishwashers.  All utilities are paid by the tenants. A leasing office
and two decorated model units are used in leasing  activities.  The property was
constructed  using wood frame  construction and stucco  exteriors,  with sloping
asphalt roofs.

Villa La Jolla has  maintained  a strong  presence in the local  rental  market.
Occupancy  in the local area  ranges  between 95% and 98%  throughout  the year.
Villa La Jolla  consistently  meets or exceeds that average,  with  occupancy at
97%.

The  occupancy  levels  at  December  31,  1996,  1995 and 1994  expressed  as a
percentage  of the  total  units  available  for rent,  were  97%,  97% and 99%,
respectively.  The average  monthly  rental  rates for the units at December 31,
1996 were:

         Rental rate:
           Studio                                      $659
           One bedroom/one bathroom                    $749
           Two bathroom/two bathroom                   $939

In the opinion of management, the property is adequately covered by insurance.

At December 31, 1996, the Villa La Jolla  Condominiums  property  secures a note
payable in the amount of $13,374,000. The note matures September 1, 2002.

During 1996, the property was assessed property taxes of approximately  $249,000
based on a tax rate of 1.15%.

Item 3.           Legal Proceedings

None.

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

None.



                                  Page 5 of 31
<PAGE>





                                     PART II


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

Market Information

There is no  established  trading market for the Exchange Units or the Preferred
Units.

Holders

As of December 31, 1996, a total of 1,607 persons held the Exchange  Units and a
total of 1,180  persons  held the  Preferred  Units  (collectively,  the Limited
Partners).

Dividends

Incorporated by reference herein is the information  regarding the Partnership's
distribution policies included in Paragraph 11 of the Partnership's Agreement of
Limited  Partnership  (Exhibit 3.1 hereto) and the Partnership's Third Amendment
to Agreement of Limited Partnership (Exhibit 3.3 hereto).

The following distributions of Cash From Operations were made by the Partnership
to the holders of Preferred Units during the last three fiscal years.

                       Amount              Amount               Amount
   Date of          Distributed         Distributed         Distributed to
Distribution    to Limited Partners      Per Unit           General Partner
  11/30/96        $    175,000           $   0.08            $        --
   8/31/96        $    175,000           $   0.08            $        --
   6/30/96        $    175,000           $   0.08            $        --
   3/1/96         $    175,000           $   0.08            $        --
  12/15/95        $    175,000           $   0.08            $        --
  12/15/94        $    210,000           $   0.10            $     2,000

Of the total  distributions paid in 1996, $0.29 represented a return of capital.
All distributions in 1995 and 1994 represented a return of capital.




                                  Page 6 of 31
<PAGE>


Item 6.           Selected Financial Data

The financial data should be read in conjunction  with the financial  statements
and related notes contained elsewhere in this report. This financial data is not
covered by the reports of the independent public accountants.
<TABLE>
<CAPTION>

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

                                          1996             1995            1994           1993             1992
                                          ----            ------          ------         ------           -----
<S>                                  <C>               <C>             <C>            <C>             <C>
Rental Income                        $      5,758      $     5,358     $     5,249    $    5,286      $     5,321

Net income (loss)                    $         81      $      (148)    $      (349)   $     (139)     $      (495)

Net income (loss) allocable
 to limited partners                 $         80      $      (147)    $      (346)   $     (138)     $      (490)

Net (income) loss per limited
 partnership unit                    $      0.03       $    (0.05)     $    (0.12)    $    (0.05)     $   (0.17)

Total assets                         $     32,843      $    33,735     $    33,785    $   34,428      $    35,042

Long-term obligations                $     23,337      $    23,589     $    23,418    $   23,502      $    23,956

Cash distributions per limited partnership unit:
   Preferred Unit                    $      0.32       $     0.08      $     0.10     $       --      $        --
   Exchange Unit                     $         --      $        --     $        --    $       --      $        --
</TABLE>

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

LIQUIDITY AND CAPITAL COMMITMENTS

Pursuant to a plan of exchange which was  consummated  in 1988, the  Partnership
issued 707,500 exchange units and rights to purchase  2,122,500  preferred units
at a cost of $7 per  preferred  unit in  exchange  for the assets of Shadow Hill
Partners,   Eastgate  Village  Partners  and  Brichard-La  Jolla  Partners  (the
Participating  Partnerships).  The  exchange  units  were  allocated  among  the
Participating  Partnerships using the appraised value of the real property owned
by them, less related  mortgage  indebtedness and adjusted for the book value of
other  specified  net assets as of  September,  1987.  Rights to purchase  three
preferred units were issued with each exchange unit.  Preferred Units covered by
unexercised  rights were then sold to other investors.  As of June 23, 1989, the
Partnership  was fully funded from the sale of 2,122,500  Preferred Units in the
amount of $14,857,500.

As of December  31,  1996,  the  Partnership  had cash and cash  equivalents  of
$1,407,000.  The remainder of the Partnership's assets consists primarily of its
investments  in three  residential  properties,  with a net book value  totaling
approximately $30,768,000 at December 31, 1996.

All of the Partnership's assets are located in San Diego County,  California and
have been directly affected by the economic  weakness of the region.  Management
believes,  however,  that the market has flattened  and is no longer  falling in
terms of sales  prices.  While  prices  have not  increased  significantly,  the
Southern  California  real estate  market  appears to be  improving.  Management
continues to evaluate the Southern

                                  Page 7 of 31
<PAGE>

California  real estate  market in an effort to  determine  the optimal  time to
dispose of the assets and realize their maximum value.

Management believes that the Partnership's available cash together with the cash
generated by the operations of the Partnership's properties, as proven in recent
years,  will be sufficient to finance the  properties'  continued  operations as
well as meet future debt commitments. Management will continue to monitor market
conditions in order to sell its properties for the best  obtainable  price prior
to June 1999,  the date upon which the  Partnership  is due to terminate,  or as
soon as practicable.

During  1989,  management  discovered  the  presence  of  asbestos  at the three
properties  and elected to remove the asbestos  from the common areas as well as
to take the steps  necessary to notify tenants and on-site  staff.  Asbestos has
been  removed  from some of the  individual  apartment  and  condominium  units.
Management  will monitor the need for any additional  asbestos  removal and will
incur the costs only when a need for such removal arises.  Careful attention has
been taken by management to insure that the proper  notifications to tenants are
maintained.

RESULTS OF OPERATIONS

Rental income  increased  $293,000 and $115,000 for the year ended  December 31,
1996 compared to 1995 and 1995 compared to 1994, respectively,  primarily due to
an increase in rental rates at all the Partnership's properties.

The 31% and 8% increases in interest income for the year ended December 31, 1996
compared to 1995 and 1995 compared to 1994, respectively, are due to an increase
in the  Partnership's  invested cash  balances as a result of  additional  funds
provided by operating activities.

Operating and  depreciation  expenses  remained  consistent  for the years ended
December 31, 1994 through 1996.

Interest  expense  continues  to decline due to the  decreasing  balances of the
Partnership's outstanding debt.

General and  administrative  expenses increased 18% in 1996 compared to 1995 due
to an increase in general legal fees of $14,000  associated  with  administering
the Partnership's day-to-day affairs, $5,000 in fees incurred in connection with
valuations  of  limited  partnership   interests  and  $24,000  and  $7,000  for
additional insurance and loan administration fees, respectively,  as a result of
the Villa La Jolla refinancing in September, 1995. The 7% increase in 1995 was a
result of the  payment  and  expense of 1994 audit and tax return  fees in 1995.
Since January 1, 1995, audit and tax fees have been accrued in the year to which
they relate.

In December 1994,  Rancon Financial  Corporation (RFC) entered into an agreement
with Glenborough  Inland Realty  Corporation  (Glenborough)  whereby RFC sold to
Glenborough,  for  approximately  $4,466,000 and the assumption of $1,715,000 of
RFC's debt, the contract to perform the rights and responsibilities  under RFC's
agreement  with the  Partnership,  eight other  related  partnerships  and third
parties  (collectively,  the Rancon  Partnerships) to perform or contract on the
Partnership's behalf financial,  accounting, data processing,  marketing, legal,
investor relations, asset and development management and consulting services for
the  Partnership.  As part of this agreement,  Glenborough  will perform certain
responsibilities  for the  General  Partner of the Rancon  Partnerships  and 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. This agreement was effective January 1, 1995.

RFC entered into the  transaction  with  Glenborough  described  above,  when it
determined to sell that portion of its business  relating to investor  services,
property management services and asset management  services,  and those services
are now rendered to the Partnership,  eight other related partnerships and third
parties by Glenborough.  The Partnership  required those services to be rendered
to it until such time as all of its properties were sold,  whether  performed by
the General Partner or Glenborough. RFC, as General Partner for the Partnership,
has the  responsibility  and  obligation  to manage  the  Partnership  business,
including  the sale of its  properties,

                                  Page 8 of 31
<PAGE>

notwithstanding  that  certain  property  management  and  other  administrative
activities regarding the Partnership are now performed by Glenborough.

As a result of the agreement between RFC and Glenborough, RFC terminated certain
employees who were  previously  responsible  for performing the  administrative,
legal and development  services to the Partnership.  Upon  termination,  certain
employee costs including severance benefits were allocated to the various Rancon
Partnerships.  Such costs  allocated to the Partnership  aggregated  $42,000 and
were included in administrative expenses for the year ended December 31, 1994.

Item 8.           Financial Statements and Supplementary Data

For information  with respect to Item 8, see Financial  Statements and Schedules
as listed in Item 14.

Item 9.            Changes in and  Disagreements  with Accountants on Accounting
                   and Financial Disclosure

On June 6, 1995, Price Waterhouse LLP was dismissed as the principal independent
accountant for the Partnership. The decision to dismiss Price Waterhouse LLP was
made by the Partnership's General Partner.

The reports of Price Waterhouse LLP on the  Partnership's  financial  statements
for the period ending  December 31, 1994, do not contain an adverse opinion or a
disclaimer  of an opinion,  nor were such opinions  modified as to  uncertainty,
audit scope, or accounting principles.

During the fiscal year ended December 31, 1994 and the subsequent interim period
from January 1, 1995 to June 6, 1995,  there were no  disagreements  between the
Partnership and Price  Waterhouse LLP on any matter of accounting  principles or
practices,  financial  statement  disclosure,  or auditing  scope or  procedure,
which, if not resolved to the  satisfaction of Price  Waterhouse LLP, would have
caused it to make a  reference  to the  subject  matter of the  disagreement  in
connection  with its reports.  For this purpose the term  disagreement  does not
include initial  differences of opinion based on incomplete facts or preliminary
information that were later resolved to the satisfaction of Price Waterhouse LLP
by obtaining additional relevant facts or information.

During the fiscal year ended December 31, 1994 and the subsequent interim period
from January 1, 1995 to June 6, 1995,  there were no "reportable  events" of the
type described in Rule 304(a)(1)(v)(A) through (D) of Regulation S-K.

On  June  6,  1995,  the  Partnership  engaged  Arthur  Andersen  LLP as its new
principal independent accountant. During the fiscal year ended December 31, 1994
and the subsequent interim period from January 1, 1995 through June 6, 1995, the
Partnership  did not consult with Arthur  Andersen LLP as to the  application of
accounting  principles to a specified  transaction  or the type of audit opinion
that might be rendered on the Partnership's financial statements.



                                  Page 9 of 31
<PAGE>


                                    Part III

Item 10.           Directors and Executive Officers of the Partnership

RC Pacific Realty Partners L.P. (RCPLP) is a Delaware limited partnership formed
in 1987 to serve as the General Partner of the  Partnership.  RC Pacific Realty,
Inc.  (RCPRI) is the  general  partner  of RCPLP and RFC and  certain of its key
employees and others are limited  partners of RCPLP.  RCPRI was  incorporated in
California  in 1987 to serve as the  general  partner  of RCPLP.  The  executive
officers and directors of RCPRI are:

Daniel L. Stephenson          Chairman of the Board, President, Chief Executive
                              Officer and Chief Financial Officer

There is no fixed term of office for Mr. Stephenson.

Mr.  Stephenson,  age 53, founded RFC (formerly known as Rancon  Corporation) in
1971 for the purpose of  establishing  itself as a  commercial,  industrial  and
residential  property  syndication,   development  and  brokerage  concern.  Mr.
Stephenson  was President and Chief  Executive  Officer of RFC from 1971 to 1986
and  from  August  1991 to  September  1992,  and has from  inception,  held the
position of Chairman of the Board.  In addition,  Mr.  Stephenson is Chairman of
the Board of PacWest  Group,  Inc.,  a real  estate  firm  which has  acquired a
portfolio of assets from the Resolution Trust Corporation.

Effective January 1, 1994 RFC acquired all the outstanding shares of Partnership
Asset Management Company, a California  corporation,  which previously performed
or  contracted  on the  Partnership's  behalf for  financial,  accounting,  data
processing,   marketing,   legal,  investor  relations,  asset  and  development
management  and  consulting  services for the  Partnership.  These services were
provided to the  Partnership by RFC subject to the provisions of the Partnership
Agreement.

Rancon  Development  Fund VII (RDFVII),  a partnership  sponsored by the General
Partners filed for protection under Chapter 11 of Federal  Bankruptcy Law on May
6, 1994 in order to put an automatic stay on RDFVII's  property and to forestall
the pending foreclosure. In March, 1994, the General Partners were approached by
a non-affiliated party interested in acquiring the interests of RDFVII's general
partners and attempting to  restructure  the  partnership  and its secured debt.
Although the necessary  majority-in-interest  of RDFVII's  limited  partners was
received,  an  agreement  regarding  the terms of the  transfer  and the plan of
reorganization  could not be reached. The holder of the note secured by RDFVII's
property  filed for and was granted a relief from the stay thereby  allowing the
foreclosure sale to proceed.  Such sale took place on September 15, 1994 and the
bankruptcy  is in the process of being  dismissed,  as the property was RDFVII's
only asset.

Six Stoneridge L.P. (SSRLP),  a partnership formed by Rancon Development Fund VI
(RDFVI),  a partnership  sponsored by the General  Partners filed for protection
under  Chapter  11 of  Federal  Bankruptcy  Law in  December,  1992.  Efforts to
negotiate a  modification  of the purchase  agreement of StoneRidge I, to obtain
loans,  joint  venture  partners  or other  vehicles  to meet or modify the cash
payment  requirements  were  unsuccessful.   In  February,  1993,  an  adversary
complaint  was filed  against  SSRLP in the  bankruptcy  court to determine  the
nature and extent of SSRLP's  interest in  StoneRidge I and the debt  associated
with the property.  A tentative  agreement has been reached.  As of December 31,
1996, SSRLP and RDFVI have been dissolved.



                                 Page 10 of 31
<PAGE>


Item 11.          Executive Compensation

The Partnership  has no executive  officers.  For information  relating to fees,
compensation,   reimbursements   and  distributions  paid  to  related  parties,
reference is made to Item 13 below.

Item 12.          Security Ownership of Certain Beneficial Owners and Management

Security Ownership of Certain Beneficial Owners

No person is known by the Partnership to be the beneficial owner of more than 5%
of the Units.

Security Ownership of Management
<TABLE>
<CAPTION>
                                                                         Amount and
                                                                          Nature of
       Title                                                             Beneficial                    Percent
     of Class           Name of Beneficial Owner                          Ownership                   of Class
<S>                     <C>                                        <C>                                <C>

Preferred Units         Daniel L. Stephenson (I.R.A.)              14,254 Units (indirect)                *
<FN>
*  Less than 1 percent
</FN>
</TABLE>

Changes in Control

The Limited  Partners  have no right,  power or authority to act for or bind the
Partnership.  However,  the  Limited  Partners  have the  power to vote upon the
following  matters  affecting the basic  structure of the  Partnership,  each of
which shall require the approval of Limited  Partners  holding a majority of the
outstanding  Units: (i) amendment of the  Partnership's  Partnership  Agreement;
(ii)  termination and dissolution of the  Partnership;  (iii) sale,  exchange or
pledge  of all or  substantially  all of the  assets  of the  Partnership;  (iv)
withdrawal or removal of the General Partner or any successor  General  Partner;
(v) purchase price of the withdrawing General Partners' interest;  (vi) election
of a new General  Partner;  (vii) the  approval or  disapproval  of the terms of
purchase of the General Partner's  interest;  and (viii) the modification of the
terms of any agreement  between the  Partnership  and the General  Partner or an
affiliate.

Item 13.          Certain Relationships and Related Transactions

For the year ended  December 31, 1996, the  Partnership  did not incur any costs
reimbursable to RFC.






                                 Page 11 of 31
<PAGE>

                                     Part IV

Item 14.      Exhibits, Financial Statement Schedules, and Reports on Form 8-K

         (a)  The following documents are filed as part of the report

              (1)  Financial Statements:

                   Reports of Independent Public Accountants

                   Consolidated Balance Sheets as of December 31, 1996 and 1995

                    Consolidated  Statements of  Operations  for the Years Ended
                    December 31, 1996, 1995 and 1994

                    Consolidated  Statements of Partners'  Equity  (Deficit) for
                    the Years Ended December 31, 1996, 1995 and 1994

                    Consolidated  Statements  of Cash Flows for the Years  Ended
                    December 31, 1996, 1995 and 1994

                   Notes to Consolidated Financial Statements

              (2)  Financial Statement Schedule:

                   Schedule III -- Real Estate and  Accumulated  Depreciation as
                   of December 31, 1996 and Note thereto

                   All  other   schedules  are  omitted  because  they  are  not
                   applicable  or  the  required  information  is  shown  in the
                   consolidated financial statements or notes thereto.

              (3)  Exhibits:

                    (3.1)   Agreement of Limited Partnership and First Amendment
                            thereto (included as part of the Prospectus filed as
                            Exhibit 28.1 hereto)

                    (3.2)  Second Amendment to Agreement of Limited Partnership*

                    (3.3)  Third Amendment to Agreement of Limited Partnership *

                    (3.4)   Agreement  of  Limited   Partnership  and  amendment
                            thereto of Villa, L.P.

                   (10.1)  Management,  administration and consulting  agreement
                           and  amendment   thereto  for  services  rendered  by
                           Glenborough  Inland Realty Corporation dated December
                           20, 1994 and March 30, 1995, respectively

                    (10.2)  Promissory  note secured by a deed of trust on Villa
                            La Jolla  Condominiums  in the amount of $13,500,000
                            dated August 31, 1995

                    (28.1)  Prospectus  dated August 8, 1988  (portions of which
                            are  incorporated  by  reference  into  this  annual
                            report.)*

                                 Page 12 of 31
<PAGE>

                    *       Included as an Exhibit in Form 10-K filed for fiscal
                            year ended December 31, 1992.

         (b) Reports on Form 8-K

              None.





                                 Page 13 of 31
<PAGE>


                                   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 PACIFIC REALTY L.P.,
                                              (Partnership)




Date:    March 27, 1997                 By:  /s/ DANIEL L. STEPHENSON
                                           --------------------------
                                              Daniel L. Stephenson
                                              Director,     President,     Chief
                                              Executive    Officer   and   Chief
                                              Financial    Officer   of   Rancon
                                              Financial   Corporation,   General
                                              Partner of Rancon  Pacific  Realty
                                              L.P.




Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Partnership and in the
capacities and on the dates indicated.



Date:    March 27, 1997                 By:  /s/ DANIEL L. STEPHENSON
                                           --------------------------
                                              Daniel L. Stephenson
                                              Director,     President,     Chief
                                              Executive    Officer   and   Chief
                                              Financial    Officer   of   Rancon
                                              Financial   Corporation,   General
                                              Partner of Rancon  Pacific  Realty
                                              L.P.




                                 Page 14 of 31
<PAGE>



                          INDEX TO FINANCIAL STATEMENTS
                                  AND SCHEDULE





                                                                            Page

   Reports of Independent Public Accountants                              16, 17

   Financial Statements:

      Consolidated Balance Sheets as of December 31, 1996 and 1995            18

      Consolidated Statements of Operations for the years ended
         December 31, 1996, 1995 and 1994                                     19

      Consolidated Statements of Partners' Equity (Deficit)
         for the years ended December 31, 1996, 1995 and 1994                 20

      Consolidated Statements of Cash Flows for the years ended
         December 31, 1996, 1995 and 1994                                     21

      Notes to Consolidated Financial Statements                              22

   Schedule:

      III - Real Estate and Accumulated Depreciation
            as of December 31, 1996 and Note thereto                          29

   All other  schedules are omitted because they are not applicable or the
    required information is shown in the consolidated financial statements
    or notes thereto.




                                 Page 15 of 31
<PAGE>






                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Partners of
RANCON PACIFIC REALTY L.P.

We have audited the accompanying  consolidated  balance sheets of RANCON PACIFIC
REALTY  L.P.,  as of December  31, 1996 and 1995,  and the related  consolidated
statements  of  operations,  partners'  equity  (deficit) and cash flows for the
years then ended.  These  consolidated  financial  statements  and the  schedule
referred to below are the  responsibility of the Partnership's  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements and schedule based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of RANCON PACIFIC REALTY L.P., as
of December 31, 1996 and 1995,  and the results of its  operations  and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.

Our  audits  were  made for the  purpose  of  forming  an  opinion  on the basic
consolidated  financial  statements taken as a whole. The accompanying  schedule
listed in the index to financial  statements  and schedule is presented  for the
purpose of complying with the Securities and Exchange  Commission's rules and is
not a  required  part  of the  basic  consolidated  financial  statements.  This
information has been subjected to the auditing  procedures applied in our audits
of the basic consolidated  financial  statements and, in our opinion,  is fairly
stated in all material respects in relation to the basic consolidated  financial
statements taken as a whole.


ARTHUR ANDERSEN LLP

San Francisco, California
   February 12, 1997




                                 Page 16 of 31
<PAGE>



                        Report of Independent Accountants



To the General and Limited Partners of
Rancon Pacific Realty L.P.

In our opinion,  the  accompanying  consolidated  statements of  operations,  of
partners' equity and of cash flows present fairly, in all material respects, the
results of  operations  and cash flows of Rancon  Pacific  Realty  L.P.  and its
subsidiary  for the year ended  December 31, 1994, in conformity  with generally
accepted   accounting   principles.   These   financial   statements   are   the
responsibility of the Partnership's management; our responsibility is to express
an opinion on these  financial  statements  based on our audit. We conducted our
audit of  these  statements  in  accordance  with  generally  accepted  auditing
standards which require that we plan and perform the audit to obtain  reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the  amounts  and  disclosures  in  the  financial  statements,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audit provides a reasonable  basis for the opinion  expressed above. We have not
audited the consolidated  financial statements of Rancon Pacific Realty L.P. for
any period subsequent to December 31, 1994.

Our audit for the year ended  December  31,  1994 was made for the  purpose  for
forming an opinion on the basic financial statements taken as a whole. Our audit
also included an audit of the Financial Statement Schedule listed in Item 14 (a)
of this Form 10-K. In our opinion,  the Financial  Statement  Schedule  presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related financial statements.


PRICE WATERHOUSE LLP

San Diego, California
February 3, 1995




                                 Page 17 of 31
<PAGE>

<TABLE>
<CAPTION>

                           RANCON PACIFIC REALTY L.P.

                           Consolidated Balance Sheets
                           December 31, 1996 and 1995
                    (in thousands, except units outstanding)


                                                                                           1996                1995
                                                                                           ----              ------
Assets
<S>                                                                               <C>                    <C>
Rental property, net of accumulated depreciation
    of $11,932 and $11,022 in 1996 and 1995, respectively                          $       30,768        $      31,634
Cash and cash equivalents                                                                   1,407                1,331
Accounts receivable                                                                             5                   76
Deferred financing costs, net of accumulated amortization
    of $134 and $61 in 1996 and 1995, respectively                                            498                  571
Other assets                                                                                  165                  123
                                                                                   --------------        -------------

         Total Assets                                                              $       32,843        $      33,735
                                                                                    =============        =============


Liabilities and Partners' Equity (Deficit)
Liabilities:
    Accounts payable and accrued expenses                                          $           70        $          57
    Interest payable                                                                          155                  159
    Notes payable                                                                          23,337               23,589
    Other liabilities                                                                         251                  251
                                                                                   --------------        -------------

         Total liabilities                                                                 23,813               24,056
                                                                                   --------------        -------------

Commitments and contingent liabilities (see Note 2)

Minority interest                                                                             423                  388
                                                                                   --------------        -------------

  Partners' equity (deficit):
    General Partner                                                                           (90)                 (90)
    Limited Partners, 2,825,584 and 2,828,457 units
      outstanding in 1996 and 1995, respectively (including 2,121,285
      and 2,121,785 preferred units outstanding in 1996 and 1995,
      respectively)                                                                         8,697                9,381
                                                                                   --------------        -------------

       Total partners' equity                                                               8,607                9,291
                                                                                   --------------        -------------

               Total liabilities and partners' equity                              $       32,843        $      33,735
                                                                                    =============        =============


</TABLE>

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

                                 Page 18 of 31
<PAGE>

<TABLE>
<CAPTION>


                           RANCON PACIFIC REALTY L.P.

                      Consolidated Statements of Operations
              For the years ended December 31, 1996, 1995 and 1994
                     (in thousands, except per unit amounts)


                                                                                 1996             1995                1994
                                                                                 ----            ------              -----
<S>                                                                         <C>               <C>               <C>
Revenue:
    Rental income                                                           $     5,758       $      5,465      $     5,350
    Interest income                                                                  51                 39               36
                                                                            -----------       ------------      -----------

       Total revenue                                                              5,809              5,504            5,386
                                                                            -----------       ------------      -----------

Expenses:
   Operating, including $324 paid to Sponsor
    in 1994                                                                       2,495              2,402            2,397
   Interest                                                                       1,952              2,047            2,193
   Depreciation                                                                     910                902              898
   General and administrative, including $174
    paid to Sponsor in 1994                                                         369                314              293
                                                                            -----------       ------------      -----------

       Total expenses                                                             5,726              5,665            5,781
                                                                            -----------       ------------      -----------

Income (loss) from operations                                                        83               (161)            (395)

Minority interest                                                                    (2)                13               46
                                                                            -----------       ------------      -----------

Net income (loss)                                                           $        81       $       (148)     $      (349)
                                                                             ==========       ============      ===========

Net income (loss) per limited partnership unit                              $     0.03        $    (0.05)       $    (0.12)
                                                                             =========        ==========        ==========

Distributions per preferred unit:
 Representing return of capital                                             $     0.29        $     0.08        $     0.10
 From net income                                                                  0.03                 --                --
                                                                            ----------        -----------       -----------

       Total distributions per preferred unit                               $     0.32        $     0.08        $     0.10
                                                                             =========        ==========        ==========

Weighted average number of limited partnership
 units outstanding during the period used to compute
 net income (loss) per limited partnership unit                               2,827,286          2,828,457        2,828,457
                                                                            ===========          =========        =========

Weighted average number of preferred units
 outstanding during the period used to compute
 distributions per preferred unit                                             2,121,516          2,121,785        2,121,785
                                                                            ===========          =========        =========
</TABLE>


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

                                 Page 19 of 31
<PAGE>


<TABLE>
<CAPTION>

                           RANCON PACIFIC REALTY L.P.

                   Consolidated Statements of Partners' Equity (Deficit)
              For the years ended December 31, 1996, 1995 and 1994
                                 (in thousands)


                                                                             General         Limited
                                                                             Partner        Partners          Total

<S>                                                                        <C>           <C>              <C>
Balance at December 31, 1993                                               $     (84)    $    10,259      $   10,175

Distributions to partners                                                         (2)           (210)           (212)

Net loss                                                                          (3)           (346)           (349)
                                                                           ---------     -----------      ----------

Balance at December 31, 1994                                                     (89)          9,703           9,614

Distributions to partners                                                         --            (175)           (175)

Net loss                                                                          (1)           (147)           (148)
                                                                           ---------     -----------      ----------

Balance at December 31, 1995                                                     (90)          9,381           9,291

Distributions to partners                                                         --            (700)           (700)

Net income                                                                         1              80              81

Adjustment to minority interest                                                   (1)            (64)            (65)
                                                                           ----------    ------------     -----------

Balance at December 31, 1996                                               $     (90)    $     8,697      $    8,607
                                                                            =========     ==========       =========



</TABLE>








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

                                 Page 20 of 31
<PAGE>


<TABLE>
<CAPTION>

                           RANCON PACIFIC REALTY L.P.

                      Consolidated Statements of Cash Flows
              For the years ended December 31, 1996, 1995 and 1994
                                 (in thousands)


                                                                               1996               1995                   1994
                                                                               ----             -------                ------
<S>                                                                      <C>                  <C>                 <C>
Cash flows from operating activities:
 Net income (loss)                                                       $         81         $      (148)        $       (349)
Adjustments to reconcile net income (loss) to net cash
     provided by operating activities:
        Depreciation                                                              910                 902                  898
        Amortization of loan fees,
         included in interest expense                                              73                  47                   39
Changes in certain assets and liabilities:
        Accounts receivable                                                        71                 (69)                 (10)
        Other assets                                                              (42)                (68)                  --
        Accounts payable and accrued expenses                                      13                  55                  (14)
        Payable to sponsor                                                         --                 (72)                  63
        Interest payable                                                           (4)                159                   --
        Other liabilities                                                          --                  (4)                  --
                                                                          -----------          -----------         -----------

     Net cash provided by operating activities                                  1,102                 802                  627
                                                                          -----------          ----------          -----------

Cash flows from investing activities:
 Additions to rental properties                                                   (44)                (81)                  --
                                                                          ------------         ----------          -----------
     Net cash used for investing activities                                       (44)                (81)                  --
                                                                          ------------         ----------          -----------

Cash flows from financing activities:
 Proceeds from note payable                                                        --              13,500                   --
 Payoff of matured note payable                                                    --             (13,142)                  --
 Closing costs and loan fees                                                       --                (473)                  --
 Borrowings on notes payable                                                       --                  --                  203
 Notes payable principal payments                                                (253)               (187)                (287)
 Distributions to partners                                                       (700)               (175)                (212)
 Distributions to minority interest holders, net                                  (29)                (36)                 (46)
                                                                          ------------         ----------          -----------

     Net cash used for financing activities                                      (982)               (513)                (342)
                                                                          ------------         ----------          -----------

Net increase in cash and cash equivalents                                          76                 208                  285

Cash and cash equivalents at beginning of year                                  1,331               1,123                  838
                                                                          -----------          ----------          -----------

Cash and cash equivalents at end of year                                 $      1,407         $     1,331         $      1,123
                                                                          ===========          ==========          ===========

Supplemental disclosure of cash flow information:
 Cash paid for interest                                                  $      1,883         $     1,842         $      1,951
                                                                          ===========          ==========          ===========
</TABLE>

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

                                 Page 21 of 31
<PAGE>

                           RANCON PACIFIC REALTY L.P.

                   Notes to Consolidated Financial Statements

                        December 31, 1996, 1995 and 1994

Note 1.           ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization

Rancon Pacific Realty L.P., a Delaware limited  partnership  (the  Partnership),
was formed for the purpose of acquiring the assets,  subject to the liabilities,
of three California limited partnerships: Shadow Hill Partners, Eastgate Village
Partners and Brichard-La Jolla Partners.  The General Partner of the Partnership
is RC Pacific Realty Partners L.P., a Delaware limited partnership,  of which RC
Pacific  Realty,  Inc. is the general partner and Rancon  Financial  Corporation
(RFC) (the  Sponsor)  and  certain of its key  employees  and others are limited
partners.

Pursuant to a plan of exchange which was  consummated  in 1988, the  Partnership
issued 707,500 exchange units and rights to purchase  2,122,500  preferred units
at a cost of $7 per  preferred  unit in  exchange  for the assets of Shadow Hill
Partners,   Eastgate  Village  Partners  and  Brichard-La  Jolla  Partners  (the
Participating  Partnerships).  The  exchange  units  were  allocated  among  the
Participating  Partnerships using the appraised value of the real property owned
by them, less related  mortgage  indebtedness and adjusted for the book value of
other  specified  net assets as of  September,  1987.  Rights to purchase  three
preferred units were issued with each exchange unit.  Preferred Units covered by
unexercised rights were then sold to other investors.

The  Partnership  reached final funding in June,  1989. In 1992, the Partnership
repurchased  and  retired  715  preferred  units  and 828  exchange  units  were
abandoned by a limited partner.  In 1996, 2,373 exchange units and 500 preferred
units were abandoned.  Limited  partners abandon their units when they desire to
no  longer  receive a K-1 from the  Partnership.  The  equity  of the  abandoned
limited partner units has been allocated to the remaining limited  partners.  At
December 31, 1996,  exchange and  preferred  units issued and  outstanding  were
704,299 and 2,121,285, respectively.

The Partnership and Transamerica  Realty Investment  Corporation formed Villa La
Jolla Partners (VLJP),("the Joint Venture"), which became the owner of the Villa
La Jolla  Condominiums.  Transamerica Realty Investment  Corporation  thereafter
transferred its 26.2% interest in VLJP to Transamerica La Jolla Partners (TLJP).
During 1988 and 1989, the Partnership made additional cash contributions to VLJP
in order to  facilitate  the payoff of the interim  financing  provided by TLJP.
Such cash  contributions  caused TLJP's ownership  interest to decrease to 8.41%
and the Partnership's to increase to 91.59%. During 1996, it was determined that
a  reallocation  in the amount of $65,000 to the previous  years  allocations of
losses between TLJP and the Partnership was necessary. This amount appears as an
adjustment to minority interest on the Partnership's 1996 consolidated statement
of partners' equity.

In order to satisfy  certain  lender  requirements  for the  Partnership's  loan
secured by the Villa La Jolla  Condominiums (see Note 4), VLJ Partners (formerly
known as Villa, L.P.), a California limited partnership,  (VLJ LP) was formed as
of  September  1, 1995.  VLJP  contributed  the  property and all of its related
assets and  liabilities  to VLJ LP in  exchange  for a 99%  limited  partnership
interest. The general partner is VLJ, Inc., a California corporation, whose sole
shareholders are the owners of VLJP.

All of the Partnership's assets are located in San Diego County,  California and
have been directly affected by the economic  weakness of the region.  Management
believes,  however,  that the market has

                                 Page 22 of 31
<PAGE>
                           RANCON PACIFIC REALTY L.P.

                   Notes to Consolidated Financial Statements

                        December 31, 1996, 1995 and 1994

flattened and is no longer  falling in terms of sales prices.  While prices have
not increased significantly,  the Southern California real estate market appears
to be improving.  Management  continues to evaluate the Southern California real
estate  market in an effort to  determine  the  optimal  time to  dispose of the
assets and realize their maximum value.

General Partner and Management Matters

Effective  January 1, 1994,  RFC performed or  contracted  on the  Partnership's
behalf  financial,  accounting,  data  processing,  marketing,  legal,  investor
relations,  asset and  development  management  and consulting  services.  These
services  were  provided by RFC  subject to the  provisions  of the  Partnership
Agreement.  Prior to  January 1,  1994,  the  Partnership  had  contracted  with
Partnership  Asset Management  Company  (PAMCO),  a California  corporation,  to
perform  the same  services.  Effective  January 1, 1994,  RFC  entered  into an
agreement with the owner of PAMCO to purchase all of its  outstanding  shares of
stock.  PAMCO  was not an  affiliate  of the  Partnership  or RFC at the time of
purchase.

In December,  1994, RFC entered into an agreement with Glenborough Inland Realty
Corporation  (Glenborough)  whereby  RFC sold to  Glenborough  the  contract  to
perform  the  rights  and  responsibilities   under  RFC's  agreement  with  the
Partnership   and  other   related   Partnerships   (collectively,   the  Rancon
Partnerships)  to perform or contract  on the  Partnership's  behalf  financial,
accounting,  data processing,  marketing,  legal, investor relations,  asset and
development  management and consulting services for the Partnership for a period
of ten years or to the  liquidation of the  Partnership,  whichever comes first.
According to the contract, the Partnership will pay Glenborough for its services
as follows: (i) a specified asset administration fee of $215,000 per year, which
is fixed for five years  subject to reduction in the year  following the sale of
assets;  (ii) sales fees of 2% for improved  properties and 4% for land; (iii) a
refinancing fee of 1% and (iv) a management fee of 5% of gross rental  receipts.
As part of this agreement, Glenborough will perform certain responsibilities for
the General Partner of the Rancon Partnerships. RFC has 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.  This
agreement was effective January 1, 1995.  Glenborough is not an affiliate of RFC
or the Partnership.

As a result of this agreement,  RFC terminated  several of its employees between
December 31, 1994 and February  28,  1995.  Also as a result of this  agreement,
certain of the officers of RFC resigned from their  positions as of February 28,
1995, March 31, 1995 and July 1, 1995.

Significant Accounting Policies

Basis of Accounting - The accompanying  financial  statements have been prepared
on the  accrual  basis of  accounting  in  accordance  with  generally  accepted
accounting  principles  under the presumption that the Partnership will continue
as a going concern.

Use of Estimates - The  preparation of financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that effect 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.

                                 Page 23 of 31
<PAGE>
                           RANCON PACIFIC REALTY L.P.

                   Notes to Consolidated Financial Statements

                        December 31, 1996, 1995 and 1994

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,  geographic economic conditions,  or
the entry of other  competitors  into the  market.  The  accompanying  financial
statements do not provide for adjustments with regard to these uncertainties.

Principles of Consolidation - The consolidated  financial statements include the
accounts of the  Partnership  and VLJP. As of December 31, 1996,  1995 and 1994,
the Partnership owned an 91.59% interest in VLJP and thus reports the results of
its operations on a consolidated basis. The joint venture agreement provides for
distributions and profit/loss  allocations based on ownership  percentages.  All
significant  intercompany  balances and transactions have been eliminated in the
consolidation.

Investments in Real Estate - In March, 1995, the Financial  Accounting Standards
Board issued  Statement of Financial  Accounting  Standards  No. 121 (SFAS 121),
"Accounting  for  Impairment of Long-Lived  Assets and  Long-Lived  Assets to be
Disposed Of." The  Partnership  adopted SFAS 121 in the fourth  quarter of 1995.
SFAS 121  requires  that  long-lived  assets be carried at the lower of carrying
amount or fair  value  and that an  evaluation  of an  individual  property  for
possible   impairment   must  be  performed   whenever   events  or  changes  in
circumstances indicate that an impairment may have occurred. There was no impact
on the financial  position or results of operations of the partnership  from the
initial adoption of SFAS 121. The specific  accounting policies for assets to be
held and used are described in more detail below.

Rental  Property - Rental  properties are stated at cost and include the related
land unless  events or  circumstances  indicate that cost cannot be recovered in
which case carrying  value is reduced to estimated  fair value.  Estimated  fair
value: (i) is based upon the Partnership's  plans for the continued operation of
each property;  (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, and (iii) does not purport, for a specific
property, to represent the current sales price that the Partnership could obtain
from third parties for such property. 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 the
useful lives of the respective assets (see Note 3).

Cash  Equivalents - The  Partnership  considers all  certificates of deposit and
money market funds with original  maturities of less than ninety days to be cash
equivalents.

Deferred Financing Costs - Deferred loan fees are amortized over the life of the
related loan on a straight-line basis.  Amortization expense,  which is included
in  interest  expense,  was  $73,000,  $47,000,  and $39,000 for the years ended
December 31, 1996, 1995 and 1994, respectively.

Rental  Income - Rental  income is  recognized  as  earned  over the life of the
respective leases.

                                 Page 24 of 31
<PAGE>
                           RANCON PACIFIC REALTY L.P.

                   Notes to Consolidated Financial Statements

                        December 31, 1996, 1995 and 1994

Allocation of Profits,  Losses and Cash  Distributions  - Allocation of profits,
losses and cash  distributions are made pursuant to the terms of the Partnership
Agreement dated December 31, 1987, which provide certain preferential  treatment
for holders of preferred units.

Net Loss Per Limited Partnership Unit - Net loss per limited partnership unit is
calculated  using  the  weighted  average  number  of  limited  partners'  units
outstanding during the period,  including both preferred and exchange units, and
the limited partners' allocable share of the net loss.

Income  Taxes - No provision  for income  taxes is included in the  accompanying
financial  statements,  as the  Partnership's  results of operations  are passed
through to the partners for  inclusion in their  respective  income tax returns.
Net income 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, principally depreciation expense.

Reclassification  - Certain 1995 and 1994  balances  have been  reclassified  to
conform with the current year presentation.


Note 2.           RELATED PARTY TRANSACTIONS

Reimbursable expenses and management fees to Sponsor

In 1994,  the  Partnership  had an agreement  with RFC for  property  management
services. The agreement provided for a management fee equal to 5% of gross rents
collected  in  addition  to  reimbursement  of certain  administrative  expenses
incurred  while  managing the  properties.  Fees and costs  incurred  under this
agreement totaled $324,000 for the year ended December 31, 1994.

The Partnership  Agreement also provides for the  reimbursement  of actual costs
incurred  by RFC in  providing  certain  administrative,  legal and  development
services  necessary for the prudent  operation of the Partnership.  Reimbursable
costs incurred by the Partnership  totaled  $174,000 for the year ended December
31, 1994.  Effective January 1, 1995, these services are provided by Glenborough
as described in Note 1.

Organizational and transitional management fee

Pursuant to a plan of exchange which was  consummated in 1988, the Sponsor is to
receive  a fee of up to 6% of the  aggregate  appraised  value  of the  property
interests  conveyed to the Partnership in consideration for  organizational  and
transitional  management  services.  One-sixth  of  this  fee  or  approximately
$350,000 was paid upon the exchange of the property for Partnership  Units.  The
remaining  five-sixths of the fee was due in 60 monthly installments of $29,000.
Ten monthly  installments  were paid for the period  from March 1, 1988  through
December  31,  1988.  The next 48 monthly  payments  related to the period  from
January 1, 1989 to December 31, 1992 will not be paid unless and until such time
as (i) the specified amount of cash distributions are made to the holders of the
preferred  units during any calendar  year or, (ii) the holders of the preferred
units have received a return of the full amount of their investment.  No monthly
installments  were paid  during  those 48 months.  Two monthly  installments  of
$29,000 were paid in January and February,  1993.  Payment of the balance of the
fee of approximately  $1,395,000 related to the 48 monthly installments will not
be paid unless and until one of the two criteria set forth above is met.



                                 Page 25 of 31
<PAGE>
                           RANCON PACIFIC REALTY L.P.

                   Notes to Consolidated Financial Statements

                        December 31, 1996, 1995 and 1994

Note 3.           RENTAL PROPERTY, NET


Rental property as of December 31 is as follows:
                                             1996                    1995
                                           --------                 ------
Land                                  $      14,213,000      $       14,213,000
Buildings and improvements                   27,083,000              27,039,000
Equipment                                     1,404,000               1,404,000
                                       ----------------       -----------------
                                             42,700,000              42,656,000
Less: accumulated depreciation              (11,932,000)            (11,022,000)
                                       ----------------       -----------------
      Total                           $      30,768,000      $       31,634,000
                                       ================       =================

All the Partnership's property has been pledged as security for notes payable.

Note 4.           NOTES PAYABLE
<TABLE>
<CAPTION>

Notes payable consists of the following as of December 31:                          1996                1995
                                                                                   ------              ------
<S>                                                                              <C>               <C>
Note payable to Amresco Capital Corporation, secured by a first deed of trust on
Villa La Jolla Condominiums, bearing interest at a fixed rate of 8.625%, payable
in monthly installments of principal and interest in the amount of $105,000. The
outstanding balance is due September 1, 2002.                                    $ 13,374,000      $ 13,476,000

Note payable to California  Federal  Savings & Loan,  secured by a first deed of
trust on La Jolla Canyon Apartments,  bearing interest at the 11th District cost
of funds rate plus 2.25% per annum  (7.073% and 7.391% at December  31, 1996 and
1995, respectively),  payable in monthly installments. The outstanding principal
balance is due October 1, 2018.                                                     5,469,000         5,552,000

Note payable to California  Federal  Savings & Loan,  secured by a first deed of
trust on Pacific Bay Club Apartments, bearing interest at the 11th District cost
of funds rate plus 2.25% per annum  (7.073% and 7.391% at December  31, 1996 and
1995, respectively),  payable in monthly installments. The outstanding principal
balance is due November 1, 2018.                                                    4,494,000         4,561,000
                                                                                   ----------       -----------
                                                                                 $ 23,337,000      $ 23,589,000
                                                                                  ===========       ===========

</TABLE>


                                 Page 26 of 31
<PAGE>
                           RANCON PACIFIC REALTY L.P.

                   Notes to Consolidated Financial Statements

                        December 31, 1996, 1995 and 1994

The aggregate  annual  maturities  of notes payable for the years  subsequent to
December 31, 1996, are as follows:

         1997                                               $       308,000
         1998                                                       332,000
         1999                                                       359,000
         2000                                                       387,000
         2001                                                       417,000
         Thereafter                                              21,534,000
                                                            ---------------
           Total                                            $    23,337,000
                                                             ==============

Note 5.           TAXABLE INCOME

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.  The  Partnership's tax
returns  are  filed on a  calendar  year  basis.  As such,  the  following  is a
reconciliation  of the  net  income  for  financial  reporting  purposes  to the
estimated taxable income,  for the years ended December 31, 1996, 1995 and 1994,
determined  in accordance  with  accounting  practices  used in  preparation  of
federal income tax returns (in thousands).
<TABLE>
<CAPTION>

                                                                 1996                 1995           1994
                                                                 ----                 ----           ----
<S>                                                          <C>                 <C>             <C>
Net income (loss) per financial statements                   $       81          $    (148)      $    (349)
Financial reporting depreciation in excess
    of tax reporting depreciation                                  (399)              (208)           (308)
Operating expenses recognized in a
    different period for tax reporting than
    for financial reporting, net                                     42               (251)             60
                                                               --------            -------        --------

Estimated net loss for federal
    income tax purposes                                      $     (276)         $    (607)      $    (597)
                                                              =========           ========        ========

</TABLE>



                                 Page 27 of 31
<PAGE>
                           RANCON PACIFIC REALTY L.P.

                   Notes to Consolidated Financial Statements

                        December 31, 1996, 1995 and 1994

<TABLE>
<CAPTION>

The  following  is a  reconciliation,  as of  December  31,  1996 and  1995,  of
partner's equity for financial  reporting purposes to estimated partners' equity
for federal income tax purposes (in thousands).

                                                                                    1996             1995
                                                                                    ----             ----
<S>                                                                              <C>             <C>
Partners' equity per financial statements                                        $   8,607       $    9,291
Cumulative provision for impairment of investment in real estate                     2,754            2,754
Financial reporting depreciation in excess
    of tax reporting depreciation                                                   (7,219)          (6,820)
Property taxes capitalized for tax                                                     813              813
Operating expenses recognized in a different period for financial
    reporting than for tax reporting, net                                               42             (251)
Other, net                                                                            (165)              --
                                                                                 ----------      ----------

Estimated partners' equity for
    federal income tax purposes                                                  $   4,832       $    5,787
                                                                                  ========       ==========
</TABLE>



                                 Page 28 of 31
<PAGE>


<TABLE>

                           RANCON PACIFIC REALTY L.P.

             SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
                                December 31, 1996
                                 (In Thousands)


<CAPTION>

    COLUMN A                COLUMN B            COLUMN C                    COLUMN D


                                                                      Cost Capitalized
                                              Initial Cost to           Subsequent to
                                                Partnership                Acquisition
                                                      Buildings
                                                         and                       Carrying
   Description            Encumbrances     Land     Improvements  Improvements       Cost

<S>                         <C>          <C>          <C>           <C>            <C>

   Rental Properties:
   Residential Property,
    San Diego County,
    California:

     La Jolla Canyon
       Apartments           $  5,469     $  4,442     $  5,290      $     68       $   ---

     Pacific Bay Club
       Apartments              4,494        1,431        7,350           144           ---

     Villa La Jolla
       Condominiums           13,374        9,300       17,364            65           ---
       Less:  Provision for
        impairment of investment
        in real estate (2)       ---         (960)      (1,745)          (49)          ---
                             -------     ---------    ---------       -------        -------

                            $  23,337    $  14,213    $ 28,259       $   228    $        ---
                             ========     ========     =======        =======     ===========


<FN>


    (2)  During 1986 a provision for  impairment of investment in real estate of
         $2,754  was  recorded  based on the  appraised  value of Villa La Jolla
         Condominiums.
</FN>
</TABLE>



                                 Page 29 of 31
<PAGE>

<TABLE>

                           RANCON PACIFIC REALTY L.P.

             SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
                                December 31, 1996
                                 (In Thousands)

<CAPTION>

    COLUMN A                              COLUMN E               COLUMN F      COLUMN G   COLUMN H    COLUMN I



                                   Gross Amount Carried
                                   at December 31, 1996
                                            Building                               Date                  Life
                                                and        (1)     Accumulated  Construction   Date    Depreciated
   Description                   Land      Improvements   Total   Depreciation      Began    Acquired     Over

<S>                             <C>           <C>        <C>          <C>             <C>     <C>
   Rental Properties:
   Residential Property,
    San Diego County,
    California:

     La Jolla Canyon
       Apartments               $  4,442      $ 5,358    $  9,800     $ 2,424         N/A      4/29/85   5 -30 yrs.

     Pacific Bay Club
       Apartments                  1,431        7,494       8,925       3,183         N/A     12/14/84   5 -30 yrs.

     Villa La Jolla
       Condominiums                9,300       17,429      26,729       6,325         N/A      8/30/85   5 -30 yrs.
       Less:  Provision for
        impairment of invest
        in real estate (2)          (960)      (1,794)     (2,754)        ---
                                 --------     --------     -------     -------

                               $  14,213     $ 28,487   $  42,700    $  11,932
                                 ========      =======    ========     =======


<FN>

    (1)  The aggregate cost for Federal income tax purposes is $48,424.

    (2)  During 1986 a provision for  impairment of investment in real estate of
         $2,754  was  recorded  based on the  appraised  value of Villa La Jolla
         Condominiums.
</FN>
</TABLE>



                                 Page 29 of 31
<PAGE>

                           RANCON PACIFIC REALTY L.P.


         NOTE TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
                                 (In Thousands)

<TABLE>
<CAPTION>

Reconciliation of gross amount at which real estate was carried:

                                                                      For the years ended December 31,
                                                                     1996               1995               1994

Investment in real estate

<S>                                                           <C>                <C>               <C>
  Balance at beginning of period                              $    42,656        $    42,575       $     42,575

     Additions during period:
         Improvements                                                  44                 81                 --
                                                              -----------        -----------       ------------

  Balance at end of period                                    $    42,700        $    42,656       $     42,575
                                                               ==========         ==========        ===========

Accumulated Depreciation

  Balance at beginning of period                              $    11,022        $    10,120       $      9,222

     Additions charged to expenses                                    910                902                898
                                                              -----------        -----------       ------------

  Balance at end of period                                    $    11,932        $    11,022       $     10,120
                                                               ==========         ==========        ===========

</TABLE>


                                 Page 30 of 31
<PAGE>





                           RANCON PACIFIC REALTY L.P.


                                INDEX TO EXHIBITS



    Exhibit Number                   Exhibit                               Page

         (27)                Financial data schedule

                                 Page 31 of 31
<PAGE>