10-K 1 a71052e10-k.txt FORM 10-K PERIOD END DECEMBER 31, 2000 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NUMBER 0-13563 ------- DAMSON/BIRTCHER REALTY INCOME FUND-I (Exact name of registrant as specified in its charter) Pennsylvania 13-3264491 -------------------------------- ---------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 27611 La Paz Road, Laguna Niguel, California 92656 -------------------------------------------- --------- (Address of principal executive offices) (Zip Code) (949) 643-7700 (Registrant's telephone number) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- --------------------- NONE NONE ---- ---- Securities registered pursuant to Section 12(g) of the Act: NONE 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 twelve months and (2) has been subject to such filing requirements for the past ninety days. Yes X No ----- ----- 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. [ ] DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's registration statement on Form S-11 (Commission File No. 2-91065), dated June 22, 1985, as supplemented, filed under the Securities Act of 1933 are incorporated by reference into PART IV of this report. 2 DAMSON/BIRTCHER REALTY INCOME FUND-I ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2000 INDEX

-2- 3 DAMSON/BIRTCHER REALTY INCOME FUND-I PART I Item 1. Business Damson/Birtcher Realty Income Fund-I (the "Partnership") is a limited partnership formed on May 7, 1984, under the laws of the Commonwealth of Pennsylvania. The General Partner of the Partnership is Damson/Birtcher Partners, a general partnership consisting of LF Special Fund II, L.P., a California limited partnership and Birtcher Partners, a California general partnership. The Partnership was engaged in the business of operating income-producing office buildings, research and development facilities, shopping centers and other commercial or industrial properties acquired by the Partnership in 1984 and 1985. Each of the Partnership's properties was specified in its prospectus (Commission File No. 2-91065) dated June 22, 1985, as amended. The Partnership commenced operations on December 18, 1984. As of September 17, 1985, the Partnership was fully subscribed and had admitted Limited Partners with total capital contributions of $97,198,000. The Partnership acquired the properties during the period from December 19, 1984 through September 18, 1985, entirely for cash, free and clear of mortgage indebtedness. In September 1987, the Partnership borrowed $4,000,000 pursuant to a loan agreement secured by a First Deed of Trust on the Certified Distribution Center in Salt Lake City, Utah. The net proceeds were used primarily for capital improvements and leasing commissions on certain of the Partnership's properties, the Partnership's working capital reserves and certain general and administrative expenses. The General Partner, upon inquiry, was informed in February 1992, that the Partnership's lender did not intend to extend the loan secured by Certified Distribution Center past its maturity date of December 1, 1993. Therefore, on July 30, 1993 the Partnership obtained a new loan secured by a First Deed of Trust on the property. The new loan in the amount of $3,500,000 carried a fixed interest rate of 9% per annum over a 13 year fully amortizing term and a prepayment penalty of approximately $384,000. The loan was paid in full upon the sale of Certified Distribution Center in September 1999. In March 1996, the Partnership entered into a loan agreement pursuant to which it could have borrowed up to $1,500,000, evidenced by a note secured by a first deed of trust and financing statement on the Ladera I Shopping Center in Albuquerque, New Mexico. Pursuant to that note arrangement, the Partnership borrowed $700,000 to fund a portion of the renovation and tenant improvements at The Cornerstone and tenant improvements at Oakpointe. The loan was subsequently paid off in November 1996 utilizing a portion of the sale proceeds from Arlington Executive Plaza. The Partnership's objectives in operating the properties were: (i) to make regular quarterly cash distributions to the Partners, of which a portion would be tax sheltered; (ii) to achieve capital appreciation over a holding period of at least five years; and (iii) to preserve and protect the Partnership's capital. An Information Statement, dated May 5, 1993, mandated that the General Partner seek a vote of the Limited Partners no later than December 31, 1996, regarding prompt liquidation of the Partnership in the event that properties with appraised values as of January 1993, which constituted at least one-half of the aggregate appraised values of all Partnership properties as of that date, were not sold or under contract for sale by the end of 1996. -3- 4 DAMSON/BIRTCHER REALTY INCOME FUND-I Item 1. Business (Cont'd.) Given the mandate of the May 5, 1993 Information Statement, the General Partner decided to account for the Partnership's properties as assets held for sale, instead of for investment as of December 31, 1995. In accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (see Note 1 to the Financial Statements in Item 8), the carrying value of the properties was evaluated to ensure that each property was carried on the Partnership's balance sheets at the lower of cost or fair value, less estimated selling costs. Accordingly, the General Partner compared the carrying value of each property to its appraised value as of January 1, 1996. Where the carrying value of a property and certain related assets was greater than its appraised value less estimated selling costs, the General Partner reduced the carrying value of the property by the difference. On February 18, 1997, the General Partner mailed a Consent Solicitation to the Limited Partners which sought their consent to dissolve the Partnership and sell and liquidate all of its remaining properties as soon as practicable, consistent with obtaining reasonable value for the Partnership's properties. A majority in interest of the Limited Partners consented by March 14, 1997. As a result, the Partnership adopted the liquidation basis of accounting as of March 31, 1997. The difference between the adoption of the liquidation basis of accounting as of March 14, 1997 and March 31, 1997 was not material. Under the liquidation basis of accounting, assets are stated at their estimated net realizable values and liabilities are stated at their anticipated settlement amounts. The valuation of assets and liabilities necessarily requires many estimates and assumptions, and there are substantial uncertainties in carrying out the dissolution of the Partnership. The actual values upon dissolution and costs associated therewith could be higher or lower than the amounts recorded. Since the approval of the February 18, 1997 Consent Solicitation, the General Partner had been evaluating possible sales of Partnership properties, individually and as a portfolio, to liquidate and wind up the Partnership. On April 30, 1998 the General Partner accepted an offer to purchase all of the Partnership's properties for $39,140,000 from Abbey Investments, Inc. ("Abbey"), which was subject to certain customary contingencies, including due diligence review by the purchaser and negotiation of a definitive Purchase and Sale Agreement. On November 9, 1998, the Partnership and Abbey entered into a definitive Purchase and Sale Agreement, for a purchase price ranging between $34,500,000 and $36,000,000, depending upon occupancy rates at closing. Abbey thereafter requested a material reduction in the purchase price, which the Partnership did not agree to. Therefore, in late January 1999, the sale to Abbey was terminated. In contemplation of the sale transaction, the General Partner reduced the carrying value of properties in liquidation by $2,600,000 at June 30, 1998. On April 30, 1999, the Partnership and Praedium Performance Fund IV ("Praedium") executed a Purchase and Sale Agreement to sell all of the -4- 5 DAMSON/BIRTCHER REALTY INCOME FUND-I Item 1. Business (Cont'd.) Partnership's properties except Terracentre to Praedium for $31,700,000. Praedium deposited $243,100 into escrow, pending completion of its due diligence inspection and review. Praedium's contingency period expired on June 14, 1999. During and after the contingency period, Praedium, in a series of negotiations with the Partnership, sought reductions in the purchase price of each of the properties and declined to include The Cornerstone, Ladera-I and Certified in its offers. During this time, the General Partner negotiated with Praedium, and also sought other purchasers for the properties, both individually and as a group. Finally, in late July 1999, the Partnership declined Praedium's offer to purchase only The Cornerstone, Oakpointe and Washington Tech for a materially reduced purchase price and terminated its dealings with Praedium. The Partnership subsequently sold five of its six remaining properties in three separate transactions in September and October 1999 and sold its last property on May 31, 2000. See Capital Resources and Liquidity in Item 7 for further discussion. Through 1999, the Partnership derived most of its revenue from rental income. FIserv, Inc. ("FIserv", formerly d.b.a. Citicorp CIR, Inc.) represented a significant portion of such income. Rental income from FIserv totaled $736,000 in 1999 and $937,000 in 1998, or approximately 17%, and 16%, respectively, of the Partnership's total rental income. The Partnership has no employees and, accordingly, the General Partner and its affiliates perform services on behalf of the Partnership in connection with administering the affairs of the Partnership and operating the Partnership's properties. The General Partner and its affiliates receive compensation in connection with such activities. See Item 11 and Note 3 to the Financial Statements in Item 8 for a description of such charges. Item 2. PROPERTY As of December 31, 2000, all of the Partnership's properties have been sold. Item 3. LEGAL PROCEEDINGS So far as is known to the General Partner, neither the Partnership nor its properties are subject to any material pending legal proceedings, except for the following: Bigelow Diversified Secondary Partnership Fund 1990 litigation On March 25, 1997, a limited partner named Bigelow/Diversified Secondary Partnership Fund 1990 L.P. filed a purported class action lawsuit in the Court of Common Pleas of Philadelphia County against Damson/Birtcher Partners, Birtcher Investors, Birtcher/Liquidity Properties, Birtcher Investments, L.F. Special Fund II, L.P., L.F. Special Fund I, L.P., Arthur Birtcher, Ronald Birtcher, Robert Anderson, Richard G. Wollack and Brent R. Donaldson alleging breach of fiduciary duty and breach of contract and seeking to enjoin the Consent Solicitation dated February 18, 1997. On April 18, 1997, the court denied the plaintiff's motion for a preliminary injunction. On June 10, 1997, the court dismissed the plaintiff's complaint on the basis of lack of personal jurisdiction and forum non conveniens. -5- 6 DAMSON/BIRTCHER REALTY INCOME FUND-I Item 3. LEGAL PROCEEDINGS (Cont'd.) Bigelow Diversified Secondary Partnership Fund 1990 litigation (Cont'd.) On June 13, 1997, the Partnership's affiliated partnerships, Damson/Birtcher Realty Income Fund-II and Real Estate Income Partners III, and their general partner, Birtcher/Liquidity Properties, filed a complaint for declaratory relief in the Court of Chancery in Delaware against Bigelow/Diversified Secondary Partnership Fund 1990 L.P. The complaint seeks a declaration that the vote that the limited partners of Damson/Birtcher Realty Income Fund-II and Real Estate Income Partners III took pursuant to the respective consent solicitations dated February 18, 1997 was effective to dissolve the respective partnerships and complied with applicable law, that the actions of the General Partner in utilizing the consent solicitations to solicit the vote of the limited partners did not breach any fiduciary or contractual duty to such limited partners, and an award of costs and fees to the plaintiffs. The defendant has answered the complaint. The parties have initiated discovery. No motions are pending at this time. In September 1998, Bigelow/Diversified Secondary Partnership 1990 informed the Partnership that it was filing suit in the Delaware Chancery Court against Damson/Birtcher Partners, Birtcher Investors, Birtcher Liquidity Properties, Birtcher Investments, BREICORP, LF Special Fund I, LP, LF Special Fund II. LP, Arthur Birtcher, Ronald Birtcher, Robert Anderson, Richard G. Wollack and Brent R. Donaldson alleging a purported class action on behalf of the limited partners of Damson/Birtcher Realty Income Fund-I, Damson/Birtcher Realty Income Fund-II and Real Estate Income Partners III alleging breach of fiduciary duty and incorporating the allegations set forth in the previously dismissed March 25, 1997 complaint filed in the Court of Chancery of Philadelphia County. In March 2000, defendants informed the Court and plaintiff that they would bring a Motion for Summary Judgment against the named plaintiff based upon the allegations set forth in plaintiff's complaint. On April 4, 2000, Bigelow/Diversified Secondary Partnership Fund 1990 filed a First Amended Class Action and Derivative Complaint against Damson/Birtcher Partners, Birtcher Investors, Birtcher/Liquidity Properties, Birtcher Partners, Birtcher Properties, Birtcher Ltd., Birtcher Investments, BREICORP, L.F. Special Fund II, L.P., L.F. Special Fund I, L.P., Liquidity Fund Asset Management, Inc., Arthur Birtcher, Ronald Birtcher, Robert Anderson, Richard G. Wollack and Brent R. Donaldson, the Partnership, Damson/Birtcher Realty Income Fund-II and Real Estate Income Partners III, alleging breach of fiduciary duty, breach of contract, and a derivative claim for breach of fiduciary duty. Defendants have answered the First Amended Complaint. Plaintiff has engaged in preliminary discovery. On October 27, 2000, defendants sought permission of the court to communicate an offer to settle to individual limited partners of the Partnership. Plaintiff's counsel opposed that motion. On December 4, 2000, the court ruled that defendants could communicate an offer to settle to individual limited partners. -6- 7 DAMSON/BIRTCHER REALTY INCOME FUND-I Item 3. LEGAL PROCEEDINGS (Cont'd.) Bigelow Diversified Secondary Partnership Fund 1990 litigation (Cont'd.) Thereafter, on December 12, 2000, the Partnership and the General Partner mailed to the limited partners an offer to settle this lawsuit and all other claims (including the Madison Partnership Liquidity Investors Litigation referenced below) for payment of each settling limited partner's pro rata share of the proceeds available for distribution from liquidation of the Partnership's properties (approximately $75 per $1,000 of original investment interest) plus a nominal payment of $1.00 from the General Partners for an assignment of all of a settling limited partner's interest in the Partnership to the General Partner. Limited partners holding 47% of the interests (including the Grape Settlement, see Item 5) in the Partnership settled on these terms. On March 6, 2001, all of the defendants other than the Partnership and the general partners filed a motion to be dismissed from the case. The court has not yet set a hearing date for this motion. Rex Garton, et al. v. Damson/Birtcher Partners, et al. This action was filed on September 25, 1998 in the District Court of Oklahoma County for the State of Oklahoma against the Partnership's general partner, Damson/Birtcher Partners, other related defendants and numerous unrelated defendants. Damson/Birtcher Partners and other related defendants were brought into the action in late December 1998, when they were served with the Second Amended Petition. The other related defendants are Birtcher Partners, Birtcher Properties, The Birtcher Group, Birtcher American Properties, Arthur B. Birtcher, Ronald E. Birtcher, LF Special Fund II, L.P., and Liquidity Fund Asset Management Inc., but The Birtcher Group and Birtcher American Properties were served with process and did not appear in the action. The Partnership itself is not named as a defendant. The case was a class action brought on behalf of investors in the Partnership who purchased limited partnership interests from May 7, 1984 to September 17, 1985. The Second Amended Petition alleged breach of contract, intentional and negligent misrepresentation, breach of fiduciary duties, and violations of various Oklahoma and federal statutes in connection with the sale of the limited partnership interests. Plaintiff sought unspecified compensatory damages and $10 million in punitive damages. Damson/Birtcher Partners and the related defendants removed the case to the United States District Court for the Western District of Oklahoma, and filed a motion to dismiss the case for lack of personal jurisdiction or, alternatively, to transfer the action to the United States District Court for the Central District of California, for the convenience of the parties and witnesses and in the interests of justice. Plaintiff moved to remand the case back to the Oklahoma state court. The court denied plaintiff's motion for removal, and took defendant's motion to dismiss or transfer under submission pending receipt of additional information the court ordered plaintiff to provide. On March 29, 2000, the court entered its order granting defendants' motion to dismiss the case for lack of personal jurisdiction, and dismissed the case. Madison Partnership and ISA Partnership Litigation On April 2, 1999, Madison Partnership Liquidity Investors XVI, LLC and ISA Partnership Liquidity Investors filed a purported class and derivative action -7- 8 DAMSON/BIRTCHER REALTY INCOME FUND-I Item 3. LEGAL PROCEEDINGS (Cont'd.) Madison Partnership and ISA Partnership Litigation (Cont'd.) in the California Superior Court in Orange County, California against Damson Birtcher Partners, Birtcher/Liquidity Properties, Birtcher Partners, Birtcher Investors, Birtcher Investments, Birtcher Limited, Breicorp LP Special Fund II, L.P., Liquidity Fund Asset Management, Inc., Robert M. Anderson, Brent R. Donaldson, Arthur B. Birtcher, Ronald E. Birtcher, and Richard G. Wollack, Defendants, and Damson/Birtcher Realty Income Fund-I, Damson/Birtcher Realty Income Fund-II, and Real Estate Income Partners III, Nominal Defendants. The complaint asserts claims for breach of fiduciary duty and breach of contract. The gravamen of the complaint is that the General Partners of these limited partnerships have not undertaken all reasonable efforts to expedite liquidation of the Partnerships' properties and to maximize the returns to the Partnerships' limited partners. The complaint seeks unspecified monetary damages, attorneys' fees and litigation expenses, and an order for dissolution of the partnerships and appointment of an independent liquidating trustee. On August 14, 2000, plaintiffs petitioned the court for an order certifying the action as a class action. Plaintiffs also asked the court to issue a writ mandating that the Partnership immediately distribute all liquidation proceeds to the limited partners. On December 19, 2000, the court denied both motions. The case is currently proceeding only as a derivative action. As noted above, limited partners holding 47% of the interests in the Partnership have settled this (and all other) cases against the Partnership and the General Partner. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II Item 5. MARKET FOR THE REGISTRANT'S LIMITED PARTNERSHIP INTERESTS AND RELATED SECURITY HOLDER MATTERS There is no public market for the limited partnership interests and a market is not expected to develop as such limited partnership interests are not publicly traded or freely transferable. -8- 9 DAMSON/BIRTCHER REALTY INCOME FUND-I Item 5. MARKET FOR THE REGISTRANT'S LIMITED PARTNERSHIP INTERESTS AND RELATED SECURITY HOLDER MATTERS (Cont'd.) As of February 28, 2001, the number of holders of the Partnership's interests is as follows: General Partner 1 Limited Partners 6,170 ----- 6,171 =====

Through May 2000 (when operations ceased), the Partnership made quarterly cash distributions to its partners out of distributable cash, when available, pursuant to the Partnership's Agreement of Limited Partnership. Distributable cash from operations was generally paid 99% to the Limited Partners and 1% to the General Partner. The Partnership has paid the following quarterly cash distributions to its Limited Partners:

The Limited Partners and the General Partner are entitled to receive quarterly cash distributions, as available, in the future. In December 1996, the Partnership made a $1,500,000 special distribution to its limited partners from a portion of the proceeds from the sale of Arlington Executive Plaza. See Item 7, Liquidity and Capital Resources for further discussion. During 1998 the General Partner temporarily suspended distributions for two quarters, commencing with the second quarter of 1998, to fund tenant and capital improvements at Cornerstone, Ladera, Terracentre and Certified Warehouse. In December 1999, the Partnership made a $13,300,000 special distribution to its limited partners from a portion of the proceeds from the sales of Certified Distribution Center, Ladera-I, The Cornerstone, Oakpointe and Washington Technical Center. In March 2000, the Partnership made a $9,000,000 special distribution to its limited partners from a portion of the proceeds from the sales of Certified Distribution Center, Ladera-I, The Cornerstone, Oakpointe and Washington Technical Center. On October 19, 2000, Grape Investors, LLC ("Grape"), the holder of approximately 7.94% of the limited partnership interests of the Partnership, settled its portion of the purported class action lawsuits entitled "Bigelow/Diversified -9- 10 DAMSON/BIRTCHER REALTY INCOME FUND-I Item 5. MARKET FOR THE REGISTRANT'S LIMITED PARTNERSHIP INTERESTS AND RELATED SECURITY HOLDER MATTERS (Cont'd.) Secondary Partnerships Fund 1990 Litigation" and "Madison Partnership and ISA Partnership Litigation" (the "Grape Settlement"). In exchange for a complete settlement and release from Grape, the Partnership paid Grape its pro rata share of the proceeds available for distribution from the liquidation of the Partnership's properties. Grape's final distribution was $576,000, or approximately $75 per $1,000 of original investment. The General Partner also paid $1.00 for all of Grape's interest in the Partnership. On December 12, 2000, the Partnership and the General Partner mailed to the limited partners an offer to settle the "Bigelow/Diversified Secondary Partnerships Fund 1990 Litigation" and "Madison Partnership and ISA Partnership Litigation" and all other claims for payment of each settling limited partner's pro rata share of the proceeds available for distribution from liquidation of the Partnership's properties (approximately $75 per $1,000 of original investment interest) plus a nominal payment of $1.00 from the General Partners for an assignment of all of a settling limited partner's interest in the Partnership to the General Partner. Limited partners holding 47% (including the Grape Settlement) of the interests in the Partnership settled on these terms. The aggregate distribution in connection with the December 12, 2000 offer, which was reflected as an accrual at December 31, 2000, was approximately $2,830,000. As of December 31, 2000, the Partnership has sold all of its operating properties. Due to the costs of defending and the uncertainty involved with the ongoing litigation, it is probable that future distributions will be limited to a liquidating distribution upon Partnership wind down, should funds be available at that time. Item 6. SELECTED FINANCIAL DATA

-10- 11 DAMSON/BIRTCHER REALTY INCOME FUND-I Item 6. SELECTED FINANCIAL DATA (Cont'd.) The following summary of financial data is for the period since the Partnership adopted the liquidation basis of accounting.

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Capital Resources and Liquidity Since the completion of its acquisition program in September 1985, the Partnership has been primarily engaged in the operation of its properties. The Partnership's original objective had been to hold its properties as long-term investments. However, an Information Statement, dated May 5, 1993, mandated that the General Partner seek a vote of the Limited Partners no later than December 31, 1996, regarding prompt liquidation of the Partnership in the event that properties with appraised values as of January 1993 which constituted at least one half of the aggregate appraised values of all Partnership properties as of that date were not sold or under contract for sale by the end of 1996. Given the mandate of the May 5, 1993 Information Statement, as of December 31, 1995, the General Partner decided to account for the Partnership's properties as assets held for sale, instead of for investment. In a Consent Solicitation dated February 18, 1997, the Partnership solicited and received the consent of the Limited Partners to dissolve the Partnership and sell and liquidate all of its remaining properties as soon as practicable, consistent with selling the Partnership's properties to the best advantage under the circumstances. The Partnership's properties were held for sale throughout 1997 and 1998. Five of the Partnership's six remaining properties were sold in 1999 and its last property was sold on May 31, 2000. Working capital is and will be principally provided from the working capital reserve established by the General Partner. The Partnership made no regular distributions during the year ended December 31, 2000. Regular distributions for the year ended December 31, 1999, represented net cash flow generated from the operation of the Partnership's properties and interest earned on the temporary investment of working capital, net of capital reserve requirements. On December 8, 1999, the Partnership made a special distribution of $13,300,000, representing a portion of the proceeds from the sale of five of its six remaining properties. Another special distribution of $9,000,000 was made on March 1, 2000. This last special distribution arose out -11- 12 DAMSON/BIRTCHER REALTY INCOME FUND-I Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont'd.) Capital Resources and Liquidity (Cont'd.) of discussions with the named plaintiffs and their lawyers in the purported class action lawsuits. It represents the culmination of further, private discussions with representatives of Grape Investors, LLC ("Grape"), the holder of the largest investor position in the Partnership (approximately 7.94% of the limited partnership interests). Grape Investors agreed that for a period of 24 months, it will not involve itself in any way or support any effort to seek, or cause anyone else to seek, the addition of new general partners, the appointment of a receiver, or the removal of the General Partner. Grape Investors also has agreed to either abstain or vote against any such action or proposal. On October 19, 2000, Grape settled its portion of the purported class action lawsuits entitled "Bigelow/Diversified Secondary Partnerships Fund 1990 Litigation" and "Madison Partnership and ISA Partnership Litigation" (the "Grape Settlement"). In exchange for a complete settlement and release from Grape, the Partnership paid Grape its pro rata share of the proceeds available for distribution from the liquidation of the Partnership's properties. Grape's final distribution was $576,000, or approximately $75 per $1,000 of original investment. The General Partner also paid $1.00 for all of Grape's interest in the Partnership. On December 12, 2000, the Partnership and the General Partner mailed to the limited partners an offer to settle the "Bigelow/Diversified Secondary Partnerships Fund 1990 Litigation" and "Madison Partnership and ISA Partnership Litigation" and all other claims for payment of each settling limited partner's pro rata share of the proceeds available for distribution from liquidation of the Partnership's properties (approximately $75 per $1,000 of original investment interest) plus a nominal payment of $1.00 from the General Partners for an assignment of all of a settling limited partner's interest in the Partnership to the General Partner. Limited partners holding 47% (including the Grape Settlement) of the interests in the Partnership settled on these terms. The aggregate distribution in connection with the December 12, 2000 offer, which was reflected as an accrual at December 31, 2000, was approximately $2,830,000. As of May 31, 2000, the Partnership had sold all of its operating properties. Two lawsuits remain pending against the Partnership and its General Partner and certain of its affiliates that seek, among other things, unspecified monetary damages. Since these cases are in the preliminary discovery phase, there is unavoidable uncertainty regarding their ultimate resolution. The Partnership Agreement mandates that the General Partner provide for all of the Partnership's liabilities and obligations, including contingent liabilities, before distributing liquidation proceeds to its partners. Therefore, the amount and timing of any distribution of liquidation proceeds will be determined by the General Partner in light of these and other relevant considerations. Due to these uncertainties, it is probable that future distributions will be limited to a liquidating distribution upon Partnership wind down should funds be available at that time. During 1998, the Partnership spent approximately $941,000 on tenant and capital improvements for The Cornerstone, Ladera, Terracentre and Certified Distribution Center. In addition, leasing commissions of approximately $290,000 were incurred for Certified Distribution Center, The Cornerstone, Terracentre and Washington -12- 13 DAMSON/BIRTCHER REALTY INCOME FUND-I Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont'd.) Capital Resources and Liquidity (Cont'd.) Technical Center. These expenditures contributed to an overall reduction of the Partnership's cash reserves and as a result, distributions were temporarily suspended for the second and third quarter of 1998. See Item 5 for a description of the Partnership's distribution history. The Partnership believes that it has adequate reserves on hand to provide it with the funds necessary to meet all of its ordinary obligations. In June 1993, the Partnership completed its solicitation of written consents from its Limited Partners. A majority in interest of the Partnership's Limited Partners approved each of the proposals contained in the Information Statement, dated May 5, 1993. Those proposals have been implemented by amending the Partnership Agreement as contemplated by the Information Statement. The amendments include, among other things, the payment of asset management and leasing fees to the General Partner and the elimination of the General Partner's residual interest and deferred leasing fees that were previously subordinated to return of the Limited Partners' 9% Preferential Return. See Item 8, Note 3 to the Financial Statements for discussion of fees paid to the General Partner for the years ended December 31, 2000, 1999 and 1998. On February 18, 1997, the General Partner mailed a Consent Solicitation to the Limited Partners which sought their consent to dissolve the Partnership and sell and liquidate all of its remaining properties as soon as practicable, consistent with selling the Partnership's properties to the best advantage under the circumstances. A majority in interest of the Limited Partners consented by March 14, 1997. As a result, the Partnership adopted the liquidation basis of accounting as of March 31, 1997. The difference between the adoption of the liquidation basis of accounting as of March 14, 1997 and March 31, 1997 was not material. Under the liquidation basis of accounting, assets are stated at their estimated net realizable values and liabilities are stated at their anticipated settlement amounts. The valuation of assets and liabilities necessarily requires many estimates and assumptions, and there are substantial uncertainties in carrying out the dissolution of the Partnership. The actual values upon dissolution and costs associated therewith could be higher or lower than the amounts recorded. Since the approval of the February 18, 1997 Consent Solicitation, the General Partner had been evaluating possible sales of Partnership properties, individually and as a portfolio, to liquidate and wind up the Partnership. On April 30, 1998 the General Partner accepted an offer to purchase all of the Partnership's properties for $39,140,000 from Abbey Investments, Inc. ("Abbey"), which was subject to certain customary contingencies, including due diligence review by the purchaser and negotiation of a definitive Purchase and Sale Agreement. On November 9, 1998, the Partnership and Abbey entered into a definitive Purchase and Sale Agreement for a purchase price ranging between $34,500,000 and $36,000,000, depending on occupancy rates at closing. Abbey thereafter requested a material reduction in the purchase price, which the Partnership did not agree to. Therefore, in late January 1999, the sale to Abbey was terminated. On April 30, 1999, the Partnership and Praedium Performance Fund IV ("Praedium") -13- 14 DAMSON/BIRTCHER REALTY INCOME FUND-I Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont'd.) Capital Resources and Liquidity (Cont'd.) executed a Purchase and Sale Agreement to sell all of the Partnership's properties except Terracentre to Praedium for $31,700,000. Praedium deposited $243,100 into escrow, pending completion of its due diligence inspection and review. Praedium's contingency period expired on June 14, 1999. During and after the contingency period, Praedium, in a series of negotiations with the Partnership, sought reductions in the purchase price of each of the properties and declined to include The Cornerstone, Ladera-I and Certified in its offers. During this time, the General Partner negotiated with Praedium, and also sought other purchasers for the properties, both individually and as a group. Finally, in late July 1999, the Partnership declined Praedium's offer to purchase only Cornerstone, Oakpointe and Washington Tech for a materially reduced purchase price and terminated its dealings with Praedium. During the year ended December 31, 1999, the Partnership sold five of its six properties in four separate transactions, and on May 31, 2000 it sold its last property as set forth below: Ladera-I On September 22, 1999, the Partnership sold Ladera-I shopping center, in Albuquerque, New Mexico to CA New Mexico, LLC, a wholly-owned subsidiary of CenterAmerica Trust ("CenterAmerica"), a Houston-based real estate investment trust that is not affiliated in any way with the Partnership, its General Partner or any of its principals or affiliates. The sale price was $4,424,000. CenterAmerica and the Partnership were each represented by third-party brokers in the transaction. The brokers were paid an aggregate $186,803 from the sale proceeds. The General Partner was not paid a disposition fee in connection with the transaction. CenterAmerica did not hire the General Partner or any affiliate to perform asset management or property management services for this property. The Rubin Pachulsky Dew Transaction On September 23, 1999, the Partnership sold Certified Warehouse and Distribution Center, in Salt Lake City, Utah, Oakpointe Business Center, in Arlington Heights, Illinois, and Washington Technical Center, in Renton, Washington to Rubin Pachulsky Dew Properties, LLC ("Rubin Pachulsky Dew") for $5,100,000, $5,600,000 and $3,950,000, respectively, or an aggregate purchase price of $14,650,000. Rubin Pachulsky Dew is a third-party real estate investment entity that is not affiliated in any way with the Partnership, its General Partner or any of its principals or affiliates. Rubin Pachulsky Dew was represented by a third-party broker in the transaction. The broker was paid $146,500 from the sale proceeds. Since the sale price of Washington Technical Center exceeded the January 1, 1993 appraised value ($3,400,000), pursuant to the 1993 Amendment of the Partnership Agreement, the General Partner earned and was paid a property disposition fee of $98,750 in connection with the sale of that property. -14- 15 DAMSON/BIRTCHER REALTY INCOME FUND-I Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont'd.) Capital Resources and Liquidity (Cont'd.) The Rubin Pachulsky Dew Transaction (Cont'd.) Rubin Pachulsky Dew has hired an affiliate of Birtcher as property manager for the properties for a fee that is approximately the same as the fee the Partnership previously paid to the General Partner for property management. In addition, Rubin Pachulsky Dew has hired an affiliate of Birtcher to provide certain asset management services for the properties, and will pay an incentive fee approximately equal to 10% of the profits, if any, after Rubin Pachulsky Dew has received a 15% cumulative annual return on its investment. The incentive fee, if earned, is not payable until the last property is sold or four years from date of purchase, whichever comes first. The property management agreement is cancelable at any time upon 60 days notice, but the incentive fee will survive termination of the contract. A portion of the proceeds from the sale of the properties to Rubin Pachulsky Dew continues to be held in escrow. A sum equal to two and one-half percent of the purchase price was held back as a potential source of payment for any claims that may arise related to a Partnership breach of certain representations and warranties related to the sale (released to the Partnership on September 26, 2000) and for any litigation costs that may arise (released to the Partnership on March 23, 2000). The remaining cash held in escrow relates to holdbacks for tenant improvements ($85,000) and a small amount ($1,000) is in dispute with the escrow company. The cash held in escrow was included in the calculation of loss on sale of real estate. The Cornerstone On October 15, 1999, Damson/Birtcher Realty Income Fund-I (the "Partnership") sold The Cornerstone shopping center, in Tempe, Arizona to GDA Real Estate Services, LLC ("GDA"), a Denver-based real estate developer and operator that is not affiliated in any way with the Partnership, its General Partner or the General Partner's affiliates, for a sale price of $8,500,000. GDA was represented by two third-party brokers in the transaction. The brokers were paid $170,000 from the sale proceeds. The General Partner was not paid a disposition fee in connection with the transaction. GDA did not hire the General Partner or any affiliate to perform asset management or property management services for this property. Terracentre On March 24, 1999, the Partnership signed a Purchase and Sale Agreement to sell Terracentre for $6,450,000 to Halcyon Real Estate, Inc. ("Halcyon"), a local Denver real estate development company. During its due diligence period Halcyon asked to extend its contingency period to address zoning and land-use changes with the city of Denver (it apparently wanted to change the site from office to residential condominium use). The General Partner did not accept the request for extension. Halcyon thereupon asked to reduce the purchase price from $6,450,000 to $4,500,000. The Partnership rejected this request and terminated its dealings with Halcyon. -15- 16 DAMSON/BIRTCHER REALTY INCOME FUND-I Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont'd.) Capital Resources and Liquidity (Cont'd.) Terracentre (Cont'd.) On June 18, 1999, the Partnership entered into a Purchase and Sale Agreement to sell Terracentre to Charles Callaway ("Callaway"), an unaffiliated Denver real estate developer and operator, for $6,450,000. The purchaser deposited $200,000 into escrow on June 21, 1999, all but $50,000 of which was refundable pending completion of its due diligence investigation. Unfortunately, at a Denver city council meeting on August 10, 1999, certain council members discussed condemning Terracentre in order to expand the adjacent convention center. The Callaway transaction was subsequently terminated and the deposit returned. On November 2, 1999, Denver voters approved a referendum in favor of expanding the convention center. On May 31, 2000, the Partnership sold Terracentre, in Denver, Colorado to Robert E. Collawn ("Collawn"), a Denver real estate developer and operator, for $6,500,000. Collawn is not affiliated in any way with the Partnership, its General Partner or the General Partner's affiliates. The Partnership was represented by a third-party broker in the transaction. The broker was paid $227,500 from the sale proceeds. The General Partner earned and was paid a disposition fee of $130,000 in connection with the transaction. Collawn did not hire the General Partner or any affiliate to perform asset management or property management services for this property. The Partnership realized approximately $6,206,000, in cash proceeds from the sale of Terracentre, after deducting for closing costs and prorations totaling approximately $294,000. Property Appraisals and Net Asset Value In accordance with the terms of the Partnership Agreement, each year the Partnership secures an independent appraisal of each of the Partnership's properties as of January 1. Prior to the January 1, 1995 appraisals, the independent appraiser had estimated each property's "Investment Value," utilizing a seven to ten-year cash flow model to estimate value based upon an income approach. The amendment to the Partnership Agreement consented to by the Limited Partners in June 1993 mandated, among other things, that the General Partner seek a vote of (and provide an analysis and recommendation to) the Limited Partners no later than December 31, 1996 regarding the prompt liquidation of the Partnership in the event that properties with (then) current appraised values (constituting at least one-half of the total (then) current appraised values) of all of the Partnership's properties were not sold or under contract for sale by the end of 1996. Given this mandate, the General Partner requested that the appraiser provide an assessment of value that reflected a shorter investment holding term. At that time, the General Partner did not know how long it would take to sell the -16- 17 DAMSON/BIRTCHER REALTY INCOME FUND-I Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont'd.) Capital Resources and Liquidity (Cont'd.) Property Appraisals and Net Asset Value (Cont'd.) Partnership's remaining properties, so it requested that the appraiser assume that the entire portfolio would be sold over three years in connection with the January 1996 appraisals, over two years in connection with the January 1997 appraisals and over one year in connection with the January 1998 appraisals. In lieu of obtaining appraisals as of January 1, 1999, the General Partner calculated an estimated selling price net of estimated selling costs by taking an average of the offer prices, net of estimated selling costs, from its various sale proposals. The General Partner utilized those averages to estimate fair value. Since Terracentre was the Partnership's only remaining property and was under contract for sale at a price of $6,500,000, the General Partner adjusted the contract price to account for estimated selling costs and used $5,980,000 as its estimate of fair value as of January 1, 2000. There were no properties to value as of January 1, 2001. Year 2000 As of December 31, 1999, the Partnership's accounting systems and the investor services system used to track the limited partners' interests, distributions and tax information were tested and appeared to be free of year 2000 bugs. The Partnership's remaining property was also reviewed utilizing the Building Owners and Managers Association ("BOMA") industry standards as a guideline for necessary corrections and those corrections were successful. As of December 31, 2000, the Partnership did not experience any significant issues or problems relating to year 2000. The cost of the Partnership's accounting systems upgrade was borne by the General Partner and was not reimbursed by the Partnership. Results of Operations Year Ended December 31, 2000 Because the Partnership has been liquidating its assets, a year-to-year comparison of the results of operations is not practical. As the Partnership's assets (properties) were sold, the results of operations have been generated from a smaller asset base, and therefore are not comparable. The Partnership completed the sale of five of its six remaining properties in three separate transactions during 1999 and sold its last property on May 31, 2000. The Partnership's operating results have been reflected on the Statements of Changes of Net Assets in Liquidation. For the year ended December 31, 2000, the Partnership incurred a net operating loss of $144,000 from the operation of its last remaining property (Terracentre). Terracentre was sold on May 31, 2000 and no further operating losses were incurred after that date. Interest income resulted from the temporary investment of Partnership working -17- 18 DAMSON/BIRTCHER REALTY INCOME FUND-I Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont'd.) Results of Operations (Cont'd.) Year Ended December 31, 2000 (Cont'd.) capital. For the year ended December 31, 2000, interest income was $374,000. The increase in interest income was reflective of the increased cash and cash equivalent balances that were generated from the sale of the properties and are being held in reserve. On May 31, 2000, the Partnership sold Terracentre, in Denver, Colorado to Robert E. Collawn, a Denver real estate developer and operator, for $6,500,000. The Partnership realized a gain on the sale of $151,000, in excess of its carrying value, after deducting for closing costs and prorations totaling approximately $294,000. Accrued expenses for liquidation as of December 31, 2000, includes estimates of costs to be incurred in carrying out the dissolution and liquidation of the Partnership through December 31, 2001. These costs include estimates of legal fees, accounting fees, tax preparation and filing fees, other professional services and the general partner's liability insurance. During the year ended December 31, 2000, the General Partner continuously re-evaluated the estimated costs to wind up and dissolve the Partnership given the uncertainty involved with the ongoing litigation. The provision for liquidation expenses was accordingly adjusted by an aggregate of $903,000 to reflect the revised estimates. The actual costs could vary significantly from the related provisions due to the uncertainty related to the length of time required to complete the liquidation and dissolution and the complexities which may arise. The accrued expenses for liquidation do not take into consideration the possible outcome of the ongoing litigation after December 31, 2001. Such costs are unknown and are not estimable at this time. Liquidation expenses incurred for the year ended December 31, 2000, include charges of $74,000 from the General Partner and its affiliates for services rendered in connection with administering the affairs of the Partnership. Also included in liquidation expenses incurred for the year ended December 31, 2000, are direct charges of $482,000, relating to legal fees, audit fees, tax preparation fees and professional services, costs incurred in providing information to the Limited Partners and other miscellaneous costs. Interest expense in 1999 resulted from interest on the first deed of trust on Certified Distribution Center. That mortgage was retired on September 23, 1999 with the sale of Certified Distribution Center to Rubin Pachulsky Dew. Other expense for the year ended December 31, 2000, resulted from the write off of several miscellaneous uncollectable tenant receivables ($7,000), some legal fees incurred during the attempted collection process and the write off the remaining portion of prepaid property insurance after all refunds were collected ($13,000). The balance of miscellaneous expenses were made up various income and expense items. -18- 19 DAMSON/BIRTCHER REALTY INCOME FUND-I Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont'd.) Results of Operations (Cont'd.) Year Ended December 31, 1999 Because the Partnership has been liquidating its assets, a year-to-year comparison of the results of operations is not practical. As the Partnership's assets (properties) were sold, the results of operations have been generated from a smaller asset base, and therefore are not comparable. The Partnership completed the sale of five of its six remaining properties in three separate transactions during the year ended December 31, 1999. The Partnership's operating results have been reflected on the Statement of Changes of Net Assets in Liquidation. For the year ended December 31, 1999, the Partnership generated $2,364,000 of net operating income from its operations as compared to $3,337,000 in 1998. The decrease was primarily attributable to the sales of Oakpointe business center, Certified Warehouse, Ladera-I shopping center and Washington Technical Center in September 1999 and sale of The Cornerstone shopping center in October 1999. Interest income resulted from the temporary investment of partnership working capital. For the year ended December 31, 1999 the Partnership earned $275,000 of interest income. The increase, as compared to 1998, was directly related to the investment of proceeds from the sale of properties in 1999. The net loss on sale of real estate ($538,000) reflects the net gains and (losses) on the respective sales of Oakpointe business center ($280,000), Certified Warehouse ($623,000), Washington Technical Center $459,000, Ladera-I shopping center $20,000 and The Cornerstone shopping center ($114,000). In June 1999, the General Partner determined that the carrying values of Ladera-I Shopping Center and Oakpointe were in excess of their respective estimated net realizable values, net of estimated selling costs. As a result, their carrying values were adjusted by $1,217,000 and $500,000, to $4,203,000, and $5,812,000, respectively. As of December 31, 1999, the General Partner determined that the carrying value of Terracentre was below its estimated net realizable value, net of estimated selling costs. Based upon its pending sale, its carrying value was adjusted by $224,000 to $5,980,000. Interest expense resulted from interest on the first deed of trust on Certified Distribution Center. That mortgage was retired on September 23, 1999 with the sale of Certified Distribution Center to Rubin Pachulsky Dew. General and administrative expenses for the year ended December 31,1999, include charges of $279,000 from the General Partner and its affiliates for services rendered in connection with administrating the affairs of the Partnership and operating the Partnership's properties. Also included in general and administrative expenses for the year ended December 31, 1999, are direct charges of $599,000 related to audit fees, tax preparation fees, legal and professional fees, costs incurred in providing information to the Limited Partners and other miscellaneous costs. The decrease in general and administrative expenses for the year ended December 31, 1999 as compared to the year ended December 31, 1998, was attributable to a decrease in asset management fees, administrative wages, liability insurance costs and appraisal fees. These decreases were partially offset by an increase in legal and professional services expenses in 1999. Accrued expenses for liquidation as of December 31, 1999, include estimates of costs to be incurred in carrying out the dissolution and liquidation of the -19- 20 DAMSON/BIRTCHER REALTY INCOME FUND-I Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont'd.) Results of Operations (Cont'd.) Year Ended December 31, 1999 (Cont'd.) Partnership. These costs include estimates of legal fees, accounting fees, tax preparation and filing fees, and other professional services. In September 1999, a pre-payment penalty of $384,000 associated with the early retirement of a mortgage loan secured by the Certified Distribution Center was incurred. The portion previously accrued as an estimate of the pre-payment penalty was eliminated as a result of the sale of that property. The difference between the estimated and actual pre-payment penalty incurred ($316,000) has been reflected as a decrease in accrued expenses for liquidation. At December 31, 1999, the General Partner re-evaluated the estimated costs to wind up and dissolve the Partnership given the uncertainty involved with the ongoing litigation. The provision for liquidation expenses was accordingly adjusted by an additional $256,000 to reflect the revised estimates. The allowance for accrued expenses for liquidation does not, however, reflect any costs of the ongoing litigation due to the uncertainty associated with those matters. Year Ended December 31, 1998 Because the Partnership adopted the liquidation basis of accounting on March 31, 1997, a comparison of the results of operations is not practical. The Statements of Net Assets in Liquidation and Statements of Changes of Net Assets in Liquidation reflect the Partnership in the process of liquidation. Prior financial statements reflect the Partnership as a going concern. As the Partnership's assets (properties) are sold, the results of operations will be generated from a smaller asset base, and are therefore not comparable. The Partnership's operating results have been reflected on the Statements of Changes of Net Assets in Liquidation for the year ended December 31, 1998. For the year ended December 31, 1998, the Partnership generated $3,337,000 of net operating income from operation of its properties. The increase, when compared to 1997, was primarily attributable to the following: 1) the collection of a lease termination fee from Walgreens at Ladera-I ($104,000); 2) an increase in rental income and operating expense recoveries at Cornerstone ($419,000); 3) the recovery of $73,000 in amounts previously written off in 1997 as bad debt expenses; and 4) the aforementioned increases were partially offset by the decrease in revenue at Certified Warehouse ($446,000). In September and November 1997, Certified Warehouse and Transfer Company, Inc. vacated Certified Distribution Center. Although the General Partner successfully completed negotiation of a 123,074 square foot lease with Quality Distribution effective March 1, 1998 at a rate greater than before, the remaining 189,115 square foot vacancy will have a negative affect on future distributions on cash from operations to the Limited Partners. Interest income resulted from the temporary investment of Partnership working capital. For the year ended December 31, 1998, interest income was approximately $14,000. The decrease in interest income, when compared to 1997, was attributable to the lower average cash balance that the Partnership maintained during 1998. -20- 21 DAMSON/BIRTCHER REALTY INCOME FUND-I Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Cont'd.) Results of Operations (Cont'd.) Year Ended December 31, 1998 (Cont'd.) General and administrative expenses for the year ended December 31, 1998, include charges of $405,000 from the General Partner and its affiliates for services rendered in connection with administering the affairs of the Partnership and operating the Partnership's properties. Also included in general and administrative expenses for the year ended December 31, 1998, are direct charges of $530,000, relating to audit fees, tax preparation fees, legal fees and professional services, liability insurance expenses, costs incurred in providing information to the Limited Partners and other miscellaneous costs. The decrease in general and administrative expenses for the year ended December 31, 1998, as compared to 1997, was primarily attributable to the decreases in asset management fees, cost of legal and professional services, postage and printing costs and appraisal fees. Accrued expenses for liquidation as of December 31, 1998, includes estimates of costs to be incurred in carrying out the dissolution and liquidation of the Partnership. These costs include estimates of legal fees, accounting fees, tax preparation and filing fees, professional services and the pre-payment penalty and remaining unamortized loan fees associated with the anticipated early retirement of the mortgage loan secured by the Certified Warehouse property. The actual costs could vary significantly from the related provisions due to the uncertainty related to the length of time required to complete the liquidation and dissolution and the complexities which may arise in disposing of the Partnership's remaining assets. Interest expense resulted from interest on the first deed of trust on Certified Distribution Center. For the year ended December 31, 1998, the General Partner determined that the carrying values of Certified Warehouse, The Cornerstone, Ladera-I Shopping Center and Oakpointe were in excess of their respective estimated net realizable values. As a result, their carrying values were adjusted by $1,225,000, $1,545,000, $652,000 and $1,546,000, to $5,655,000, $8,139,000, $5,404,000 and $6,312,000, respectively. In addition, during 1998, the carrying value of Terracentre was increased by $2,368,000 to its estimated net realizable value of $5,649,000 partially offsetting the aforementioned decreases. Impact of Issued But Not Yet Adopted Accounting Principles In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards, or SFAS, No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as amended by SFAS Nos. 137 and 138, describes the accounting for derivative instruments and hedging activities. SFAS No. 133, as amended, is effective for the first fiscal quarter of the first fiscal year beginning after June 15, 2000. We do not believe that the implementation of SFAS No. 133, as amended, will have an impact on our financial position or results of operations. Item 7a. Quantitative and Qualitative Market Risk Disclosures As of December 31, 2000, the Partnership had cash equivalents of $6,575,000 invested in interest-bearing certificates of deposit. These investments are subject to interest rate risk due to changes in interest rates upon maturity. Declines in interest rates over time would reduce Partnership interest income. -21- 22 DAMSON/BIRTCHER REALTY INCOME FUND-I Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS

Information required by schedules called for under Regulation S-X is either not applicable or is included in the financial statements. F-1 23 DAMSON/BIRTCHER REALTY INCOME FUND-I INDEPENDENT AUDITORS' REPORT To Damson/Birtcher Partners, as General Partner of Damson/Birtcher Realty Income Fund-I: We have audited the financial statements of Damson/Birtcher Realty Income Fund-I, a limited partnership as listed in the accompanying index. 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 audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 net assets in liquidation as of December 31, 2000 and 1999 of Damson/Birtcher Realty Income Fund-I, and the changes of net assets in liquidation for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America applied on the basis of accounting discussed in note 2. KPMG LLP Orange County, California February 6, 2001 F-2 24 DAMSON/BIRTCHER REALTY INCOME FUND-I STATEMENTS OF NET ASSETS IN LIQUIDATION

The accompanying notes are an integral part of these Financial Statements. F-3 25 DAMSON/BIRTCHER REALTY INCOME FUND-I STATEMENTS OF CHANGES OF NET ASSETS IN LIQUIDATION

The accompanying notes are an integral part of these Financial Statements. F-4 26 DAMSON/BIRTCHER REALTY INCOME FUND-I NOTES TO FINANCIAL STATEMENTS (1) Organization and Operations Damson/Birtcher Realty Income Fund-I (the "Partnership") is a limited partnership formed on May 7, 1984, under the laws of the Commonwealth of Pennsylvania, for the purpose of acquiring and operating income-producing retail, commercial and industrial properties. The General Partner of the Partnership is Damson/Birtcher Partners, a general partnership originally consisting of Equity Properties, Inc. ("EPI"), an indirect, wholly-owned subsidiary of Damson Oil Corporation and Birtcher Partners, a California general partnership. In December 1992, EPI withdrew as a general partner of the Damson/Birtcher Partners and LF Special Fund II, L.P. was added as a general partner of the General Partner. Under the terms of the General Partner's Partnership Agreement, Birtcher Partners or its affiliates, remains responsible for the day-to-day management of the Partnership's assets. In January 1993, the General Partner filed an Information Statement with the Securities and Exchange Commission seeking consent of the Limited Partners to amend the Partnership Agreement. On June 24, 1993, the Partnership completed its solicitation of written consent from its Limited Partners. A majority in interest of the Partnership's Limited Partners approved each of the proposals contained in the Information Statement, dated May 5, 1993. Those proposals were implemented by the Partnership as contemplated by the Information Statement as amendments to the Partnership Agreement, and have been reflected in these financial statements as such. The amendment modified the Partnership Agreement to eliminate the General Partner's 10% subordinated interest in distributions of Distributable Cash (net cash from operations) and reduce its subordinated interest in such distributions from 10% to 1%. The amendment also modified the Partnership Agreement to eliminate the General Partner's 10% subordinated interest in Sale or Financing Proceeds (net cash from sale or financing of Partnership property) and to reduce its subordinated interest in such proceeds from 15% to 1%. In lieu thereof, the Partnership Agreement provides for the Partnership's payment to the General Partner of an annual asset management fee equal initially to .75% of the aggregate appraised value of the Partnership's properties. The factor used to calculate the annual asset management fee was reduced by .10% each year beginning after December 31, 1996 (e.g., from .65% in 1997 to .55% in 1998, to .45% in 1999 and .35% in 2000). There will be no such fees paid in 2001 as all Partnership properties have been sold. The amendment modified the Partnership Agreement to eliminate the subordination provisions with respect to leasing fees payable under that subsection. The amendment also eliminated the deferred leasing fees earned by the General Partner or its affiliates (approximately $448,000 as of December 31, 1992) on or after the effective date of the amendment. Fees for leasing services rendered by the General Partner or F-5 27 DAMSON/BIRTCHER REALTY INCOME FUND-I NOTES TO FINANCIAL STATEMENTS (Cont'd.) (1) Organization and Operations (Cont'd.) its affiliates (post amendment) have been payable by the Partnership on a current basis and have not been subordinated to the Limited Partners Preferred Return and Adjusted Invested Capital or any other amount. The amendment modified the Partnership Agreement to eliminate the subordination provision with respect to future property disposition fees payable under that section. The amendment authorized payment to the General Partner and its affiliates of the property disposition fee as earned. The fee is not subordinated to the Limited Partners Preferred Return and Adjusted Invested Capital or any other amount. The disposition fees are to be paid to the General Partner or its affiliates in an amount equal to 50% of the competitive real estate brokerage commission that would be charged by unaffiliated third-parties providing comparable services in the area in which a property is located, but in no event more than three percent of the gross sale price of the property, and are to be reduced by the amount by which any brokerage or similar commissions paid to any unaffiliated third-parties in connection with the sale of property exceed three percent of the gross sale price. This amount is not payable, unless and to the extent that the sale price of the property in question, net of any other brokerage commissions (but not other costs of sale), exceeds the appraised value of the property as of January 1, 1993. The amendment stated that the Partnership is no longer authorized to pay the General Partner or its affiliates any insurance commissions or any property financing fees. No such commissions or fees have been paid or accrued by the Partnership since its inception. The amendment modified the provisions of the Partnership Agreement regarding allocations of Partnership income, gain and other tax items between the General Partner and the Limited Partners primarily to conform to the changes in the General Partner's interest in distributions of Distributable Cash and Sale or Financing Proceeds, as defined, effected by the amendment. It is not anticipated that the adoption and implementation of the amendment will have any material adverse effect on future allocations of income, gain, loss or other tax items to the Limited Partners. However, if any of the Partnership's properties are sold for a gain, a special allocation to the General Partner may have the effect of reducing the amount of Sale or Financing Proceeds otherwise distributable to the Limited Partners and correspondingly increasing the amount of such distributions to be retained by the General Partner. The amount of such distributions to be affected would be approximately equal to any deficit balance, if any, in the General Partner's capital account in the Partnership at the time of the allocation. F-6 28 DAMSON/BIRTCHER REALTY INCOME FUND-I NOTES TO FINANCIAL STATEMENTS (Cont'd.) (1) Organization and Operations (Cont'd.) In lieu of obtaining appraisals as of January 1, 2000, the General Partner calculated the estimated selling price net of estimated selling costs of Partnership's only remaining property (Terracentre) at $6,500,000, based upon the fact that as of March 10, 2000 it was under contract for sale at that amount. Accordingly, at January 1, 2000, the General Partner estimated the fair value, net of estimated selling costs, of the remaining property to be $5,980,000. Terracentre was subsequently sold on May 31, 2000 for $6,500,000. The Limited Partners have certain priorities in the allocation of cash distributions by the Partnership. Out of each distribution of net cash, the Limited Partners generally have certain preferential rights to receive payments that, together with all previous payments to them, would provide an overall 9% per annum (cumulative non-compounded) return (a "9% Preferential Return") on their investment in the Partnership. Any distributions not equaling this 9% Preferential Return in any quarter are to be made up in subsequent periods if and to the extent distributable cash is available. It is not, however, attainable given the Partnership's liquidation status. Distributable cash from operations was paid out each quarter in the following manner: 99% to the Limited Partners and 1% to the General Partner. These payments were made each quarter to the extent that there was sufficient distributable cash available. Sale or financing proceeds were distributed, to the extent available, as follows: (i) to the Limited Partners until all cash distributions to them amount to a 9% Preferential Return on their investment cumulatively from the date of their admission to the Partnership; (ii) then to the Limited Partners in an amount equal to their investment; and (iii) the remainder, if any, 99% to Limited Partners and 1% to the General Partner. Although the unpaid 9% Preferential Return to the Limited Partners' aggregates $79,581,000 as of December 31, 2000, the limited partners will not realize this return due to the Partnership's estimated remaining liquidation value of $3,162,000. As a result, all sales proceeds were distributed 100% to limited partners less holdbacks for current litigation plus the estimated costs to maintain Partnership overhead. The amendment modified the Partnership Agreement so as to restrict the Partnership from entering into a future "Reorganization Transaction" (as defined in the amendment) sponsored by the General Partner or any of its affiliates unless such transaction is approved by a "supermajority" of at least 80% in interest of the Limited Partners and the General Partner. The amendment also prohibits the modification of this restriction on Reorganization Transactions without the approval of at least 80% in interest of the Limited Partners. F-7 29 DAMSON/BIRTCHER REALTY INCOME FUND-I NOTES TO FINANCIAL STATEMENTS (Cont'd.) (1) Organization and Operations (Cont'd.) The Partnership's original investment objectives contemplated that it would hold its properties for a period of at least five years, with decisions about the actual timing of property sales or other dispositions to be left to the General Partner's discretion based on the anticipated remaining economic benefits of continued ownership and other factors. On February 18, 1997, the Partnership mailed a Consent Solicitation to the Limited Partners which sought their consent to dissolve the Partnership and sell and liquidate all of its remaining properties as soon as practicable, consistent with obtaining reasonable value for the Partnership's properties. A majority in interest of the Limited Partners consented by March 14, 1997. As a result, the Partnership adopted the liquidation basis of accounting as of March 31, 1997. The difference between the adoption of the liquidation basis of accounting as of March 14, 1997 and March 31, 1997 was not material. Under the liquidation basis of accounting, assets are stated at their estimated net realizable values and liabilities are stated at their anticipated settlement amounts. The valuation of assets and liabilities necessarily requires many estimates and assumptions, and there are substantial uncertainties in carrying out the dissolution of the Partnership. The actual values upon dissolution and costs associated therewith could be higher or lower than the amounts recorded. The Partnership adopted the liquidation basis of accounting on March 31, 1997. Comparison of results to prior years, therefore, is not practical. The Statements of Net Assets in Liquidation and Statements of Changes of Net Assets in Liquidation reflect the Partnership in the process of liquidation. Prior financial statements reflect the Partnership as a going concern. As of December 31, 1995 the General Partner decided to treat its properties as held for sale, instead of for investment, for financial statement purposes given the mandate of the May 5, 1993 Information Statement. Since adoption of the 1993 amendment, the General Partner considered several preliminary indications of interest from third parties to acquire some or all of the Partnership's properties. Apart from the sale of Arlington Executive Plaza, these transactions never materialized, primarily because the General Partner rejected as too low the valuations of the Partnership's remaining properties as proposed by the potential purchasers. The Partnership's properties were held for sale throughout 1997 and 1998. Five of the Partnership's six remaining properties were sold in 1999 and the last property was sold on May 31, 2000. On October 19, 2000, Grape Investors, LLC ("Grape"), the holder of approximately 7.94% of the limited partnership interests of the Partnership, settled its portion of the purported class action lawsuits entitled "Bigelow/Diversified Secondary Partnerships Fund 1990 Litigation" and "Madison Partnership and ISA Partnership Litigation" (the "Grape Settlement"). See Note 5. F-8 30 DAMSON/BIRTCHER REALTY INCOME FUND-I NOTES TO FINANCIAL STATEMENTS (Cont'd.) (2) Summary of Significant Accounting Policies Liquidation Basis The Partnership adopted the liquidation basis of accounting as of March 31, 1997. The liquidation basis of accounting is appropriate when liquidation appears imminent, the Partnership can no longer be classified as a going concern and the net realizable values of the Partnership's assets are reasonably determinable. Under this method of accounting, assets and liabilities are stated at their estimated net realizable values and costs of liquidating the Partnership are provided to the extent reasonably determinable. For the year ended December 31, 1998, the General Partner determined that the carrying values of Certified Warehouse, The Cornerstone, Ladera-I Shopping Center and Oakpointe were in excess of their respective estimated net realizable values. As a result, their carrying values were adjusted by $1,225,000, $1,545,000, $652,000 and $1,546,000, to $5,655,000, $8,139,000, $5,404,000 and $6,312,000, respectively. In addition, during 1998, the carrying value of Terracentre increased by $2,368,000 to its estimated net realizable value of $5,649,000 partially offsetting the aforementioned decreases. In June 1999, the General Partner determined that the carrying values of Ladera-I Shopping Center and Oakpointe were in excess of their respective estimated net realizable values, net of estimated selling costs. As a result, their carrying values were adjusted by $1,217,000 and $500,000, to $4,203,000, and $5,812,000, respectively. Gains and (Losses) amounted to $20,000 and $($280,000), respectively upon their actual sales. As of December 31, 1999, the General Partner determined that the carrying value of Terracentre was below its estimated net realizable value, net of estimated selling costs. Based upon its then pending sale, its carrying value was adjusted by $224,000 to $5,980,000. A gain of $151,000 was subsequently realized upon sale in May 2000. Segment Reporting Given that the Partnership is in the process of liquidation, the Partnership has identified only one operating business segment which is the business of asset liquidation. Cash and Cash Equivalents The Partnership invests its excess cash balances in short-term investments (cash equivalents). These investments are stated at cost, which approximates market, and consist of money market, certificates of deposit and other non-equity-type cash investments. Cash equivalents at December 31, 2000 and 1999, totaled $6,575,000 and $10,066,000, respectively. Cash equivalents are defined as temporary non-equity F-9 31 DAMSON/BIRTCHER REALTY INCOME FUND-I NOTES TO FINANCIAL STATEMENTS (Cont'd.) (2) Summary of Significant Accounting Policies (Cont'd.) Cash and Cash Equivalents (Cont'd.) investments with original maturities of three months or less, which can be readily converted into cash and are not subject to changes in market value; however, are subject to interest rate risk. Revenue Recognition Rental income has been recognized according to the lease terms. Income Taxes Income taxes are not levied at the Partnership level, but rather on the individual partners; therefore, no provision or liability for Federal and State income taxes has been reflected in the accompanying financial statements. The following are the Partnership's assets and liabilities as determined in accordance with generally accepted accounting principles ("GAAP") (liquidation basis of accounting) and for federal income tax reporting purposes at December 31:

F-10 32 DAMSON/BIRTCHER REALTY INCOME FUND-I NOTES TO FINANCIAL STATEMENTS (Cont'd.) (2) Summary of Significant Accounting Policies (Cont'd.) Income Taxes (Cont'd.) Following are the differences between Financial Statement and tax return income:

Earnings and Distributions Per Unit The Partnership Agreement does not designate investment interests in units. All investment interests are calculated on a "percent of Partnership" basis, in part to accommodate original reduced rates on sales commissions for subscriptions in excess of certain specified amounts. A Limited Partner who was charged a reduced sales commission or no sales commission was credited with proportionately larger Invested Capital and therefore had a disproportionately greater interest in the capital and revenues of the Partnership than a Limited Partner who paid commissions at a higher rate. F-11 33 DAMSON/BIRTCHER REALTY INCOME FUND-I NOTES TO FINANCIAL STATEMENTS (Cont'd.) (2) Summary of Significant Accounting Policies (Cont'd.) Earnings and Distributions Per Unit (Cont'd.) As a result, the Partnership has no set unit value as all accounting, investor reporting and tax information is based upon each investor's relative percentage of Invested Capital. Accordingly, earnings or loss per unit is not presented in the accompanying financial statements. Estimations The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the General Partner to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses or changes in net assets during the reporting period. Actual results could differ from those estimates. (3) Transactions with Affiliates The Partnership has no employees and, accordingly, the General Partner and its affiliates perform services on behalf of the Partnership in connection with administering the affairs of the Partnership. The General Partner and affiliates are reimbursed for their general and administrative costs actually incurred and associated with services performed on behalf of the Partnership. For the years ended December 31, 2000, 1999 and 1998, the Partnership was charged with approximately $74,000, $132,000 and $152,000, respectively, of such expenses. An affiliate of the General Partner provided property management services with respect to the Partnership's properties and received a fee for such services not to exceed 3% of the gross receipts from the properties under management. Such fees amounted to approximately $10,000 in 2000, $131,000 in 1999 and $173,000 in 1998. In addition, the affiliate of the General Partner received $47,000 in 2000, $270,000 in 1999 and $312,000 in 1998, as reimbursement of costs for on-site property management personnel and other reimbursable costs. The amended Partnership Agreement provides for the Partnership's payment to the General Partner of an annual asset management fee equal to .75% of the aggregate appraised value of the Partnership's properties as determined by independent appraisal undertaken in January of each year prior to 1997 and .65% for 1997, .55% for 1998, .45% for 1999 and .35% in 2000. Such fees for the year ended December 31, 2000, 1999 and 1998, amounted to $9,000, $125,000 and $209,000, respectively. In addition, the amended Partnership Agreement provides for payment to the General Partner of a leasing fee for services rendered in connection with leasing space in a Partnership property after the expiration or termination of any lease of such space including renewal options. Fees F-12 34 DAMSON/BIRTCHER REALTY INCOME FUND-I NOTES TO FINANCIAL STATEMENTS (Cont'd.) (3) Transactions with Affiliates (Cont'd.) for leasing services for the year ended December 31, 2000, 1999 and 1998, amounted to $0, $22,000 and $44,000, respectively. (4) Gain/Loss from Sale of Real Estate During the year ended December 31, 1999, the Partnership sold five of its six remaining properties in four separate transactions, as set forth below: Ladera-I On September 22, 1999, the Partnership sold Ladera-I shopping center, in Albuquerque, New Mexico to CA New Mexico, LLC, a wholly-owned subsidiary of CenterAmerica Trust ("CenterAmerica"), a Houston-based real estate investment trust that is not affiliated in any way with the Partnership, its General Partner or any of its principals or affiliates. The sale price was $4,424,000. CenterAmerica and the Partnership were each represented by third-party brokers in the transaction. The brokers were paid an aggregate $186,800 from the sale proceeds. The General Partner was not paid a disposition fee in connection with the transaction. CenterAmerica did not hire the General Partner or any affiliate to perform asset management or property management services for this property. The sale of Ladera-I shopping center resulted in a gain of approximately $20,000 upon disposition. The Rubin Pachulsky Dew Transaction On September 23, 1999, the Partnership sold Certified Warehouse and Distribution Center, in Salt Lake City, Utah, Oakpointe Business Center, in Arlington Heights, Illinois, and Washington Technical Center, in Renton, Washington to Rubin Pachulsky Dew Properties, LLC ("Rubin Pachulsky Dew") for $5,100,000, $5,600,000 and $3,950,000, respectively, or an aggregate purchase price of $14,650,000. Rubin Pachulsky Dew is a third-party real estate investment entity that is not affiliated in any way with the Partnership, its General Partner or any of its principals or affiliates. Rubin Pachulsky Dew was represented by a third-party broker in the transaction. The broker was paid $146,500 from the sale proceeds. Since the sale price of Washington Technical Center exceeded the January 1, 1993 appraised value ($3,400,000), pursuant to the 1993 Amendment of the Partnership Agreement, the General Partner earned and was paid a property disposition fee of $98,750 in connection with the sale of that property. F-13 35 DAMSON/BIRTCHER REALTY INCOME FUND-I NOTES TO FINANCIAL STATEMENTS (Cont'd.) (4) Gain/Loss from the Sale of Real Estate (Cont'd.) The Rubin Pachulsky Dew Transaction (Cont'd.) Rubin Pachulsky Dew has hired an affiliate of Birtcher as property manager for the properties for a fee that is approximately the same as the fee the Partnership previously paid to the General Partner for property management. In addition, Rubin Pachulsky Dew has hired an affiliate of Birtcher to provide certain asset management services for the properties, and will pay an incentive fee approximately equal to 10% of the profits, if any, after Rubin Pachulsky Dew has received a 15% cumulative annual return on its investment. The incentive fee, if earned, is not payable until the last property is sold or four years from date of purchase, whichever comes first. The property management agreement is cancelable at any time upon 60 days notice, but the incentive fee will survive termination of the contract. A portion of the proceeds from the sale of the properties to Rubin Pachulsky Dew continues to be held in escrow. A sum equal to two and one-half percent of the purchase price was held back as a potential source of payment for any claims that may arise related to a Partnership breach of certain representations and warranties related to the sale (expiring on September 23, 2000) and for any litigation costs that may arise (released to the Partnership on March 23, 2000). The remaining cash held in escrow relates to holdbacks for tenant improvements ($85,000) and a small amount ($1,000) is in dispute with the escrow company. The cash held in escrow has been included in the calculation of loss on sale of real estate. The sales of Certified Warehouse, Oakpointe Business Center and Washington Technical Center resulted in net gains or (losses) of approximately ($623,000), ($280,000) and $459,000, respectively upon disposition. The Cornerstone On October 15, 1999, the Partnership sold The Cornerstone shopping center, in Tempe, Arizona to GDA Real Estate Services, LLC ("GDA"), a Denver-based real estate developer and operator that is not affiliated in any way with the Partnership, its General Partner or the General Partner's affiliates, for a sale price of $8,500,000. GDA was represented by two third-party brokers in the transaction. The brokers were paid $170,000 from the sale proceeds. The General Partner was not paid a disposition fee in connection with the transaction. GDA will not hire the General Partner or any affiliate to perform asset management or property management services for this property. The sale of The Cornerstone shopping center resulted in a loss of $114,000 upon disposition. F-14 36 DAMSON/BIRTCHER REALTY INCOME FUND-I NOTES TO FINANCIAL STATEMENTS (Cont'd.) (4) Gain/Loss from the Sale of Real Estate (Cont'd.) Terracentre On May 31, 2000, the Partnership sold Terracentre, in Denver, Colorado to Robert E. Collawn ("Collawn"), a Denver real estate developer and operator, for $6,500,000. The Partnership realized a gain on the sale of $151,000, in excess of its carrying value, after deducting for closing costs and prorations totaling approximately $294,000. Collawn is not affiliated in any way with the Partnership, its General Partner or the General Partner's affiliates. The Partnership was represented by a third-party broker in the transaction. The broker was paid $227,500 from the sale proceeds. The General Partner earned and was paid a disposition fee of $130,000 in connection with the transaction. Collawn will not hire the General Partner or any affiliate to perform asset management or property management services for this property. (5) Commitments and Contingencies Litigation So far as is known to the General Partner, neither the Partnership nor its properties are subject to any material pending legal proceedings, except for the following: Bigelow Diversified Secondary Partnership Fund 1990 litigation On March 25, 1997, a limited partner named Bigelow/Diversified Secondary Partnership Fund 1990 L.P. filed a purported class action lawsuit in the Court of Common Pleas of Philadelphia County against Damson/Birtcher Partners, Birtcher Investors, Birtcher/Liquidity Properties, Birtcher Investments, L.F. Special Fund II, L.P., L.F. Special Fund I, L.P., Arthur Birtcher, Ronald Birtcher, Robert Anderson, Richard G. Wollack and Brent R. Donaldson alleging breach of fiduciary duty and breach of contract and seeking to enjoin the Consent Solicitation dated February 18, 1997. On April 18, 1997, the court denied the plaintiff's motion for a preliminary injunction. On June 10, 1997, the court dismissed the plaintiff's complaint on the basis of lack of personal jurisdiction and forum non conveniens. On June 13, 1997, the Partnership's affiliated partnerships, Damson/Birtcher Realty Income Fund-II and Real Estate Income Partners III, and their general partner, Birtcher/Liquidity Properties, filed a complaint for declaratory relief in the Court of Chancery in Delaware against Bigelow/Diversified Secondary Partnership Fund 1990 L.P. The complaint seeks a declaration that the vote that the limited partners of Damson/Birtcher Realty Income Fund-II and Real Estate Income Partners III took pursuant to the respective consent solicitations dated February F-15 37 DAMSON/BIRTCHER REALTY INCOME FUND-I NOTES TO FINANCIAL STATEMENTS (Cont'd.) (5) Commitments and Contingencies (Cont'd.) Litigation (Cont'd.) Bigelow Diversified Secondary Partnership Fund 1990 litigation (Cont'd.) 18, 1997 was effective to dissolve the respective partnerships and complied with applicable law, that the actions of the General Partner in utilizing the consent solicitations to solicit the vote of the limited partners did not breach any fiduciary or contractual duty to such limited partners, and an award of costs and fees to the plaintiffs. The defendant has answered the complaint. The parties have initiated discovery. No motions are pending at this time. In September 1998, Bigelow/Diversified Secondary Partnership 1990 informed the Partnership that it was filing suit in the Delaware Chancery Court against Damson/Birtcher Partners, Birtcher Investors, Birtcher Liquidity Properties, Birtcher Investments, BREICORP, LF Special Fund I, LP, LF Special Fund II. LP, Arthur Birtcher, Ronald Birtcher, Robert Anderson, Richard G. Wollack and Brent R. Donaldson alleging a purported class action on behalf of the limited partners of Damson/Birtcher Realty Income Fund-I, Damson/Birtcher Realty Income Fund-II and Real Estate Income Partners III alleging breach of fiduciary duty and incorporating the allegations set forth in the previously dismissed March 25, 1997 complaint filed in the Court of Chancery of Philadelphia County. In March 2000, defendants informed the Court and plaintiff that they would bring a Motion for Summary Judgment against the named plaintiff based upon the allegations set forth in plaintiff's complaint. On April 4, 2000, Bigelow/Diversified Secondary Partnership Fund 1990 filed a First Amended Class Action and Derivative Complaint against Damson/Birtcher Partners, Birtcher Investors, Birtcher/Liquidity Properties, Birtcher Partners, Birtcher Properties, Birtcher Ltd., Birtcher Investments, BREICORP, L.F. Special Fund II, L.P., L.F. Special Fund I, L.P., Liquidity Fund Asset Management, Inc., Arthur Birtcher, Ronald Birtcher, Robert Anderson, Richard G. Wollack and Brent R. Donaldson, the Partnership, Damson/Birtcher Realty Income Fund-II and Real Estate Income Partners III, alleging breach of fiduciary duty, breach of contract, and a derivative claim for breach of fiduciary duty. Defendants have answered the First Amended Complaint. Plaintiff has engaged in preliminary discovery. On October 27, 2000, defendants sought permission of the court to communicate an offer to settle to individual limited partners of the Partnership. Plaintiff's counsel opposed that motion. On December 4, 2000, the court ruled that defendants could communicate an offer to settle to individual limited partners. F-16 38 DAMSON/BIRTCHER REALTY INCOME FUND-I NOTES TO FINANCIAL STATEMENTS (Cont'd.) (5) Commitments and Contingencies (Cont'd.) Litigation (Cont'd.) Bigelow Diversified Secondary Partnership Fund 1990 litigation (Cont'd.) Thereafter, on December 12, 2000, the Partnership and the General Partner mailed to the limited partners an offer to settle this lawsuit and all other claims (including the Madison Partnership Liquidity Investors Litigation referenced below) for payment of each settling limited partner's pro rata share of the proceeds available for distribution from liquidation of the Partnership's properties (approximately $75 per $1,000 of original investment interest) plus a nominal payment of $1.00 from the General Partners for an assignment of all of a settling limited partner's interest in the Partnership to the General Partner. Limited partners holding 47% (including the Grape Settlement) of the interests in the Partnership settled on these terms. The aggregate distribution in connection with the December 12, 2000 offer, which was reflected as an accrual at December 31, 2000, was approximately $2,830,000. On March 6, 2001, all of the defendants other than the Partnership and the general partners filed a motion to be dismissed from the case. The court has not yet set a hearing date for this motion. Rex Garton, et al. v. Damson/Birtcher Partners, et al. This action was filed on September 25, 1998 in the District Court of Oklahoma County for the State of Oklahoma against the Partnership's general partner, Damson/Birtcher Partners, other related defendants and numerous unrelated defendants. Damson/Birtcher Partners and other related defendants were brought into the action in late December 1998, when they were served with the Second Amended Petition. The other related defendants are Birtcher Partners, Birtcher Properties, The Birtcher Group, Birtcher American Properties, Arthur B. Birtcher, Ronald E. Birtcher, LF Special Fund II, L.P., and Liquidity Fund Asset Management Inc., but The Birtcher Group and Birtcher American Properties were served with process and did not appear in the action. The Partnership itself is not named as a defendant. The case was a class action brought on behalf of investors in the Partnership who purchased limited partnership interests from May 7, 1984 to September 17, 1985. The Second Amended Petition alleged breach of contract, intentional and negligent misrepresentation, breach of fiduciary duties, and violations of various Oklahoma and federal statutes in connection with the sale of the limited partnership interests. Plaintiff sought unspecified compensatory damages and $10 million in punitive damages. Damson/Birtcher Partners and the related defendants removed the case to the United States District Court for the Western District of Oklahoma, and filed a motion to dismiss the case for lack of personal jurisdiction or, alternatively, to transfer the action to the United States District Court for the Central District of California, for the convenience of the parties and witnesses and in the interests of justice. Plaintiff moved to remand the case back to the Oklahoma state court. The court denied plaintiff's motion for removal, and took defendant's motion to dismiss or transfer under submission pending receipt of additional information F-17 39 DAMSON/BIRTCHER REALTY INCOME FUND-I NOTES TO FINANCIAL STATEMENTS (Cont'd.) (5) Commitments and Contingencies (Cont'd.) Litigation (Cont'd.) Rex Garton, et al. v. Damson/Birtcher Partners, et al. (Cont'd.) the court ordered plaintiff to provide. On March 29, 2000, the court entered its order granting defendants' motion to dismiss the case for lack of personal jurisdiction, and dismissed the case. Madison Partnership and ISA Partnership Litigation On April 2, 1999, Madison Partnership Liquidity Investors XVI, LLC and ISA Partnership Liquidity Investors filed a purported class and derivative action in the California Superior Court in Orange County, California against Damson Birtcher Partners, Birtcher/Liquidity Properties, Birtcher Partners, Birtcher Investors, Birtcher Investments, Birtcher Limited, Breicorp LP Special Fund II, L.P., Liquidity Fund Asset Management, Inc., Robert M. Anderson, Brent R. Donaldson, Arthur B. Birtcher, Ronald E. Birtcher, and Richard G. Wollack, Defendants, and Damson/Birtcher Realty Income Fund-I, Damson/Birtcher Realty Income Fund-II, and Real Estate Income Partners III, Nominal Defendants. The complaint asserts claims for breach of fiduciary duty and breach of contract. The gravamen of the complaint is that the General Partners of these limited partnerships have not undertaken all reasonable efforts to expedite liquidation of the Partnerships' properties and to maximize the returns to the Partnerships' limited partners. The complaint seeks unspecified monetary damages, attorneys' fees and litigation expenses, and an order for dissolution of the partnerships and appointment of an independent liquidating trustee. On August 14, 2000, plaintiffs petitioned the court for an order certifying the action as a class action. Plaintiffs also asked the court to issue a writ mandating that the Partnership immediately distribute all liquidation proceeds to the limited partners. On December 19, 2000, the court denied both motions. The case is currently proceeding only as a derivative action. As noted above, limited partners holding 47% of the interests in the Partnership have settled this (and all other) cases against the Partnership and the General Partner. F-18 40 DAMSON/BIRTCHER REALTY INCOME FUND-I NOTES TO FINANCIAL STATEMENTS (Cont'd.) (6) Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities consist of the following: DECEMBER 31, ---------------------- 2000 1999 -------- -------- Real estate taxes $ -- $ 47,000 Accounts payable and other 155,000 87,000 -------- -------- $155,000 $134,000 ======== ========

(7) Accrued Expenses for Liquidation Accrued expenses for liquidation as of December 31, 2000, includes estimates of costs to be incurred in carrying out the dissolution and liquidation of the Partnership through December 31, 2001. These costs include estimates of legal fees, accounting fees, tax preparation and filing fees, other professional services and the general partner's liability insurance. During the year ended December 31, 2000, the General Partner continuously re-evaluated the estimated costs to wind up and dissolve the Partnership given the uncertainty involved with the ongoing litigation. The provision for liquidation expenses was accordingly adjusted by an aggregate of $903,000 to reflect the revised estimates. The actual costs could vary significantly from the related provisions due to the uncertainty related to the length of time required to complete the liquidation and dissolution and the complexities which may arise. The accrued expenses for liquidation do not take into consideration the possible outcome of the ongoing litigation after December 31, 2001. Such costs are unknown and are not estimable at this time. F-19 41 DAMSON/BIRTCHER REALTY INCOME FUND-I NOTES TO FINANCIAL STATEMENTS (Cont'd.) (8) Quarterly Results of Operations (Unaudited)

F-20 42 DAMSON/BIRTCHER REALTY INCOME FUND-I Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Partnership and the General Partner have no directors or executive officers. The General Partner of the Partnership is Damson/Birtcher Partners, a California general partnership of which Birtcher Partners, a California general partnership, and LF Special Fund II, L.P., a California limited partnership, are the general partners. Under the terms of the Partnership Agreement, Birtcher Partners is responsible for the day-to-day management of the Partnership's assets. The general partner of LF Special Fund II, L.P., is Liquidity Fund Asset Management, Inc., a California corporation affiliated with Liquidity Financial Group, L.P. The principals and officers of Liquidity Fund Asset Management, Inc. are as follows: > Richard G. Wollack, Chairman of the Board > Brent R. Donaldson, President > Deborah M. Richard, Chief Financial Officer The general partner of Birtcher Partners is Birtcher Investments, a California general partnership. Birtcher Investments' general partner is Birtcher Limited, a California limited partnership and its general partner is BREICORP, a California corporation. The principals and relevant officers of BREICORP are as follows: > Ronald E. Birtcher, Co-Chairman of the Board > Arthur B. Birtcher, Co-Chairman of the Board > Robert M. Anderson, Executive Director Item 11. EXECUTIVE COMPENSATION The table on the following page sets forth the fees, compensation and other expense reimbursements paid to the General Partner and its affiliates in all capacities for each year in the three-year period ended December 31, 2000. -22- 43 DAMSON/BIRTCHER REALTY INCOME FUND-I Item 11. EXECUTIVE COMPENSATION (Cont'd.)

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of December 31, 2000, Damson/Birtcher Partners, a California general partnership, was the beneficial owner of certain limited partnership interests, as follows:

(1) Based upon original invested capital. (2) Residual interest in any derivative action. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS For information concerning transactions to which the Registrant was or is to be a party in which the General Partner or its affiliates had or are to have a direct or indirect interest, see Notes 1 and 3 to the Financial Statements in Item 8, which information is incorporated herein by reference. -23- 44 DAMSON/BIRTCHER REALTY INCOME FUND-I PART IV Item 14. EXHIBITS AND REPORTS ON FORM 8-K a) 1. and 2. Financial Statements: See accompanying Index to Financial Statements to Item 8, which information is incorporated herein by reference. 3. Exhibits: Articles of Incorporation and Bylaws (a) The Amended and Restated Agreement of Limited Partnership incorporated by reference to Exhibit A to the Partnership's prospectus contained in the Partnership's registration statement on Form S-11 (Commission File No. 2-91065), dated June 22, 1985, as supplemented filed under the Securities Act of 1933. 10. Material Contracts (a) Revised Property Management Agreement dated April 2, 1985 between Birtcher Properties and the Registrant for Certified Distribution Center. Incorporated by reference to Exhibit 19(a)(4) of the Partnership's Quarterly Report on Form 10-Q for the quarter ended June 30, 1985. (SUPERSEDED) (b) Property Management Agreement dated May 10, 1985, between Birtcher Properties and the Registrant for Ladera Shopping Center. Incorporated by reference to Exhibit 19(a)(6) of the Partnership's Quarterly Report on Form 10-Q for the quarter ended June 30, 1985. (SUPERSEDED) (c) Property Management Agreement dated July 17, 1985, between Birtcher Properties and the Registrant for The Cornerstone. Incorporated by reference to Exhibit 19(a)(8) of the Partnership's Quarterly Report on Form 10-Q for the quarter ended September 30, 1985. (SUPERSEDED) (d) Property Management Agreement dated September 6, 1985, between Birtcher Properties and the Registrant for Terracentre. Incorporated by reference to Exhibit 19(a)(10) of the Partnership's Quarterly Report on Form 10-Q for the quarter ended September 30, 1985. (SUPERSEDED) -24- 45 DAMSON/BIRTCHER REALTY INCOME FUND-I Item 14. EXHIBITS AND REPORTS ON FORM 8-K (Cont'd.) 10. Material Contracts (Cont'd.) (e) Property Management Agreement dated September 16, 1985, between Birtcher Properties and the Registrant for Oakpointe (formerly Lincoln Atrium Center). Incorporated by reference to Exhibit 19(a)(12) of the Partnership's Quarterly Report on Form 10-Q for the quarter ended September 30, 1985. (SUPERSEDED) (f) Property Management Agreement dated October 24, 1991, between Glenborough Management Corporation and the Registrant for Arlington Executive Plaza, Certified Distribution Center, The Cornerstone, Ladera-I Shopping Center, Oakpointe, Terracentre and Washington Technical Center. Incorporated by reference to Exhibit 1 of the Partnership's Quarterly Report on Form 10-Q for the quarter ended September 30, 1991. (SUPERSEDED) (g) Agreement for Partnership administrative services dated October 24, 1991, between Glenborough Management Corporation and the Registrant for the services described therein. Incorporated by reference to Exhibit 2 of the Partnership's Quarterly Report on Form 10-Q for the quarter ended September 30, 1991. (SUPERSEDED) (h) Property Management Agreement, dated October 29, 1993, between Birtcher Properties and the Registrant for Arlington Executive Plaza, Certified Distribution Center, The Cornerstone, Ladera-I Shopping Center, Oakpointe, Terracentre, and Washington Technical Center. Incorporated by reference to Exhibit 1 of the Partnership Quarterly Report on Form 10-Q for the quarter ended September 30, 1993. b) Reports on Form 8-K: None filed during the year ended December 31, 2000. -25- 46 DAMSON/BIRTCHER REALTY INCOME FUND-I SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the Undersigned, thereunto duly authorized. DAMSON/BIRTCHER REALTY INCOME FUND-I By: DAMSON/BIRTCHER PARTNERS By: BIRTCHER PARTNERS, (General Partner) a California general partnership By: BIRTCHER INVESTMENTS, a California general partnership, General Partner of Birtcher Partners By: BIRTCHER LIMITED, a California limited partnership, General Partner of Birtcher Investments By: BREICORP, a California corporation, formerly known as Birtcher Real Estate Inc., General Partner of Birtcher Limited Date: March 30, 2001 By: /s/Robert M. Anderson -------------------------- Robert M. Anderson Executive Director BREICORP By: LF Special Fund II, L.P., a California limited partnership By: Liquidity Fund Asset Management, Inc., a California corporation, General Partner of LF Special Fund II, L.P. Date: March 30, 2001 By: /s/ Brent R. Donaldson ---------------------------------- Brent R. Donaldson President Liquidity Fund Asset Management, Inc. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Damson/Birtcher Partners (General Partner of the Registrant) and in the capacities and on the dates indicated.

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DAMSON BIRTCHER REALTY INCOME FUND I 10-K