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SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the quarterly period ended June 30, 2003

OR

Commission file number: 0-16645

RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP

(650) 343-9300

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

Yes              X                No

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

Total number of units outstanding as of August 12, 2003: 13,083

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INDEX
RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP

Balance Sheets
(in thousands, except units outstanding)
(Unaudited)

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

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RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP

Statements of Income
(in thousands, except per unit amounts and units outstanding)
(Unaudited)

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

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RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP

Statement of Partners’ Equity
For the six months ended June 30, 2003
(in thousands)
(Unaudited)

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

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RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP

Statements of Cash Flows
(in thousands)
(Unaudited)

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

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RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP

Notes to Financial Statements

June 30, 2003
(Unaudited)

Note 1. ORGANIZATION

Rancon Income Fund I, 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, operating and disposing of existing income producing commercial, industrial and residential real estate properties. The Partnership reached final funding in April 1989. The Partnership was formed with initial capital contributions from Rancon Income Partners I, L.P. (the General Partner) and Daniel Lee Stephenson, the initial limited partner, who indirectly owns and controls the General Partner. The General Partner and its affiliates are hereinafter referred to as the Sponsor. At June 30, 2003, 13,127 units were issued and outstanding. The Partnership has no employees.

In the opinion of Rancon Financial Corporation (RFC), the Sponsor and Glenborough Realty Trust Incorporated (“Glenborough”), the Partnership’s asset and property manager, the accompanying unaudited financial statements contain all adjustments (consisting of only normal accruals) necessary to present fairly the financial position of the Partnership as of June 30, 2003 and December 31, 2002, and the related statements of income for the three and six months ended June 30, 2003 and 2002, partners’ equity for the six months ended June 30, 2003, and cash flows for the three and six months ended June 30, 2003 and 2002.

Allocation of Net Income and Net Loss

Allocations of the profits and losses from operations are made pursuant to the terms of the Partnership Agreement.

Generally, net income from operations is allocated to the general partner and the limited partners in proportion to the amounts of cash from operations distributed to the partners for each fiscal year. In no event shall the general partner be allocated less than 1% of the net income from any period. If there are no distributions of cash from operations during such fiscal year, net income shall be allocated 90% to the limited partners and 10% to the general partner. Net losses from operations are allocated 90% to the limited partners and 10% to the general partner until such time as a partner’s account is reduced to zero. Additional losses will be allocated entirely to those partners with positive account balances until such balances are reduced to zero. In no event will the general partner be allocated less than 1% of net loss for any period.

Net income other than net income from operations shall be allocated as follows: (i) first, 1% to the general partner; (ii) second, to the partners who have a deficit balance in their capital account in proportion to and to the extent of such deficit balances, provided, that in no event shall the general partner be allocated more than 10% of the net income other than net income from operations until the earlier of sale or disposition of substantially all of the assets or the distribution of cash (other than cash from operations) equal to the original invested capital of the general partner and the limited partner; (iii) the balance, if any, shall be allocated (a) first, to the general partner in an amount equal to the lesser of (1) the amount of cash from sale or financing anticipated to be distributed to the general partner or (2) an amount sufficient to increase the general partner’s account balance to an amount equal to such distribution from sale or financing; (b) the balance, to the limited partners. In no event shall the general partner be allocated less than 1% of the net income other than net income from operations for any period.

Distributions

Distributions of cash from operations are generally allocated as follows: (i) first, to the limited partners until they receive a non-cumulative 6% return per annum on their unreturned capital contributions and (ii) the remainder, if any in a given year, shall be divided in the ratio of 90% to the limited partners and 10% to the general partner.

Distributions of cash from sales or financing are generally allocated as follows: (i) first, 2% to the general partner and 98% to the limited partners until the limited partners have received an amount equal to their capital contributions; (ii) second, 2% to the general partner and 98% to the limited partners until the limited partners have received a cumulative non-compounded return of 6% per annum on their unreturned capital contributions (less prior distributions of cash from operations); (iii) third, to the general partner for the amount of subordinated real estate commissions payable per the Partnership Agreement; (iv) fourth, 2% to the general partner and 98% to the limited partners until the limited partners have received an additional 4% return on their unreturned capital contributions (less prior distributions of cash from operations); (v) fifth, 2% to the general partner and 98% to the limited partners until the limited partners who purchased their partnership units (“Units”) prior to June 1, 1988, receive an additional return (depending on the date on which they purchased the Units) on their unreturned capital of either 8%, 5% or 2% (calculated through the first anniversary date of the purchase of the Units); (vi) sixth, 98% to the general partner and 2% to the limited partners until the general partner has received an amount equal to 15% of all prior distributions made to the limited partners and the general partners pursuant to subparagraphs (iv) and (v), reduced by the aggregate of all prior distributions to the general partner under subparagraphs (iv) and (v); and (vii) seventh, the balance, 85% to the limited partners and 15% to the general partner.

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RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP

Notes to Financial Statements

June 30, 2003
(Unaudited)

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

Management Agreement

Effective January 1, 1995, Glenborough Corporation (“GC”) entered into an agreement with the Partnership and other related Partnerships (collectively, the “Rancon Partnerships”) to perform or contract on the Partnership’s behalf for financial, accounting, data processing, marketing, legal, investor relations, asset and development management and consulting services for a period of ten years or until the liquidation of the Partnership, whichever comes first. Effective January 1, 1998, the agreement was amended to eliminate GC’s responsibility for providing investor relation services and Preferred Partnership Services, Inc., a California corporation unaffiliated with the Partnership, contracted to assume the investor relations services. In October 2000, GC merged into Glenborough.

Effective July 1, 1999, the agreement was further amended to: (i) reduce the asset administration fee to $100,000 plus CPI annually ($52,500 and $51,400 as of June 30, 2003 and 2002, respectively); (ii) increase the sales fee for improved properties from 2% to 3% and (iii) reduce the management fee applicable to Wakefield Industrial Center from 5% to 3% of the gross rental receipts. The Partnership will also pay Glenborough: (i) a sales fees of 4% for land; (ii) a refinancing fee of 1% and (iii) a management fee of 5% of gross rental receipts from Bristol Medical Center. As part of this agreement, Glenborough will perform certain duties for the General Partner of the Rancon Partnerships. RFC agreed to cooperate with Glenborough should Glenborough attempt to obtain a majority vote of the limited partners to substitute itself as the Sponsor for the Rancon Partnerships. Glenborough is not an affiliate of the Partnership or RFC.

Risks and Uncertainties

The Partnership’s ability to achieve positive cash flow from operations, provide distributions from operations and continue as a going concern may be impacted by changes in property values, local and regional 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.

Note 2.    SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting

The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States.

Use of Estimates

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

New Accounting Pronouncements

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

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RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP

Notes to Financial Statements

June 30, 2003
(Unaudited)

Rental Properties

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

Depreciation is provided using the straight-line method over useful lives ranging from five to forty years for the respective assets.

Cash and Cash Equivalents

The Partnership considers certificates of deposit and money market funds with original maturities of less than ninety days when purchased to be cash equivalents.

Deferred Costs

Deferred lease commissions are amortized over the initial fixed term of the related lease agreement on a straight-line basis.

Revenue

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

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

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

Net Income (Loss) Per Limited Partnership Unit

Net income (loss) per limited partnership unit is calculated using the weighted average number of limited partnership units outstanding during the period and the limited partners’ allocable share of the net income (loss).

Income Taxes

No provision for income taxes is included in the accompanying 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 (loss) and partners’ equity for financial reporting purposes will differ from the Partnership’s income tax return because of different accounting methods used for certain items, principally depreciation expense and the provision for impairment of investments in real estate.

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RANCON INCOME FUND I,
A CALIFORNIA LIMITED PARTNERSHIP

Notes to Financial Statements

June 30, 2003
(Unaudited)

Concentration Risk

Three tenants represented 59% and 58% of rental income for the six months ended June 30, 2003 and 2002, respectively.

Reference to 2002 audited financial statements

These unaudited financial statements should be read in conjunction with the Notes to Financial Statements included in the December 31, 2002 audited financial statements on Form 10-K.

Note 3.    INVESTMENTS IN REAL ESTATE

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

None of the Partnership’s properties were encumbered by debt as of June 30, 2003 or December 31, 2002.

Note 4.    COMMITMENTS AND CONTINGENT LIABILITIES

General Uninsured Losses

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

Other matters

The Partnership is contingently liable for a subordinated real estate commission payable to the General Partner in the amount of $30,000 at June 30, 2003 for the May 1999 sale of Aztec Village Shopping Center. Upon the sale of a Partnership property, the Partnership Agreement entitles the General Partner to a subordinated real estate commission, provided that, in no event shall the subordinated real estate commission payable to the General Partner exceed 3% of the gross sales price of the property which is sold. The subordinated real estate commission is payable only after the limited partners have received distributions equal to their original invested capital plus a cumulative non-compounded return of 6% per annum on their adjusted invested capital. Since the circumstances under which this commission would be payable are limited, the liability has not been recognized in the accompanying financial statements; however, the amount will be recorded if and when it becomes payable.

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

Results of Operations

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

Revenue

Rental income increased $59,000, or 20%, and $68,000, or 12%, for the three and six months ended June 30, 2003, compared to the three and six months ended June 30, 2002, primarily due to an increase in leased space at Bristol Medical Center.

Lease rates at the Partnership’s rental properties as of June 30, 2003 and 2002 were as follows:

The 14% increase in leased space from June 30, 2002 to June 30, 2003 at Bristol Medical Center was primarily due to leasing 8,600 square feet to four new tenants, slightly offset by a decrease of 1,000 square feet due to a tenant moving out upon its lease expiration.

St. Jude Heritage Health, the anchor tenant at Bristol Medical Center, vacated approximately 11,300 square feet of space in September 2002, but is continuing to pay its monthly rent until August 31, 2003, when its lease term expires. Management, along with independent leasing brokers, is aggressively marketing the space prior to this lease expiration.

Expenses

Operating expenses increased $37,000, or 37%, and $46,000, or 22%, for the three and six months ended June 30, 2003, compared to the three and six months ended June 30, 2002, respectively, primarily due to an increase in occupancy at Bristol Medical Center and an increase in utility and janitorial costs.

Depreciation and amortization expense increased $5,000, or 7%, and $16,000, or 12%, for the three and six months ended June 30, 2003, compared to the three and six months ended June 30, 2002, respectively, primarily due to additions to investments in real estate.

Liquidity and Capital Resources

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

On April 21, 1989, Rancon Income Fund I (“the Partnership”) was funded from the sale of 14,559 limited partnership units (“Units”) in the amount of $14,559,000. Four Units were retired in 1990. In 2002, 2001 and 2000, a total of 281, 273 and 722 Units were redeemed, respectively. During the six months ended June 30, 2003, a total of 152 Units were redeemed at an average price of $300. As of June 30, 2003, there were 13,127 Units outstanding.

As of June 30, 2003, the Partnership had cash of $572,000. The remainder of the Partnership’s assets consists primarily of its real estate investments, which totaled approximately $4,200,000 at June 30, 2003.

The Partnership is contingently liable for a subordinated real estate commission payable to the General Partner in the amount of $30,000 at June 30, 2003 for the May 1999 sale of Aztec Village Shopping Center. Per the Partnership Agreement, upon the sale of a Partnership property, the General Partner shall be entitled to a subordinated real estate commission, provided that, in no event shall the subordinated real estate commission payable to the General Partner exceed 3% of the gross sales price of the property which is sold. The subordinated real estate commission is payable only after the limited partners have received distributions equal to their original invested capital plus a cumulative non-compounded return of 6% per annum on their adjusted invested capital. Since the circumstances under which this commission would be payable are limited, the liability has not been recognized in the Partnership’s financial statements; however, the amount will be recorded if and when it becomes payable.

Operationally, the Partnership’s primary source of funds consists of cash generated from operating its rental properties. Cash flows from operating activities have been sufficient to provide funds to reinvest in the properties by way of improvements, as well as to fund distributions to the limited partners. Another source of funds has been the interest earned on invested cash balances.

Management believes that the Partnership’s cash and cash equivalents at June 30, 2003, together with the cash from operations and sales, will be sufficient to finance the Partnership’s and the properties continued operations on both a short-term and long-term basis. 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.

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Operating Activities

During the six months ended June 30, 2003, the Partnership’s cash provided by operating activities totaled $295,000.

The $65,000 increase in deferred costs at June 30, 2003, compared to December 31, 2002, was primarily due to lease commissions paid for new leases.

The $14,000 increase in accounts payable and other liabilities at June 30, 2003, compared to December 31, 2002, was primarily due to accruals for building operating expenses and audit and tax preparation fees.

The $41,000 increase in prepaid rents at June 30, 2003, compared to December 31, 2002, was due to payments of July 2003 rents received in June 2003.

Investing Activities

During the six months ended June 30, 2003, the Partnership’s cash used for investing activities totaled $254,000 for building and tenant improvements at Bristol Medical Center.

Financing Activities

During the six months ended June 30, 2003, the Partnership’s cash used for financing activities totaled $181,000 which consisted of $135,000 of distributions to the Limited Partners, and $46,000 paid to redeem 152 limited partnership units (“Units”).

Critical Accounting Policies

Revenue recognized on a straight-line basis

The Partnership recognizes rental revenue on a straight-line basis at amounts that it believes it will collect on a tenant by tenant basis. The estimation process may result in higher or lower levels from period to period as the Partnership’s collection experience and the credit quality of the Partnership’s tenants changes. Actual amounts collected could be lower than the amounts recognized on a straight-line basis if specific tenants are unable to pay rent that the Partnership has previously recognized as revenue.

Carrying value of rental properties

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

New Accounting Pronouncements

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

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Item 3.    Qualitative and Quantitative Information About Market Risk

As of June 30, 2003, the Partnership had cash equivalents of $200,000 invested in interest-bearing certificates of deposit. These investments are subject to interest rate risk due to changes in interest rates upon maturity. The Partnership does not own any derivative instruments. Declines in interest rates over time would reduce Partnership interest income.

Item 4.    Controls and procedures

(a)  Evaluation of disclosure controls and procedures.

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

(b)  Changes in internal controls.

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

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Part II. OTHER INFORMATION

Item 1. Legal Proceedings

Certain claims and lawsuits have arisen against the Partnership in its normal course of business. The Partnership believes that such claims and lawsuits will not have a material adverse effect on the Partnership’s financial position, cash flow or results of operations.

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

None.

Item 6. Exhibits and Reports on Form 8-K

(a)

Exhibits:

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

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SIGNATURES

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

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EXHIBIT INDEX