CORPORATE REALTY INCOME FUND I L P - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

(Mark One)

|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended December 31, 2002

OR

|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

Commission File Number: 0-15796

CORPORATE REALTY INCOME FUND I, L. P.
-------------------------------------
(Exact Name of Registrant as Specified in Its Charter)

Delaware 13-3311993
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

475 Fifth Avenue, New York, NY 10017
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number, including area code: 212-696-0701

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
None Not Applicable

Securities registered pursuant to Section 12(g) of the Act:

Depositary Units of Limited Partnership
- --------------------------------------------------------------------------------
(Title of Class)

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|

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

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

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of
the last business day of the registrant's most recently completed second fiscal
quarter.
$31,144,128.
- ------------

Documents Incorporated by Reference in this Form 10-K

None.

CORPORATE REALTY INCOME FUND I, L. P.

Annual Report on Form 10-K

December 31, 2002

TABLE OF CONTENTS

PAGE

PART I........................................................................1

Item 1. Business.............................................................1

Item 2. Properties...........................................................6

Item 3. Legal Proceedings....................................................14

Item 4. Submission of Matters to a Vote of Security Holders..................14

PART II.......................................................................15

Item 5. Market for Registrant's Securities and Related Security Holder
Matters..............................................................15

Item 6. Selected Financial Data..............................................17

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................17

Item 7A. Quantitative and Qualitative Disclosures About Market Risk...........21

Item 8. Financial Statements and Supplementary Data .........................22

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................23

PART III......................................................................24

Item 10. Directors and Executive Officers of the Registrant...................24

Item 11. Executive Compensation...............................................25

Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters......................................26

Item 13. Certain Relationships and Related Transactions.......................27

Item 14. Controls and Procedures..............................................28

ITEM IV.......................................................................29

Item 15. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.............................................................29

PART I

Item 1. Business.

General

Corporate Realty Income Fund I, L.P. ("Registrant") is a Delaware limited
partnership organized on November 25, 1985 pursuant to the Delaware Revised
Uniform Limited Partnership Act. The general partners of Registrant are 1345
Realty Corporation, a Delaware corporation (the "Corporate General Partner"),
and Robert F. Gossett, Jr. (the "Individual General Partner") (collectively, the
"General Partners"). The limited partners of Registrant are hereinafter
collectively referred to as the "Limited Partners."

Registrant organized two subsidiaries in March 1999 in connection with the
financing of its property at 475 Fifth Avenue, New York, New York. One
subsidiary, 475 Fifth Avenue Limited Partnership (the "Subsidiary Partnership"),
a Delaware limited partnership, owns 475 Fifth Avenue. The other subsidiary, 475
Fifth-GP, Inc. (the "Subsidiary Corporation"), a Delaware corporation, is the
sole general partner of the Subsidiary Partnership. Registrant is the sole
limited partner of the Subsidiary Partnership, with a 99% interest in all items
of income, gain, loss, and deduction, and the sole shareholder of the Subsidiary
Corporation.

Registrant's business consists of owning and leasing to others the
properties described in Item 2 below. Registrant's properties are leveraged as
described below.

On March 26, 1986, Registrant commenced an offering (the "Offering") of
$80,000,000 of depositary units of limited partnership interest (the "Units").
Registrant terminated the Offering in September 1987, having issued 3,200,000
Units ($80,000,000) and received net proceeds from the Offering (after deduction
for organization and offering expenses of $5,948,103) aggregating $74,051,897.
Since the Offering, Registrant has invested aggregate funds in excess of
$100,000,000 (including $40,000,000 of financing proceeds) in acquiring and
improving its properties, which currently number six.

Rental revenue from the following tenant at Registrant's properties each
accounted for more than 10% of Registrant's total rental revenue for each of the
years ended December 31, 2000, 2001, and 2002:

a. For 2000, GTE Directories Corporation ("GTE") as tenant in the
Directory Building (18%).

b. For 2001, GTE as tenant in the Directory Building (20%).

c. For 2002, Verizon Directories Corp. ("Verizon"), a successor to GTE,
as tenant in the Directory Building (20%).

475 Fifth Avenue Loan

On August 9, 1999, the Subsidiary Partnership obtained a first mortgage
loan (the "475 Loan") from Heller Financial, Inc. ("Heller") in the amount of
$32,000,000. On such date, Registrant paid down approximately $23,381,000 of the
Fleet Loan (see "Fleet Bank Loan" below) to release the lien of the Fleet Loan
from 475 Fifth Avenue and subject the property to the lien of the 475 Loan. The
balance of proceeds borrowed by the Subsidiary Partnership from Heller after
payment of loan broker fees and costs of approximately $329,000 and other
closing costs of approximately $505,000, were used to provide cash to fund
capital improvements and leasing costs at 475 Fifth Avenue and to

augment working capital. As of March 20, 2003, the outstanding principal balance
of the 475 Loan was approximately $31,158,546.

The 475 Loan is evidenced by a Consolidated and Restated Promissory Note,
a Mortgage Consolidation, Assignment of Rents, Security Agreement and Fixture
Filing, and a Hazardous Substance Indemnification Agreement (collectively, the
"475 Loan Agreements").

The 475 Loan matures on September 1, 2009 and bears interest at a rate of
8.27% per annum. The 475 Loan requires monthly payments of interest plus
principal payments based on a 30-year amortization schedule. The monthly
payments amount to $240,855.

The Subsidiary Partnership may prepay the 475 Loan, in full but not in
part, on the first day of any calendar month and upon at least 30 days' prior
written notice, upon payment of all accrued and unpaid interest and any fees and
costs, together with an additional payment equal to the greater of (i) an amount
equal to one percent (1%) of the then outstanding principal amount or (ii) a
yield maintenance amount equal to the present value of a series of monthly
amounts assumed to be paid from the date of prepayment through the maturity date
of the 475 Loan. The yield maintenance amount preserves for the holder of the
475 Loan Agreements (the "Holder") a fixed yield tied to a United States
Treasury obligation with a term equal to that remaining on the 475 Loan on the
date of prepayment.

Any payments not received by the Holder within 10 days after the due date
will incur a late charge equal to five percent (5%) of the amount of such
payment. Overdue amounts, whether at maturity, by acceleration, or otherwise
will bear interest at a rate equal to five percent (5%) above the otherwise
applicable interest rate.

The 475 Loan is secured by a first mortgage lien, an assignment of rents,
a security agreement, and a fixture filing on 475 Fifth Avenue, including the
improvements, machinery, equipment, mechanical systems, personal property,
management contracts, permits, certificates, licenses, agreements, trademarks,
trade names, books and records, and any monies on deposit with or for the
benefit of the Holder relating to this property. This loan also is secured by an
assignment of Registrant's management agreement with the Subsidiary Partnership.

Heller sold the 475 Loan pursuant to a mortgage-backed securitized plan as
of February 10, 2000. The 475 Loan is currently serviced by Midland Loan
Services.

The 475 Loan currently has three separate reserves:

1. The first, a property tax reserve, requires monthly payments sufficient
to enable all real estate taxes against 475 Fifth Avenue to be paid before they
become due and payable. The property tax reserve has a balance of approximately
$337,964 as of March 20, 2003;

2. The second, a replacement reserve, was funded with $200,000 of the
proceeds of the 475 Loan. This reserve is to be utilized to fund capital
improvements reasonably approved in advance by Heller. The replacement reserve
accrues interest for the Subsidiary Partnership's benefit at a "non-personal
money market rate." If the balance of this reserve falls below $200,000, the
Subsidiary Partnership must make monthly deposits of $4,000 until the balance of
the replacement reserve equals $200,000. As of March 20, 2003, the Subsidiary
Partnership had not utilized any funds from the replacement reserve and the
balance in this account was approximately $202,230;

3. The third, a repair reserve, was funded with $1,967,000 of the proceeds
of the 475 Loan and combined with an additional repair reserve of $533,000. This
reserve is utilized to fund capital

2

improvements determined in the Subsidiary Partnership's sole discretion. The
capital improvements reserve accrues interest for the Subsidiary Partnership's
benefit at a "non-personal money market rate." As of March 20, 2003, the
Subsidiary Partnership had funded capital improvements aggregating approximately
$2,633,000 from the repair reserve. The balance in this account was
approximately $300.

The 475 Loan Agreements require the Holder's prior written consent to the
execution or material modification or amendment of any lease of 15,000 or more
rentable square feet at 475 Fifth Avenue.

An event of default under the 475 Loan Agreements includes the following:

1. the failure to make any payment within 10 days of the due date thereof;

2. any sale or transfer of 475 Fifth Avenue or any interest therein or any
controlling interest therein;

3. the imposition of any lien against 475 Fifth Avenue; and

4. filing of any petition under the United States Bankruptcy Code or any
similar law or regulation by or against Registrant, the Subsidiary Partnership,
or the Subsidiary Corporation.

Upon the occurrence of an event of default under the 475 Loan Agreements,
the Holder may enforce one or more of its remedies, including the following:

1. the right to declare all principal, interest, and other amounts due
under the 475 Loan to be due and payable immediately;

2. the right to require that 475 Fifth Avenue (including all equipment,
fixtures, agreements, and other rights and interests relating thereto) be sold
at auction to the highest bidder; and

3. to take possession of, manage, and collect the rents from the property.

The Subsidiary Partnership and Robert F. Gossett, Jr., the Individual
General Partner of Registrant, have agreed to indemnify and hold harmless the
Holder and its officers, directors, employees, shareholders, agents, and
affiliates from and against any and all liabilities, obligations, deficiencies,
demands, claims, actions, assessments, losses, costs, expenses, interest, fines,
penalties, and damages resulting from or arising out of or by virtue of the
presence of hazardous materials on or from 475 Fifth Avenue. Mr. Gossett also
has assumed joint and several liability to pay the Holder for certain losses,
damages, costs, and expenses incurred by the Holder in connection with the 475
Loan .

Fleet Bank Loan

Registrant's properties, other than 475 Fifth Avenue, are subject to the
lien of a first mortgage line-of-credit loan (the "Fleet Loan") from Fleet
National Bank ("Fleet"). On August 9, 1999, the Fleet Loan was divided into the
following two notes: a note in the amount of $22,594,880 and secured by a
mortgage on 475 Fifth Avenue, which note was repaid in full to Fleet and which
mortgage was consolidated with and into Heller's mortgage on that property; and,
a note in the amount of $26,405,120 and secured by Registrant's five other
properties. On October 12, 2000 Registrant entered into an Amended and Restated
Loan Agreement providing for maximum gross borrowings of $25,000,000. During
2000 and 2001, Registrant obtained aggregate advances of approximately
$24,941,440 under the amended Fleet Loan, which included the outstanding balance
of approximately

3

$13,141,440 under the Fleet Loan immediately prior to the amendment. As of March
25, 2003, the outstanding principal balance of the Fleet Loan was approximately
$23,662,200.

The Fleet Loan is evidenced by an Amended and Restated Promissory Note, an
Amended and Restated Loan Agreement, and an Environmental Compliance and
Indemnification Agreement (collectively, the "Fleet Loan Agreements"). The Fleet
Loan is secured by a first mortgage lien, an assignment of rents, a security
agreement, and a fixture filing on and from each of Registrant's properties,
other than 475 Fifth Avenue, including the improvements, equipment, furnishings,
proceeds, books and records, and all payments related thereto, which consists of
the following five properties: the LightCross Building (formerly the Monterey
Park Building, American Color Building and the GE Medical Systems Office
Building); the Directory Building; the Tumi Building (formerly the Austin Place
Building); the Marathon Oil Building; and the Alamo Towers.

The Fleet Loan has an initial maturity date of September 30, 2003 which,
subject to Registrant's compliance with certain financial covenants, may be
extended by Registrant for two additional one-year periods. Upon exercising each
extension, Registrant must pay an extension fee equal to 0.25% of the then
outstanding principal balance. Registrant intends to exercise its extension
option. In 2000, Registrant incurred fees and expenses aggregating $609,259 upon
amending the Fleet Loan, including a loan facility fee of $250,000.

As of the date of this Report, Registrant had an unused borrowing capacity
of $58,560 under the Fleet Loan.

The Fleet Loan bears interest on each advance of funds from the date of
such advance at Fleet's Prime Rate, plus one-half percent (0.5%) per annum or,
if Registrant so chooses, at the LIBOR rate (offered rates for Eurodollar
deposits) (any such rate, a "Fixed Rate"), plus two percent (2.0%) per annum.
The Prime Rate is the rate announced from time to time by Fleet as a means of
pricing some of its loans to customers (not necessarily the lowest rate actually
charged to any customer class or category). Registrant may elect to pay interest
based on a Fixed Rate on the whole or a portion of the outstanding principal
amount, upon notice to Fleet, but only in amounts of at least $1,000,000 and in
additional integral multiples of $100,000. As of March 25, 2003, the Prime Rate
was 4.25% (interest using this rate would be at 4.75%) and the 30-day Fixed Rate
was 1.325% (interest using this rate would be at 3.325%). The entire aggregate
outstanding balance of the Fleet Loan as of March 25, 2003 bears interest at the
rate of 3.325%.

The Fleet Loan requires monthly payments of interest plus principal
payments equal to 1/500th of the then outstanding principal balance. The Fleet
Loan may be prepaid at any time, on notice, in whole or in part (a minimum of
$1,000,000 and additional integral multiples of $100,000). Any such prepayment
will be without premium or penalty with respect to funds bearing interest based
on the Prime Rate or, if the prepayment is made on the last day of the
applicable interest period, with respect to funds bearing interest based on a
Fixed Rate; however, a prepayment at any other time of funds bearing interest
based on a Fixed Rate will require payment of a breakage fee, which guarantees
Fleet a fixed rate yield maintenance tied to United States Treasury obligations
for the period from the date of prepayment to the end of the applicable interest
period.

Any payments not received by Fleet within 10 days after the due date will
incur a late charge equal to four percent (4%) of the amount of such payment.
Overdue amounts, whether at maturity, by acceleration, or otherwise will bear
interest at a rate equal to four percent (4%) above the otherwise applicable
interest rate.

The Fleet Loan Agreements contain continuing covenants regarding
Registrant's financial condition and the conduct of its operations. Registrant's
debt service coverage ratio (the ratio of

4

projected net income from operations of Registrant's properties, adjusted for
depreciation, amortization, fees paid to the General Partners, and step rent
receivables, to projected loan amortization payments) cannot be less than 1.50
to 1.0 and its loan to value ratio (the ratio of the outstanding principal
balance of the Fleet Loan to the appraised value of the secured properties)
cannot exceed fifty-five percent (55%). In addition, Registrant must maintain a
liquid net worth (cash, short-term investments, and marketable securities) of at
least $1,000,000 and its total liabilities may not exceed sixty percent (60%) of
the appraised value of the secured properties. The Fleet Loan Agreements also
provide that Registrant may distribute to its partners up to 90% of the sum of
its cumulative net income from real estate operations, adjusted for
depreciation, amortization and write-off of step rent receivables. Compliance
with this distribution provision is tested as of the last day of each fiscal
quarter for the period from and including January 1, 2001 through the date as of
which compliance is tested. As of December 31, 2002, Registrant was in
compliance with each of these loan covenants. Registrant must also obtain
Fleet's consent, not to be unreasonably withheld or delayed, to any lease of
10,000 or more rentable square feet.

Fleet's mortgage lien against any of Registrant's secured properties will
be released only upon payment of an amount equal to 110% of the loan amount
allocated to such property (or 100% of the gross sales price or principal amount
of refinancing, if greater, for Alamo Towers and the Directory Building). In
addition, such lien will be released only if Registrant's remaining properties
satisfy the debt service coverage ratio and loan to value ratio.

Upon the occurrence of an event of default under the Fleet Loan Agreements
(which includes the failure to make any payment within 10 days of the due date
thereof and a failure to comply with its financial covenants which continues for
30 days), Fleet may enforce one or more of its remedies, including the right to
(i) declare all principal and interest on the Fleet Loan to be due and payable
immediately, (ii) require any or all of Registrant's secured properties
(including all equipment, fixtures, agreements, and other rights and interests
relating thereto) to be sold at auction to the highest bidder, and (iii) collect
any and all rents from the properties.

Registrant has also agreed to indemnify and hold harmless Fleet and its
officers, directors, employees, agents, representatives, contractors and
subcontractors, and their respective successors and assigns from and against any
and all claims, liability, costs, and expenses arising out of the presence
and/or clean-up of hazardous materials on or affecting Registrant's secured
properties.

Financing Policies

The General Partners expect to approximate Registrant's original intention
of a loan to value ratio of 50%. Accordingly, it is expected that Registrant's
total borrowings will approximate 50% of the sum of (i) the appraised values of
its six properties plus (ii) the purchase price of additional properties
acquired by Registrant. Registrant is not limited by its Partnership Agreement
as to borrowing for any individual property; the aggregate borrowings on all
properties may not exceed an amount equal to the sum of (x) 60% of the aggregate
purchase price of all properties which are not refinanced plus (y) 80% of the
aggregate value of all refinanced properties. As of December 31, 2002,
Registrant had a loan to appraised value ratio of approximately 54.2%.

The Fleet Loan and the 475 Loan have enabled Registrant to acquire and
improve properties, but have increased the risk of loss on its properties.
Registrant may acquire additional properties, the purchase of which would be
funded out of the proceeds of sale of one or more of Registrant's current
properties. Registrant may also use any sale proceeds to fund further tenant
improvements and capital improvements at its properties, particularly 475 Fifth
Avenue and the Alamo Towers. Registrant has no current agreements to sell any of
its existing properties. To be profitable, Registrant's properties

5

must generate cash flow in amounts sufficient to not only cover operating
expenses but also to pay all financing costs.

Registrant's objectives in making its investments continue to be to (i)
preserve and protect Registrant's capital; (ii) provide long term capital
appreciation, generating long term capital gains for federal income tax purposes
upon sale of the properties; (iii) build up equity through the reduction of
mortgage loans encumbering the properties; and (iv) provide cash distributions
from operations which may be partially tax-sheltered. There is no assurance that
these objectives will be achieved.

Competition

The Directory Building is fully leased to a single tenant and does not
face competition from other properties during the term of such lease. The
LightCross Building is also now fully leased to a single tenant on a net lease
or substantially equivalent basis. However, upon termination of these leases,
and for any of Registrant's other properties, Registrant does, and will continue
to, compete with other properties for tenants. Depending upon market conditions
and occupancy rates at the time and place of any vacancies in Registrant's
properties, there is currently and there may be, in the future, intense
competition in obtaining tenants to fill such vacancies. Furthermore, such
competition has resulted and may result, because of reduced rental rates and
required concessions to tenants, in decreases in the rental revenue received by
Registrant and capital outlays necessary to fund tenant improvements. See Item 2
- - "Properties" for a discussion of market conditions in the areas in which
Registrant currently competes for tenants.

Employees

Registrant currently employs 20 persons (4 of whom are part-time
employees). The business of Registrant is managed by the General Partners. See
Item 10 - "Directors and Executive Officers of the Registrant" and Item 13 -
"Certain Relationships and Related Transactions."

Item 2. Properties.

LightCross Building
(formerly Monterey Park Building, American Color Building and GE Medical Systems
Office Building)

On July 10, 1986, Registrant acquired the LightCross Building, located in
Monterey Park, California, for approximately $4,182,000, inclusive of
acquisition fees. Registrant owns fee title to the LightCross Building and its
90,000 square feet of underlying land, subject to the lien of the Fleet Loan
(See Item 1. - "Business-Fleet Bank Loan"). The property was built in 1985 and
contains 22,250 net rentable square feet (increased from 20,250 square feet for
previous tenancies). The property had been a unique combination of office space
(approximately 71%) and warehouse space, but the building has been reconfigured
solely for use as office, design and development space for use pursuant to a net
lease for the entire premises.

The building is 100% leased to LightCross, Inc. pursuant to a lease dated
as of November 17, 2000. The initial term of the lease is ten (10) years from
September 1, 2001, subject to two five-year renewal options.

The lease requires approximate annual net rent of $433,915 through August
31, 2003 ($19.50 per square foot), increasing to $446,197 in the two-year period
ending August 31, 2005 ($20.05 per square foot), $458,970 in the two-year period
ending August 31, 2007 ($20.63 per square foot), $472,254 in the two-year period
ending August 31, 2009 ($21.22 per square foot), and $486,070 in the

6

two-year period ending August 31, 2011 ($21.85 per square foot). The lease shall
require payment of a fair market rental during any renewal periods. This lease
is a net lease and, except for certain structural and mechanical conditions, the
tenant is responsible for all costs, expenses, and obligations relating to the
premises and the use, operation, occupancy, management, maintenance, and repair
of the building, including insurance and real estate taxes. LightCross is
expected to be a large user of electricity. Electric rates in this area have
risen greatly, the effect of which could adversely affect LightCross's financial
condition.

Registrant has expended an aggregate of approximately $1,593,000 in
capital improvements and tenant improvements in connection with this lease, none
of which were incurred in 2002. The improvements included enclosing the rear
loading bays, converting warehouse space to office space, building a new
entrance area, improving distribution of electricity, and contributing to the
tenant's construction of a dust-free "clean room." In addition, the tenant
expended approximately $800,000 to make further improvements to the premises.
Registrant is currently replacing the roof on the LightCross Building, at an
estimated cost of approximately $39,000.

For the year ended December 31, 2002, Registrant paid approximately
$42,000 in real property taxes with respect to the LightCross Building. At
December 31, 2002, such taxes were imposed at a rate of 1.2304% on an assessed
value of $3,425,000.

The tenant has been granted a right of first offer to purchase the
LightCross Building on the same terms and conditions on which Registrant may be
willing to sell the building to a third party.

The Monterey Park area includes approximately 2,123,000 square feet of
office space. The vacancy rate for commercial properties in such area
approximates 8.0% for office buildings. Net rents (like the LightCross lease)
for office space approximate $16.00 per square foot and gross rents approximate
$19.80 to $24.60 per square foot in this area. Registrant obtained rents from
LightCross in excess of those otherwise available in the Monterey Park area in
consideration of agreeing to pay for construction of the "clean room" at an
approximate cost of $800,000.

The Directory Building (formerly, the IBM Building)

On October 27, 1986, Registrant acquired the Directory Building, located
in Las Colinas, Texas, for a purchase price of approximately $24,580,000,
inclusive of acquisition fees. Registrant owns fee title to the Directory
Building and its 6.67 acres of underlying land, subject to the lien of the Fleet
Loan. The Directory Building was built in 1982 and contains approximately
152,100 net rentable square feet (reduced from 154,300 square feet during IBM's
tenancy).

The building is 100% leased to Verizon pursuant to a lease dated as of
April 20, 1994, as subsequently amended by amendments dated as of July 29, 1994
and as of February 22, 1995 and as extended by an Extension Agreement and
Supplement dated as of March 31, 2000 and a Second Extension Agreement and
Supplement which became effective as of January 1, 2003. The renewed initial
term of the lease expires on December 31, 2007, subject to two (2) five-year
renewal options at a rate equal to 95% of the then market rate. Verizon has the
right to buy out the lease after December 31, 2005 upon payment to Registrant of
a penalty equal to the unamortized portion of tenant improvements, leasing
commissions, and rent concessions funded by Registrant in connection with this
most recent extension. Registrant made a rent concession to Verizon in the
approximate amount of $256,700 for the period from January 1, 2003 to September
30, 2003.

The extended lease reduces the approximate monthly rent to $212,336
($16.75 per square foot, reduced from $20.50 per square foot but requiring an
additional $1.50 per square foot in electric charges from the tenant). Verizon
must also pay additional rent equal to all electric charges plus

7

excess operating expenses over base levels (2000 is the base year for calendar
year 2003 and 2003 is the base year for all subsequent years).

Registrant has expended an aggregate of approximately $3,348,000 in
capital expenditures and tenant improvements at the building, none of which were
incurred in 2002. Registrant is obligated to pay additional tenant improvements
and leasing commissions of approximately $883,000 and $731,000, respectively, in
connection with this most recent lease extension.

For the year ended December 31, 2002, Registrant paid approximately
$314,000 in real property taxes (after a significant reduction obtained by the
tenant) with respect to the Directory Building. At December 31, 2002, such taxes
were imposed at an aggregate rate of 2.73590% on an assessed value of
$11,482,100.

The Las Colinas office market includes approximately 19,078,000 square
feet of office space, of which approximately 12,851,000 square feet constitute
Class "A" office space and 6,227,000 square feet constitute Class "B" office
space. As of May 2002, approximately 75.3% of office space (77.0% of Class "A"
office space and 67.5% of Class "B" office space) was leased. Average asking
rents were approximately $18.77 per square foot for available Class "A" space
and $17.38 for available Class "B" space. The Directory Building is considered
to be Class "B+" space.

Tumi Building
(formerly Austin Place Building)

On December 30, 1986, Registrant acquired the Tumi Building, a two-wing
office building located in South Plainfield, New Jersey, for a purchase price of
approximately $16,473,000, inclusive of acquisition fees. Registrant owns fee
title to the Tumi Building and its underlying five acres of land, subject to the
lien of the Fleet Loan. The property was built in 1986 and contains
approximately 107,900 net rentable square feet for use as a multi-tenant
facility (reduced from 108,000 square feet as a single tenant facility, but
subsequently increased from 106,600 square feet due to tenant expansion into
common areas).

As of March 1, 2003, the property is approximately 75.7% leased, with
45,700 square feet leased to Tumi, Inc. (as discussed below) and the remainder
at an average current rent of approximately $18.52 per square foot. Such other
leases expire in October and November 2005 (approximately 17,400 square feet)
and June 2006 (approximately 18,600 square feet). In an effort to lease the
remaining vacant space in the Tumi Building, Registrant has demolished that
space to facilitate its division into smaller spaces.

Tumi's lease is for 45,700 square feet and was amended in September 2002
to extend the termination date to January 31, 2011. The amended lease requires
rent payments equal to $10.24 per square foot until August 31, 2003 (reduced
from $16.00 per square foot), $16.00 per square foot from September 1, 2003
until January 2006, and $17.00 per square foot from February 2006 to January
2011. The lease includes two 5-year renewal terms, the first at a base rent of
$20.00 per square foot and the second at a then fair market rental. Tumi is also
obligated to pay for its electric current consumption and its proportionate
share (42.3%) of increases in operating expenses, taxes, and insurance over base
year 1999 levels.

Registrant has also entered into a five-year lease with AT&T Wireless PCS,
LLC to permit installation and operation of a cellular telephone tower on the
roof of the Tumi Building. The lease provides for annual rental payments of
$19,800, five automatic five-year renewal periods and a three percent (3%)
increase in rental payments at the commencement of each renewal period.

8

On March 9, 1999, Gdynia America Line, Inc., a tenant occupying
approximately 21,650 square feet (20.3%) in the Tumi Building filed for
protection under Chapter 11 of the U.S. Bankruptcy Code. Polish Ocean Lines, a
Polish corporation partially owned by the Polish Government, is jointly and
severally obligated under this lease. On or about April 30, 1999, the lease,
with a term expiring in May 2007 and annual rental payments of approximately
$446,000, was rejected in the bankruptcy proceeding. In July 2000, Registrant
obtained a judgment in an action in the Superior Court of New Jersey Law
Division; Middlesex County against Polish Ocean Lines in the approximate amount
of $618,600. On May 4, 2001, the amount of this judgment was increased to
approximately $4,389,400. Registrant is pursuing enforcement of its judgment in
Poland, but there can be no assurance as to its ability to collect any of the
judgment against Polish Ocean Lines. All but approximately 5,000 square feet of
this space in the Tumi Building remains vacant.

For the year ended December 31, 2002, Registrant paid approximately
$239,000 in real property taxes with respect to the Tumi Building. At December
31, 2002, such taxes were imposed at a rate of 3.580% on an assessed value of
$6,679,400.

South Plainfield is located in Middlesex County (approximately 16,597,000
square feet of office space). Vacancies in Middlesex County approximate 21.2%.
Average asking rents for office space in Middlesex County approximate $23.71 per
square foot. Registrant has expended approximately $2,068,000 for capital
expenditures and tenant improvements, approximately $49,000 of which were
incurred in 2002.

Marathon Oil Building (formerly, the Tenneco Building)

On March 21, 1988, Registrant acquired the Marathon Oil Building (formerly
the Tenneco Building), an office building located in Oklahoma City, Oklahoma,
for approximately $10,736,000, inclusive of acquisition fees. Registrant owns
fee title to the Marathon Oil Building with its 6.1 acres of underlying land,
subject to the lien of the Fleet Loan. The property contains approximately
90,925 net rentable square feet on two floors, plus a 10,016 square foot
basement.

Marathon Oil Company leases approximately 65,700 square feet (including
approximately 4,300 in the basement) in the building pursuant to a lease that
expires in February 2006. The lease is subject to an additional renewal option
for another five-year term.

Annual rent under Marathon's lease is approximately $793,201 ($12.50 per
square foot, plus $6.00 per square foot for basement space) in the lease year
ending February 2004 and $869,915 ($13.75 per square foot, plus $6.00 per square
foot for basement space) in each of the two (2) lease years ending February
2006. Marathon must also pay additional rent equal to its proportionate share of
any increases in operating costs of the building after 1996.

Registrant has leased approximately an additional 10,450 square feet in
the building (plus 340 square feet of basement space) at an average current rent
of approximately $13.66 per square foot (plus $5.00 per square foot for basement
space). These leases expire in December 2004 (approximately 5,640 square feet
plus 340 square feet of basement) and May 2007 (approximately 4,800 square
feet). The remaining space (approximately 21.5% of the space) is vacant and
Registrant is seeking tenants for such space. Registrant demolished interior
offices in the remaining vacant space in an attempt to facilitate leasing that
space.

For the year ended December 31, 2002, Registrant paid approximately
$57,000 in real property taxes with respect to the Marathon Oil Building. At
December 31, 2002, such taxes were imposed at a rate of 1.0949% on an assessed
value of $5,218,680.

9

Market conditions in the northwest section of Oklahoma City featured
reduced demand and rental rates attributable to a weakening economy and the
addition of Class A office space. Such market contains approximately 5,078,000
square feet of commercial space of which approximately 18.6% is vacant. Average
rents for commercial space range from $8.00 to $21.50 per square foot, with an
average rate of $13.92 per square foot. Registrant has expended approximately
$572,000 on capital and tenant improvements at this building, approximately
$53,000 of which was spent in 2002. In 2003, Registrant anticipates expending
approximately $85,000 to replace one of the air conditioning units in the
building.

475 Fifth Avenue

On December 6, 1996, Registrant purchased the land, building and other
improvements commonly known as 475 Fifth Avenue, and situated in New York, New
York, for approximately $27,440,000 including capitalized costs and related
costs. The property contains a multi-tenant office building comprised of
approximately 243,600 square feet and is located on the southeast corner of 41st
Street and Fifth Avenue in New York City; the Subsidiary Partnership owns fee
title to 475 Fifth Avenue, subject to the lien of the 475 Loan.

475 Fifth Avenue is a 23-story office building with approximately 20,000
square feet of retail space on the first floor and basement, 218,500 square feet
of office space, and 5,100 square feet of basement storage space. As of March
21, 2003, approximately 79.3% of the rentable square footage of office and
retail space in the building was leased (including approximately 84.0% of the
office space and 28.0% of the retail space), at an average current rent (base
rent plus electric charges and prior year adjustments and without reduction for
any free rent periods) of approximately $38.20 per square foot (approximately
$35.49 per square foot of office space and $126.86 per square foot of retail
space). Following is a schedule of the expirations of such leases. The following
schedule includes (i) approximately 13,825 square feet currently leased on a
month-to-month basis to a tenant that is unable to pay most of its rent
obligations and that will vacate the space when Registrant obtains a replacement
tenant and (ii) approximately 3,550 square feet occupied by Registrant as its
principal office at an assumed rent of $41.71 per square foot.

10

================================================================================
Approximate Avg. Current
Expiration Year Square Feet % of Total Rent/Sq. Ft.
- --------------------------------------------------------------------------------
2003 21,324 8.9% $37.50
- --------------------------------------------------------------------------------
2004 2,662 1.1% $40.73
- --------------------------------------------------------------------------------
2005 16,634 7.0% $38.79
- --------------------------------------------------------------------------------
2006 14,670 6.1% $32.45
- --------------------------------------------------------------------------------
2007 15,113 6.3% $62.39
- --------------------------------------------------------------------------------
2008 54,422 22.8% $30.34
- --------------------------------------------------------------------------------
2009 37,625 15.8% $34.12
- --------------------------------------------------------------------------------
2010 3,833 1.6% $51.00
- --------------------------------------------------------------------------------
2013 5,472 2.3% $38.00
- --------------------------------------------------------------------------------
2016 2,947 1.2% $140.40
- --------------------------------------------------------------------------------
2018 14,470 6.1% $34.75
================================================================================

During December 2001, two retail tenants occupying an aggregate of
approximately 16,740 square feet (plus 1,900 square feet of storage space) and
paying aggregate annual rents of approximately $1,000,000 vacated 475 Fifth
Avenue. In 2002, Registrant leased approximately 2,660 square feet of such
retail space (plus 1,000 square feet of storage space) for an approximate annual
rent of $298,000. One of the existing retail tenants, leasing approximately
2,950 square feet for an approximate annual rent of $414,000 is delinquent in
its rent payments; Registrant may evict this tenant after drawing down the
letter of credit held as security for this lease. Registrant has been engaged in
discussions to lease its remaining vacant retail space but has yet to enter into
any binding lease agreements.

During 2001, Registrant experienced vacancies in office space aggregating
approximately 29,950 square feet (with aggregate annual rents of approximately
$1,200,000) at 475 Fifth Avenue. One of such leases (for 14,470 square feet and
annual rents of approximately $607,000) was terminated early in exchange for a
fee in the approximate amount of $720,000. In late 2002 and early 2003,
Registrant has experienced additional office vacancies and relocations of
tenants to smaller spaces aggregating approximately 14,770 square feet, with
approximate annual aggregate rent of $525,000. Registrant is currently
negotiating a lease buy-out on approximately 14,860 square feet of office space
(annual rent of approximately $452,000) and, as described above, has been
receiving only a portion of the rent due from another office tenant
(approximately 13,825 square feet at an approximate annual rent of $553,000)
that will vacate the space when Registrant obtains a replacement tenant.
Registrant did not enter into any new leases for office space in 2002, but in
the first quarter of 2003 it has entered into leases for an aggregate of
approximately 19,940 square feet at an approximate annual aggregate rent of
$711,000 (after free rent periods).

Registrant's leases generally provide for a base rent, inclusive of an
electricity charge, plus additional rent in the form of a porter's wage and real
estate tax escalation factors; Registrant may

11

increase the electricity charge if a review demonstrates that Registrant's cost
of obtaining such electricity exceeds the charge imposed on tenants. Certain
tenants (leasing approximately 20% to 25% of the space in the building) have
leases that provide for a base rent, inclusive of an electricity charge, plus
additional rent in the form of operating expense and real estate tax escalation
factors.

In 1997, Registrant commenced a capital improvement program, designed to
increase rental rates and the value of the building. In connection with
obtaining the 475 Loan, a capital reserve schedule was prepared for 475 Fifth
Avenue, detailing improvements aggregating approximately $1,840,000 over a
12-year period. Registrant has completed the following improvements at 475 Fifth
Avenue: roof replacement and masonry restoration above the 19th floor; elevator
modernization, including mechanical cables and security system; drain and drain
line replacement; installation of a new electrical panel on one side of the
building; continuing installation of hot water heating and sprinkler systems and
upgrading of electric service and closets on floors as vacancies occur; lobby
and entrance renovation; renovating restrooms to comply with Americans with
Disabilities Act ("ADA") requirements on floors as vacancies occur; construction
and enclosing of basement staircases to conform with building code requirements;
completion of elevator interior redecoration; window replacement on two sides of
the building; and demolition of vacant retail space to prepare it for marketing.
Registrant intends to make the following additional improvements: masonry
restoration on the lower floors of the building; continuation of hot water
heating and sprinkler system installation, upgrading of electric service and
closets, and renovating restrooms to comply with ADA on floors as vacancies
occur; installing the main sprinkler distribution system; installation of a new
electrical panel on the other side of the building; additional lobby
renovations, including security cameras, a new tenant directory, and new doors
for the 41st Street entrance; and continuing window replacement. Registrant
estimates that such additional improvements, planned to be made over the next
several years, will cost approximately $1,900,000. In 2002, Registrant expended
capital improvements, tenant improvements, and leasing commissions aggregating
approximately $775,000 at 475 Fifth Avenue. Registrant has expended
approximately $9,750,000 on capital expenditures and tenant improvements at 475
Fifth Avenue. Certain capital improvements can only be made as tenancies expire.
Capital improvements and tenant improvements thus far have been funded from
working capital, the repair reserve under the 475 Loan, and from increases in
rental income. Owing to increased vacancies and reduced cash flow from 475 Fifth
Avenue, Registrant has largely delayed its capital improvement program. As
Registrant leases vacant space, it will be obliged to fund substantial leasing
commissions and tenant improvements. Registrant may seek to sell one or more of
its properties to provide funding for tenant improvements, leasing commissions,
and capital improvements.

For the year ended December 31, 2002, Registrant paid approximately
$1,368,000 in real property taxes with respect to 475 Fifth Avenue. At December
31, 2002, such taxes were imposed at a rate of 9.7032% on an assessed value of
$14,097,000.

475 Fifth Avenue is situated in the Grand Central district of the New York
City midtown market. Such district includes approximately 40,460,000 aggregate
rentable square feet (vacancy rate of approximately 9.0%). Asking rents in this
district average approximately $43.98 per square foot. The Midtown North
District includes approximately 173,908,000 aggregate rentable square feet, an
approximate 8.1% vacancy rate, and average asking rents of approximately $49.38
per square foot. The entire midtown market includes approximately 262,353,000
aggregate rentable square feet, an approximate 8.8% vacancy rate, and average
asking rents of approximately $44.68 per square foot.

Alamo Towers

On March 17, 1997, Registrant purchased the land, building and other
improvements commonly known as the Alamo Towers, and situated in San Antonio,
Texas for approximately $12,002,000, including capitalized closing and related
costs. The Alamo Towers contains a multi-

12

tenant office building comprised of approximately 190,600 square feet (reduced
from approximately 196,000 square feet when Registrant acquired the property).
Registrant owns fee title to the Alamo Towers, subject to the lien of the Fleet
Loan.

The Alamo Towers is an office building consisting of two stand-alone
8-story towers with approximately 182,300 square feet of office space and 8,300
square feet of basement space. As of March 1, 2003, approximately 82.0% of the
rentable square footage of office space in the Alamo Towers was leased, at an
average current rent (base rent plus escalation adjustments and without
reduction for any free rent periods) of approximately $16.31 per square foot.
Following is a schedule of expiration of such leases.

================================================================================
Approximate Avg. Current
Expiration Year Square Feet % of Total Rent/Sq.Ft.
- --------------------------------------------------------------------------------
2003 27,990 15.5% $17.90
- --------------------------------------------------------------------------------
2004 35,486 19.7% $16.15
- --------------------------------------------------------------------------------
2005 21,234 11.8% $15.95
- --------------------------------------------------------------------------------
2006 49,145 27.2% $15.84
- --------------------------------------------------------------------------------
2007 9,865 5.5% $15.32
- --------------------------------------------------------------------------------
2008 4,161 2.3% $16.52
================================================================================

The Alamo Towers has yet to achieve sustainable increases in occupancy
rates, primarily because of the absence of a covered parking garage.
Registrant's planned significant capital improvements for this building, delayed
in large part because of the capital improvements made at 475 Fifth Avenue,
began implementation in earnest in 2001. Registrant completed renovation of the
lobby in the West Tower, added granite to the entrances and stairs in both
towers, relocated the building's mechanical plant, and replaced all heating,
ventilation, and air conditioning equipment. Registrant also upgraded the fire
alarm panels in both towers and is continuing to separate the heating and air
conditioning systems in tenant spaces (to better regulate the temperature) as
vacancies occur. Registrant also upgraded the parking lot surface and lighting.
Largely as a result of increased vacancies and reduced cash flow from 475 Fifth
Avenue, Registrant has delayed its capital improvement program for the Alamo
Towers. Registrant is replacing the roof of the West Tower at an estimated cost
of $160,000. In 2002, Registrant expended approximately $339,000 in tenant
improvements and leasing commissions and $403,000 in capital improvements.
Registrant has expended approximately $6,569,000 in capital expenditures and
tenant improvements at the Alamo Towers.

Registrant plans to construct a covered parking garage, depending upon the
availability of funds. Registrant likely will need to sell one of its properties
to finance this construction. The planned garage has been scaled back to a
550-car garage at an estimated cost of $3,250,000 (as contrasted to a 1,000 car
garage at a cost of $6,000,000). In the future, Registrant may need to replace
the East Tower roof (estimated at $200,000), recaulk the glass walls and windows
(estimated at $200,000), install sprinklers on all floors (estimated at
$250,000), and upgrade restrooms to comply with ADA (estimated at $500,000 to
$600,000), but these improvements are unlikely to occur in the near future.

13

For the year ended December 31, 2002, Registrant paid approximately $333,000
(with a discount) in real property taxes with respect to the Alamo Towers. At
December 31, 2002, such taxes were imposed at a rate of 3.043605% on an assessed
value of $11,000,000.

The San Antonio office market includes approximately 22,050,000 aggregate
rentable square feet, of which approximately 19.6% is currently vacant. Asking
rents in this market now average $18.10 per square foot. The north-central San
Antonio market includes approximately 7,793,000 aggregate rentable square feet,
of which approximately 15.2% is vacant and for which asking rents average
approximately $18.80 per square foot. The Alamo Towers is located in the
north-central market and is classified as Class B space.

Item 3. Legal Proceedings.

Except for its action against Polish Ocean Lines, Inc., Registrant does
not know of any material legal proceedings, other than ordinary immaterial
routine litigation incidental to its business, pending against or involving
Registrant or any of its properties. The action against Polish Ocean Lines, Inc.
is attributable to the rejection of its subsidiary's lease for space in the Tumi
Building. See "Item 2. Properties - Tumi Building." In July 2000, Registrant
obtained a judgment in the approximate amount of $618,600 in the Superior Court
of New Jersey Law Division; Middlesex County. In May 2001, the amount of this
judgment was increased to approximately $4,389,400. Registrant is pursuing
enforcement of this judgment in Poland.

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

There were no matters submitted to a vote of Limited Partners or
Unitholders and none were required to be submitted during the fourth quarter of
the fiscal year covered by this report through the solicitation of proxies or
otherwise.

14

PART II

Item 5. Market for Registrant's Securities and Related Security-Holder Matters.

The Units of Registrant are not traded in any established public trading
market. Because of certain provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), as described below, the General Partners have not applied
to include the Units for quotation or listing on any national or regional stock
exchange or any other established securities market.

Registrant has administered a Unit Repurchase Plan since 1995, pursuant to
which Registrant, in its discretion, has purchased outstanding Units. Any such
purchases are made at prices no higher than the lowest current independent offer
quotation. During 2002, Registrant did not repurchase any Units. Repurchases
both divert funds otherwise available for capital improvements and require a
monthly reallocation of Unitholders' interests. For these reasons, Registrant
limits future repurchases, if any, to the final one or two months of a calendar
year. To provide an alternative outlet for Unit sales, the General Partners and
their affiliates have, during any periods of suspension in Registrant's Unit
Repurchase Plan, purchased Units on the same terms and conditions as under the
Unit Repurchase Plan.

Provisions found in Section 7704 of the Code have an adverse impact on
investors in a "publicly traded partnership" ("PTP"). A PTP is a partnership
whose interests are traded on an established securities market or readily
tradeable on a secondary market (or the substantial equivalent thereof). If
Registrant were classified as a PTP, (i) Registrant may be taxed as a
corporation or (ii) income derived from an investment in Registrant would be
treated as non-passive income.

The IRS has established alternative safe harbors that allow interests in a
partnership to be transferred or redeemed in certain circumstances without
causing the partnership to be characterized a PTP. Although the Units are not
listed or quoted for trading on an established securities market, it is possible
that transfers of Units could occur in a secondary market in sufficient amount
and frequency to cause Registrant to be treated as a PTP. To the extent that any
proposed transfer of Units in secondary market transactions would exceed a safe
harbor volume limitation, the proposed transfer will be restricted pursuant to a
policy adopted by Registrant. Such a restriction could impair the ability of an
investor to liquidate its investment quickly and thus, possibly prevent the
reclassification of Registrant as a corporation pursuant to Code Section 7704.
It is anticipated that Registrant's policy will remain in effect until such
time, if ever, as further clarification of Code Section 7704 permits Registrant
to lessen the scope of its policy.

The General Partners, if so authorized, will take such steps as are
necessary, if any, to prevent the reclassification of Registrant as a PTP.

As of March 24, 2003, there were 2,347 Unitholders of record.

15

The following represents per Unit cash distributions to investors for the
fiscal years ended December 31, 2002 and 2001.

Distribution
Quarter Ended Per Unit Payment Date
- ------------- -------- ------------

December 31, 2002 $ 0.00 N/A

September 30, 2002 $ 0.00 N/A

June 30, 2002 $ 0.00 N/A

March 31, 2002 $ 0.00 N/A

December 31, 2001 $ 0.30 March 2002

September 30, 2001 $ 0.30 November 2001

June 30, 2001 $ 0.30 August 2001

March 31, 2001 $ 0.30 May 2001

There are no material legal restrictions upon Registrant's present or future
ability to make distributions in accordance with the provisions of Registrant's
Agreement of Limited Partnership, as amended through the date of this report.
However, the Fleet Loan Agreements limit distributions to 90% of the sum of its
cumulative net income from real estate operations, adjusted for depreciation,
amortization, and write-off of step rent receivables. See, however, Item 7 -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a discussion of economic conditions that have resulted in the
suspension of distributions and that may continue to affect Registrant's ability
to make distributions.

16

Item 6. Selected Financial Data.

Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
2002 2001 2000 1999 1998
------------ ------------ ------------ ------------ ------------

Operating Revenues $15,591,881 $16,984,791 $15,554,869 $16,695,999 $19,752,206
Net (Loss)/Income $(2,706,645) $(1,676,547) $1,808,954 $(2,828,104) $1,930,984
Net (Loss)/Income Per Unit (1) $(0.90) $(0.56) $0.60 $(0.94) $0.64
Total Assets $97,372,747 $100,532,466 $102,145,141 $107,255,707 $105,748,365
Long-Term Obligations $55,040,618 $55,879,036 $51,335,864 $55,539,288 $46,930,800
Distributions Per Unit (1)(2) $0.00 $1.20 $1.20 $1.20 $1.20

(1) Per Unit numbers are based on 2,983,531 Units for 2002, 2001, 2000 and
1999 and a weighted average number of Units of 2,986,460 for 1998.

(2) Each year's distributions include funds distributed after the end of the
year which are attributable to that year.

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

This discussion includes statements that may constitute forward-looking
statements made pursuant to the Safe Harbor provisions of the Private Securities
Litigation Reform Act of 1995. Registrant would like to caution readers
regarding certain forward-looking statements in this document and in all of its
communications to unitholders and others, press releases, securities filings,
and all other communications. Statements that are based on management's
projections, estimates and assumptions are forward-looking statements. The words
"believe," "expect," "anticipate," "intend," and similar expressions generally
identify forward-looking statements. While Registrant believes in the veracity
of all statements made herein, forward-looking statements are necessarily based
upon a number of estimates and assumptions that, while considered reasonable by
Registrant, are inherently subject to significant business, economic and
competitive uncertainties and contingencies and known and unknown risks. Many of
the uncertainties and contingencies can affect events and Registrant's actual
results and could cause its actual results to differ materially from those
expressed in any forward-looking statements made by, or on behalf of,
Registrant.

Liquidity and Capital Resources

At December 31, 2002, Registrant had cash and receivables of approximately
$1,566,000 as contrasted to accounts payable and accrued expenses of
approximately $2,778,000. Registrant measures its liquidity by its ability to
generate sufficient cash flow from operations to meet its current operating and
debt service requirements on a short-term and long-term basis. Registrant's
operations have provided this liquidity and are expected to continue to do so.
To the extent additional funds are required, such as for capital improvements,
tenant improvements, and leasing commissions, Registrant likely will need to
sell assets as its borrowing capacity under the Fleet Loan is nearly exhausted.

17

In June 2000, Registrant sold the Flatiron Building in Boulder, Colorado
for $13,050,000, exclusive of closing costs of approximately $473,000. From the
sale proceeds, the sum of $434,466 was placed into escrow pending resolution of
the bankruptcy of one of the tenants in the building. In 2001, Registrant
recognized approximately $103,000 of the amount held in escrow. Registrant
currently anticipates that all of such sale proceeds remaining in escrow will be
paid out to the buyer of the Flatiron Building.

In October 2000, the Fleet Loan was amended to provide for maximum gross
borrowings of $25,000,000 and to extend the maturity date to September 30, 2003
(subject to two additional one year extension options). Registrant intends to
exercise its extension option. Registrant has drawn down an aggregate of
approximately $24,941,000 under the amended Fleet Loan. Registrant can only
borrow approximately an additional $58,000 under the Fleet Loan. Registrant may
draw funds from its replacement reserve (currently approximately $202,000) under
the 475 Fifth Loan, to fund certain improvements at 475 Fifth Avenue.

Registrant has invested capital in improving its properties with a view to
increasing its revenues from real estate operations and ultimately realizing
appreciation in property values. The level of capital improvements decreased
significantly in 2002 owing to increasing vacancies and decreasing rental
revenues, particularly at 475 Fifth Avenue. Capital resources have been expended
since the beginning of 2002 to make the following capital and tenant
improvements and to pay leasing commissions: approximately $775,000 at 475 Fifth
Avenue; approximately $49,000 at the Tumi Building; $0 at the LightCross
Building; $0 at the Directory Building; approximately $62,000 at the Marathon
Oil Building; and approximately $742,000 at Alamo Towers. Registrant will also
require capital to fund additional tenant improvements as vacancies are filled
and tenancies turn over at its properties as well as further capital
improvements at 475 Fifth Avenue (estimated at $1,900,000) and Alamo Towers
(estimated at $4,500,000). These additional capital improvements are expected to
be made over several years. Registrant will be largely dependent upon improved
real estate operations and sales and/or refinancings of one or more of its
properties to fund significant additional tenant and capital improvements.

In March 1999, Gdynia America Line, Inc., which leased approximately 20%
of the Tumi Building pursuant to a lease expiring in May 2007, filed for
protection under Chapter 11 of the U.S. Bankruptcy Code. Polish Ocean Lines, a
Polish corporation partially owned by the Polish Government, is jointly and
severally obligated under this lease. On or about April 30, 1999, the lease,
which required annual rental payments of approximately $446,000, was rejected in
the bankruptcy proceeding. In July 2000, Registrant obtained a judgment in the
approximate amount of $618,600 against Polish Ocean Lines for amounts then due
under the lease. In May 2001, the amount of such judgment was increased to
approximately $4,389,400. There can be no assurance that Registrant will be
successful in collecting any damages from Polish Ocean Lines. All but
approximately 5,000 square feet of this space in the Tumi Building remains
vacant.

Registrant's New York property has continued to experience difficulties in
the aftermath of the events of September 11, 2001 and the ensuing economic
downturn that has severely impacted New York. During December 2001, two retail
tenants paying aggregate annual rents of approximately $1,000,000 vacated 475
Fifth Avenue. In addition, office tenants paying aggregate annual rents of
approximately $1,200,000 vacated 475 Fifth Avenue during 2001. Registrant
realized lease cancellation income of approximately $576,000 in 2001, consisting
of an early termination fee in the approximate amount of $720,000 from a tenant
in 475 Fifth Avenue, net of a write-off of deferred rent receivable of
approximately $144,000. In 2002 and early 2003, additional vacancies and
relocations aggregating approximately 14,770 square feet of office space (with
aggregate annual rents of approximately $525,000) occurred at 475 Fifth Avenue.
Additional

18

vacancies involving 2,950 square feet of retail space (approximately $414,000 in
annual rent) and approximately 28,685 square feet of office space (approximately
$1,005,000 in aggregate annual rent) are likely in 2003 at 475 Fifth Avenue. The
loss of rental payments from these terminated leases and the tenant improvement
allowances that Registrant expects to pay to replacement tenants have placed,
and will continue to place, demands on Registrant's liquidity and capital
resources.

To date, Registrant has funded its capital requirements from the 475 Loan,
the Fleet Loan and working capital. As discussed above, Registrant has very
limited remaining borrowing capacity under its loans. In 2002, the General
Partners deferred the receipt of substantially all management fees payable to
them by Registrant, aggregating approximately $1,024,000. This deferral,
combined with an increase in accounts payable and accrued expenses aggregating
approximately $350,000, increased the amount of Registrant's cash flow available
for other purposes. There is no assurance that the General Partners will defer
all or any portion of such fees in the future.

Registrant's quarterly distribution to partners for each of the four
quarters of 2001 was $0.30 per Unit. Registrant was forced to suspend
distributions for each of the four quarters of 2002. The level of distributions
in the future will be dependent upon numerous factors, including securing
replacement tenants at 475 Fifth Avenue and, possibly, the funding of additional
tenant and capital improvements from the proceeds of the sale of one or more of
Registrant's properties. Registrant cannot yet estimate when distributions to
unitholders will resume.

Registrant has used working capital reserves provided from the net
proceeds of the Offering, loan proceeds, and any undistributed cash from
operations as its primary source of liquidity. Registrant generally intends to
distribute its distributable cash from operations to Unitholders. However, such
distributions are subject to suspension (as is presently the case) or reduction
to meet capital requirements and are also limited by the Fleet Loan Agreements
to 90% of the sum of its cumulative net income from real estate operations,
adjusted for depreciation, amortization, and write-off of step rent receivables.

Results of Operations

The results of Registrant's operations are subject to numerous factors,
including the following:

o Registrant is subject to general risks affecting the real estate industry,
including the necessity of entering into new leases and renewal leases on
favorable terms;
o Registrant could be adversely affected by changes in local markets where
its properties are located and by adverse changes in national economic and
market conditions;
o Registrant is subject to competition for tenants from owners of other real
properties;
o Registrant is dependent upon the successful operations and financial
condition of its tenants who, in turn, are subject to economic and
competitive risks;
o Registrant is subject to potential environmental liabilities;
o Registrant could be adversely affected by changes in governmental
regulations including, without limitation, changes in environmental and
tax regulations; and
o Increases in interest rates would increase Registrant's interest payments
under its variable rate loan and decrease cash flow available to fund
capital improvements and to make distributions.

2002 versus 2001

Rental revenues decreased by 4.5% from 2001 to 2002, primarily because of
increased vacancies at 475 Fifth Avenue. In addition, Registrant did not receive
any lease cancellation fees in 2002 as contrasted to 2001, in which $720,000 in
cash was received from the termination of a lease at 475 Fifth Avenue, offset by
a step rent write-off. Registrant's interest and other income decreased from

19

2001 to 2002 by 36.2% principally because Registrant recovered a bad debt in
2001 from a delinquent New York tenant. As a result, total revenues decreased by
8.2% from 2001 to 2002.

Interest expense in 2002 decreased by 11.7% from 2001, both because of
slightly smaller loan balances and lower interest rates. Depreciation decreased
by 5.8% in 2002 primarily because of tenant improvements that were fully
depreciated at the New Jersey, San Antonio, and Oklahoma properties.
Amortization decreased by 13.8% primarily because of the write-off in 2001 of
commissions related to a canceled lease in the New York property. Property
operating expenses decreased by 3.6% in 2002 primarily because of lower
occupancy at 475 Fifth Avenue. Management fees decreased by 14.0% in 2002 from
2001 because of property management fees computed as a percentage of
Registrant's decreased rental revenues and partnership management fees computed
as a percentage of decreased cash flow. Professional fees increased by 56.3%
from 2001 to 2002 primarily because of legal fees related to enforcement of the
Gdynia judgment and collection of past due rents and the costs of electronic
filing of income tax returns. The 252.8% increase in bad debt expense primarily
reflects the write-off of rents and deferred rent receivables from a New York
retail tenant that vacated space pursuant to a surrender agreement effective
January 7, 2002. The 70.3% increase in general and administrative expenses in
2002 from 2001 is primarily attributable to a partnership filing fee sought to
be imposed by the New Jersey Division of Revenue.

Registrant's loss from real estate operations increased by 52.1% in 2002
as compared to 2001. The increase in Registrant's loss from real estate
operations was largely due to the decrease in rental revenue and lease
cancellation income and the imposition of the New Jersey partnership filing fee.

2001 versus 2000

Rental revenues increased by 6.9% from 2000 to 2001, primarily because of
new leases and rent increases in the New York, New Jersey, and Las Colinas,
Texas properties, the commencement of rent payments from LightCross at the
LightCross Building, and the delay in feeling the effects of lease terminations
at the New York building. Lease cancellation income in 2001, which consisted of
$720,000 in cash received from the termination of a lease at 475 Fifth Avenue,
offset by a step rent write-off, increased by 462.0% from the amounts received
in 2000. As a result, total revenues increased by 9.2% from 2000 to 2001.

Interest expense in 2001 decreased by 7.7% from 2000, because larger loan
balances were more than offset by lower interest rates. Depreciation increased
by 1.4% in 2001 primarily because of capital improvements made at 475 Fifth
Avenue, the LightCross Building, and Alamo Towers. Amortization increased by
10.9% primarily because of the amortization of deferred costs related to the
Fleet Loan refinancing and commissions paid pertaining to new and renewed leases
and the write-off of leasing commissions on leases that were terminated early.
Property operating expenses increased by 4.1% in 2001 primarily because of
increases in real estate taxes at the two Texas properties, utilities and other
operating costs associated with increased occupancy at certain properties
despite the reduction attributable to the sale of the Colorado building, and the
reimbursement in 2001 of real property taxes attributable to the period prior to
the sale of the Colorado property. Management fees increased by 15.7% in 2001
from 2000 because of property management fees computed as a percentage of
Registrant's increased rental revenues. Professional fees decreased by 44.9%
from 2000 to 2001 primarily because of the legal fees incurred by Registrant in
2000 in connection with obtaining a judgment against Polish Ocean Lines with
respect to the Tumi Building. General and administrative expenses increased by
17.1% from 2000 to 2001 primarily because of the payment in 2001 of Colorado tax
on gain from the sale of the Flatiron Building, which more than offset
non-recurring costs paid in 2000 to change the Registrant's transfer agent. The
53.0% decrease in bad debt expense is attributable to lower rent balances
written-off for tenants that moved out in 2001 as compared to those vacating
space in 2000.

20

Registrant's loss from real estate operations decreased by 46.1% in 2001 as
compared to 2000. The significant reduction in Registrant's loss from real
estate operations from 2000 to 2001 was driven by new leases and higher rents
attributable to Registrant's extensive capital improvement program, principally
at 475 Fifth Avenue and Alamo Towers, Texas, as well as the benefits of interest
rate decreases under the Fleet Loan.

Critical Accounting Policies

Management's discussion and analysis of financial condition and results of
operations is based upon Registrant's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires
management to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses. Registrant bases its estimates on
historical experience and assumptions that are believed to be reasonable under
the circumstances, the results of which form the basis for making judgments
about carrying value of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under
different assumptions or conditions. Registrant believes the following critical
accounting policies affect its significant judgments and estimates used in the
preparation of its consolidated financial statements.

Valuation of Properties Held for Use and Sale

On a quarterly basis, management reviews the carrying value of its
properties. Registrant records impairment losses and reduces the carrying value
of properties when indicators of impairment are present and the expected
undiscounted cash flows related to those properties are less than their carrying
amounts. In cases where Registrant does not expect to recover its carrying costs
on properties held for use, Registrant reduces its carrying cost to fair value;
for properties held for sale, Registrant reduces its carrying value to the fair
value less costs to sell. For the years ended December 31, 2002, 2001, and 2000,
no impairment losses were recognized.

Bad Debts

Registrant maintains an allowance for doubtful accounts for estimated
losses resulting from the inability of tenants to make payments on arrearages in
billed rents and expense recoveries. As of December 31, 2002, Registrant
maintained an allowance for doubtful accounts of approximately $165,000. If the
financial condition of Registrant's tenants were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required.

Inflation

In the past, inflation has not had a material impact on Registrant's
operations or financial condition, as certain leases of Registrant's properties
provide for increases in rents based on changes in the consumer price index, and
other leases provide lease payments that escalate over time. Registrant's
properties with performing leases are protected by arrangements whereby the
tenants pay to Registrant an amount equal to all or a portion of the operating
costs of the properties, with Registrant's share of expenses, if any, subject to
a predetermined limit. These arrangements help to insulate Registrant from the
effects of any increases in operating costs. However, to the extent that there
is vacant space or nonperforming leases at any of the Registrant's properties,
Registrant lacks this protection against inflation, particularly with regards to
increased expenses that are not reimbursed.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

21

Interest Rates

Registrant's primary market risk exposure is to changes in interest rates
on its mortgage loan borrowings.

Registrant has obtained the 475 Loan, a fixed rate debt instrument, to
manage its exposure to fluctuations in market interest rates. Registrant has
also obtained the Fleet Loan, a variable rate debt instrument, to enable it to
draw down funds as needed for capital improvements, tenant improvements, and
leasing commissions on its diverse portfolio of properties. Approximately 43%
and 44% of Registrant's outstanding debt was subject to variable rates at
December 31, 2002 and 2001, respectively. In addition, the average interest rate
on Registrant's debt decreased from 6.44% at December 31, 2001 to 6.33% at
December 31, 2002. Registrant does not have any other material market-sensitive
financial instruments. It is not Registrant's policy to engage in hedging
activities for previously outstanding debt instruments or for speculative or
trading purposes.

The table below provides information about Registrant's debt instruments
that are sensitive to changes in interest rates. For debt obligations, the table
presents principal cash flows and related weighted average interest rates by
expected maturity dates. Weighted average variable rates are based on rates in
effect at the reporting date.

Expected Maturity Date
--------------------------------------------------------------------------------------------------
There- Fair
2003 2004 2005 2006 2007 After Total Value
---- ---- ---- ---- ---- ----- ----- -----
(in thousands) (in thousands)

Secured Variable $23,805 $-- $-- $-- $-- $-- $23,805 $23,805
Average Interest
rate 3.8% -- -- -- -- -- -- --
Secured Fixed $282 $299 $333 $362 $393 $29,567 $31,236 $36,600
Average interest
rate 8.27% 8.27% 8.27% 8.27% 8.27% 8.27% 8.27%

Registrant believes that the interest rates given in the table for fixed
rate borrowings are above the rates Registrant could currently obtain for
instruments of similar terms and maturities. The fair values of such instruments
are estimated using discounted cash flow analyses, based on borrowing rates for
similar types of borrowing arrangements at December 31, 2002 (estimated at 5.3%
per annum).

A change of 1% in the index rate to which Registrant's variable rate debt
is tied would change the annual interest incurred by Registrant by approximately
$238,000, based upon the balances outstanding on variable rate instruments at
December 31, 2002.

Item 8. Financial Statements and Supplementary Data.

See list of Financial Statements and Financial Statement Schedules at page
F-2, filed as part of this report.

22

Quarterly Results of Operations (Unaudited)

2002
-------------------------------------------------
Three Months Ended
-------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
(Thousands of dollars, except per unit data)

Total revenues $3,742 $3,863 $4,109 $3,878
Total expenses 4,638 4,170 4,544 4,946
Loss from real estate
operations before gain
on sale of real estate (897) (307) (435) (1,068)
Gain on sale of real
estate -- -- -- --
Net loss (897) (307) (435) (1,068)
Net loss per Unit (0.30) (0.10) (0.14) (0.36)

2001
-------------------------------------------------
Three Months Ended
-------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
(Thousands of dollars, except per unit data)

Total revenues $4,023 $4,090 $4,669 $4,203
Total expenses 4,435 4,463 4,676 5,191

Loss from real estate
operations before gain
on sale of real estate (412) (373) (7) (988)
Gain on sale of real
estate 103 -- -- --
Net loss (309) (373) (7) (988)

Net loss per Unit (0.10) (0.12) -- (0.33)

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

None.

23

PART III

Item 10. Directors and Executive Officers of the Registrant.

Registrant has no officers or directors. The General Partners manage and
control substantially all of Registrant's affairs and have general
responsibility and ultimate authority in all matters affecting Registrant's
business.

The Individual General Partner is Robert F. Gossett, Jr. The Corporate
General Partner is 1345 Realty Corporation. All of the outstanding capital stock
of 1345 Realty Corporation is owned by the Individual General Partner and his
wife.

The directors and executive officers of the Corporate General Partner are
as follows:

Officer/
Director
Name Age Position Since
---- --- -------- -----

Robert F. Gossett, Jr. 59 President, Treasurer
and Director 1994

Pauline G. Gossett 59 Secretary 1994

Information with respect to the Individual General Partner and with
respect to the above officers and directors is set forth below:

Robert F. Gossett, Jr., the Individual General Partner since 1985, is
Managing Director of Vance Capital Corporation (1981 to present), a real estate
management and finance company. Between 1978 and 1981, Mr. Gossett served as
Executive Vice President and Director of Loeb Capital Corporation. From 1974
until 1978, he was a Vice President of Oppenheimer Properties, Inc. and, between
1969 and 1974, was associated with the Investment Banking Division of Merrill,
Lynch, Pierce, Fenner & Smith, Inc. He received a B.A. degree from the
University of Texas, a J.D. degree from Georgetown University, and an M.B.A.
degree from the University of Pennsylvania. He is a member of the Texas Bar.

Pauline G. Gossett, the Secretary of the Corporate General Partner, is a
stockholder and Director of Vance Capital Corporation (1981 to present). Mrs.
Gossett received an Associate of Arts degree from Briarcliff College. Mrs.
Gossett is the wife of Robert F. Gossett, Jr.

Registrant employs the following employees who make significant
contributions to the business of Registrant:

Employee
Name Age Position Since
---- --- -------- -----

James N. Walsh 49 Property Manager 1997
Wallis J. Hoskins 49 Property Manager 1993
Veronica Rios 38 Property Manager 1999
Madeline Matlak 37 Fund Administrator 1994

24

James N. Walsh is the Property Manager for 475 Fifth Avenue. Mr. Walsh has
been designated a Real Property Administrator (RPA) by the Building Owners and
Managers Association. From 1989 to 1997, he was a building manager, comptroller,
and leasing manager for 584 Operating Corp., the owner of an office building in
New York, New York which is similarly sized to 475 Fifth Avenue. Prior thereto,
Mr. Walsh served for four years as an assistant comptroller and construction
accountant for the residential division of Cadillac Fairview. He also acted for
four years as a project accountant for residential properties owned by Olympia &
York. Mr. Walsh received a B.B.A. degree in accounting from Iona College.

Wallis J. Hoskins is the Property Manager for the Tumi Building. For the
20 years prior thereto he was employed by The Prudential Insurance Company of
America, from 1981 to 1992 as a facilities manager for company-owned buildings
and from 1973 to 1980 as a claims approver.

Veronica Rios is the Property Manager for Alamo Towers. Ms. Rios has been
designated a Real Property Administrator (RPA) by the Building Owners and
Managers Association. From 1995 to 1999, she was a property manager for three
office buildings owned by Mission City Properties in San Antonio. Ms. Rios was a
property manager from 1993 to 1995 for several office, office/warehouse, and
rental properties owned by the Bonner Group in San Antonio. Prior thereto, from
1989 to 1993, she was employed in various office, accounting, and property
management capacities by Commercial Real Estate Associates in San Antonio.

Madeline Matlak is the Fund Administrator of the Registrant. Mrs. Matlak
was formerly employed as a Fund Administrator in the Direct Investment
Department of Smith Barney, Inc. (1989 through 1994).

Based solely upon its review of copies of Forms 3, 4, and 5 received by it
during 2002, and written representations from reporting persons that no other
Forms 5 were required for such persons for 2002, Registrant believes that all
filing requirements applicable to its General Partners and the directors and
officers of the Corporate General Partner pursuant to Section 16(a) of the
Securities Exchange Act of 1934, as amended, for 2002 and prior years were
complied with on a timely basis except as previously reported.

Item 11. Executive Compensation.

Registrant is not required to and did not pay remuneration to the officers
and directors of the Corporate General Partner. However, the General Partners
and/or their affiliates receive compensation for services performed for
Registrant.

25

Summary Compensation Table

Share of
Adjusted Cash Management Leasing Expense
Year From Operations Fees Commissions Reimbursement
---- --------------- ---- ----------- -------------

Corporate General Partner 2002 $7,233 $819,369 $-0- $40,000
Individual General Partner 2002 $1,808 $204,842 $-0- $10,000
Corporate General Partner 2001 $28,931 $953,191 $-0- $54,240
Individual General Partner 2001 $7,233 $238,298 $-0- $13,560
Corporate General Partner 2000 $28,931 $824,040 $-0- $56,000
Individual General Partner 2000 $7,233 $206,010 $-0- $14,000

See Item 13 - "Certain Relationships and Related Transactions" for a discussion
of the above compensation.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

The following table sets forth information as of February 28, 2003 as to
persons known by Registrant to be the beneficial owner of more than five percent
(5%) of the outstanding Units of Registrant.

Name and Address Of Amount and Nature of
Beneficial Owner Beneficial Ownership Percent Of Class
- ---------------- -------------------- ----------------
Vance, Teel & Company, Ltd.(1)
406 E. 85th Street New York,
New York 10028 532,574 17.9%

- ----------
(1) Each of Robert F. Gossett, Jr., the Individual General Partner and the
President of the Corporate General Partner, and Pauline G. Gossett, the
Secretary of the Corporate General Partner, own a 25% proportionate interest in
Vance, Teel & Company, Ltd.

26

The following table sets forth information as of February 28, 2003 with
respect to the beneficial ownership of Units of Registrant by (i) each of the
General Partners, (ii) each of the directors and executive officers of the
Corporate General Partner, and (iii) all General Partners and executive officers
and directors of the Corporate General Partner, as a group.

Amount and
Name of Nature of
Beneficial Beneficial Percent
Owner Ownership of Class
----- --------- --------

1345 Realty Corporation(1) -0- 0%

Robert F. Gossett, Jr.(2) 133,143.5 4.5%

Pauline G. Gossett(3) 133,143.5 4.5%

All General Partners and
Directors and Executive
Officers as a group
(3 persons) 266,287 8.9%

Robert F. Gossett, Jr., the Individual General Partner and an officer and
director of the Corporate General Partner, and Pauline G. Gossett, an officer of
the Corporate General Partner, own all of the outstanding capital stock of the
Corporate General Partner.

Registrant does not have any equity compensation plans.

Item 13. Certain Relationships and Related Transactions.

Registrant has and will continue to have certain relationships with the
General Partners and their affiliates as discussed below.

In 2002, the General Partners received $9,041 ($7,233 to the Corporate
General Partner and $1,808 to the Individual General Partner) as their allocable
share (1%) of adjusted cash from operations with respect to the quarter ended
December 31, 2001 (no distributions were made with respect to the year ended
December 31, 2002). For the year ended December 31, 2002, $27,066 (1%) of
Registrant's net loss was allocated to the General Partners ($21,653 to the
Corporate General Partner and $5,413 to the Individual General Partner).

The General Partners or their affiliates are also entitled to receive: a
partnership management fee for managing the affairs of Registrant, equal to 7%
of adjusted cash from operations less the asset management fee; an asset
management fee for managing Registrant's funds which are not invested in

- ----------
(1) 1345 Realty Corporation is the Corporate General Partner.

(2) Mr. Gossett is the Individual General Partner and the President of the
Corporate General Partner. Consists of Mr. Gossett's 25% proportionate interest
in Vance, Teel & Company, Ltd. He disclaims beneficial ownership of the
remaining 75% proportionate interest owned by his wife, Pauline Gossett, and his
two adult children.

(3) Ms. Gossett is the Secretary of the Corporate General Partner. Consists of
Ms. Gossett's 25% proportionate interest in Vance, Teel & Company, Ltd. She
disclaims beneficial ownership of the remaining 75% proportionate interest owned
by her husband, Robert F. Gossett, Jr., and her two adult children.

27

properties, equal to 0.5% per annum of the average amount of outstanding funds
during each calendar month which are not otherwise invested in properties; and a
property management fee for property management services for Registrant's
properties, equal to the normal and competitive fees customarily charged by
unaffiliated parties rendering similar services in the same geographic area, not
to exceed 1% of the annual gross revenues for net leases with terms of ten years
or more or 6% of the annual gross revenues for replacement leases. During the
year ended December 31, 2002, the General Partners earned an aggregate of
$1,024,211 of such management fees ($819,369 to the Corporate General Partner
and $204,842 to the Individual General Partner), the receipt of substantially
all of which was deferred.

The General Partners are also entitled to receive leasing commissions in
connection with leasing, releasing or leasing related services performed on
behalf of the Registrant in connection with the negotiation of tenant leases.
Such fees are computed at the following rates: (i) in the case of a property
leased long-term (10 or more years) net (or similar) basis, 1% of annual gross
revenues; and (ii) in the case of other properties, a fee, not to exceed the
competitive rate charged by others rendering similar services in the same
geographical area, not greater than 6% of annual gross revenues where the
General Partners or their affiliates perform leasing, re-leasing and related
leasing services, or 3% of annual gross revenues where they do not perform any
such services. If a long-term net (or similar) lease is terminated for any
reason and the General Partners or their affiliates perform leasing, re-leasing
or leasing related services, they will be entitled to a leasing fee of 3% of the
gross revenue for the first five years of each replacement lease signed. During
the year ended December 31, 2002, no such fees were paid to the General
Partners.

During the year ended December 31, 2002, the General Partners were also
entitled to reimbursement for expenses incurred in connection with Registrant's
operations aggregating $50,000 ($40,000 to the Corporate General Partner and
$10,000 to the Individual General Partner).

Item 14. Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures

Our principal executive officer and principal financial officer has
evaluated the effectiveness of our disclosure controls and procedures, as such
term is defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), as of a date within 90 days prior
to the filing date of this annual report (the "Evaluation Date"). Based on such
evaluation, such officer has concluded that, as of the Evaluation Date, our
disclosure controls and procedures are effective in alerting him on a timely
basis to material information relating to us, including our consolidated
subsidiaries, that is required to be included in our reports filed or submitted
under the Exchange Act.

(b) Changes in Internal Controls

Since the Evaluation Date, there have not been any significant
changes in our internal controls or, to our knowledge, in other factors that
could significantly affect such controls.

28

PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a)(1),(2) See page F-2.

Sequential
Page Number
-----------
(a)(3) Exhibits:

3. Certificate of Limited
Partnership, incorporated by
reference to Exhibit 4 to
Registration Statement No.
33-2258 (the "Registration
Statement").

4.(a) Amended and Restated Agreement
of Limited Partnership dated
as of July 24, 1995,
incorporated by reference to
Exhibit 4 to Registrant's
Quarterly Report on Form 10-Q
for the quarter ended
September 30, 1995.

10.(a) Property Management Agreement,
incorporated by reference to
Exhibit 10B to the
Registration Statement.

(b) Lease dated as of April 20,
1994 between Registrant and
GTE with respect to the
Directory Building.(1)

(c) Amendment No. 1 to Lease dated
as of July 29, 1994 between
Registrant and GTE.(1)

(d) Amendment No. 2 to Lease dated
as of February 22, 1995
between Registrant and GTE.(1)

(e) Extension Agreement and
Supplement dated as of March
31, 2000 between Registrant
and GTE.(2)

- ----------
(1) Incorporated by reference to Exhibits 10(y), (z), and (aa) to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994.
(2) Incorporated by reference to Exhibit 10(e) to Registrant's Annual Report on
Form 10-K for the year ended December 31, 2000.

29

(f) Environmental Compliance and
Indemnification Agreement
dated ______, 1996, made by
Registrant.(3)

(g) Deed of Trust, Assignment of
Rents, Security Agreement and
Fixture Filing dated September
26, 1996, made by Registrant
with respect to the LightCross
Building.(3)

(h) First Amendment to Deed of
Trust dated December __, 1996,
made by Registrant with
respect to the LightCross`
Building.(3)

(i) Mortgage, Assignment of Leases
and Rents and Security
Agreement dated September 26,
1996, made by Registrant with
respect to the Tumi Building.(3)

(j) First Amendment to Mortgage
dated December __, 1996, made
by Registrant with respect to
the Tumi Building.(3)

(k) Mortgage, Assignment of Leases
and Rents, Security Agreement
and Fixture Filing dated
September 26, 1996, made by
Registrant with respect to the
Marathon Oil Building.(3)

(l) First Amendment to Mortgage
dated December __, 1996, made
by Registrant with respect to
the Marathon Oil Building.(3)

- ----------
(3) Incorporated by reference to Exhibits 10 (k), (m), (n), (q), (r), (t), (u),
(v), and (w) to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996.

30

(m) Deed of Trust, Assignment of
Rents, Security Agreement and
Fixture Filing dated September
26, 1996, made by Registrant
with respect to the Directory
Building.(3)

(n) First Amendment to Deed of
Trust dated December __, 1996,
made by Registrant with
respect to the Directory
Building.(3)

(o) Amended and Restated Loan
Agreement dated as of October
12, 2000 between Registrant
and Fleet National Bank.(4)

(p) Amended and Restated Secured
Promissory Note dated October
12, 2000, made by Registrant.(4)

(q) Second Amendment to Deed of
Trust, Assignment of Rents,
Security Agreement and Fixture
Filing dated as of October 12,
2000 made by Registrant with
respect to the Directory
Building.(4)

(r) Second Amendment to Deed of
Trust, Assignment of Rents,
Security Agreement and Fixture
Filing dated as of October 12,
2000 made by Registrant with
respect to Alamo Towers.(4)

(s) Third Amendment to Deed of
Trust, Assignment of Rents,
Security Agreement and Fixture
Filing dated as of October 12,
2000 made by Registrant with
respect to the LightCross
Building.(4)

- ----------
(4) Incorporated by reference to Exhibits 10 (o), (p), (q), (r), (s), (t), and
(u) to Registrant's Annual Report on Form 10-K for the year ended December 31,
2000.

31

(t) Third Amendment to Mortgage,
Assignment of Leases and Rents
and Security Agreement dated
as of October 12, 2000 made by
Registrant with respect to the
Tumi Building.(4)

(u) Third Amendment to Mortgage,
Assignment of Leases and
Rents, Security Agreement and
Fixture Filing dated as of
October 12, 2000 made by
Registrant with respect to the
Marathon Oil Building.(4)

(v) Splitter Agreement dated as of
August 9, 1999 between Fleet
Bank and Registrant.(5)

(w) Demand Note dated August 9,
1999 made by Registrant.(5)

(x) Assignment of Mortgages and
Note dated as of August 9,
1999 made by Registrant with
respect to 475 Fifth Avenue.(5)

(y) Consolidated and Restated
Promissory Note dated August
9, 1999 made by 475 Fifth
Avenue Limited Partnership.(5)

(z) Mortgage Consolidation,
Assignment of Rents, Security
Agreement and Fixture Filing
made as of August 9, 1999 by
475 Fifth Avenue Limited
Partnership to and for the
benefit of Heller Financial,
Inc.(5)

(aa) Letter Agreement dated August
9, 1999 made by Robert F.
Gossett, Jr. to and for the
benefit of Heller.(5)

- ----------
(5) Incorporated by reference to Exhibits 10 (v), (w), (x), (y), (z), (aa),
(bb), and (cc) to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1999.

32

(bb) Manager's Agreement,
Subordination and Consent to
Assignment dated as of August
9, 1999 made by Registrant to
and for the benefit of
Heller.(5)

(cc) Hazardous Substance
Indemnification Agreement
dated as of August 9, 1999
made by 475 Fifth Avenue
Limited Partnership and Robert
F. Gossett, Jr. to and for the
benefit of Heller.(5)

(dd) Lease dated as of November 17,
2000 between Registrant and
LightCross, Inc. with respect
to the LightCross Building.(6)

(ee) Second Extension Agreement and
Supplement dated as of
November __, 2002 between
Registrant and Verizon with
respect to the Directory
Building.

99.1 Certification pursuant to 18
U.S.C. Section 1350, as
adopted pursuant to Section
906 of the Sarbanes-Oxley Act
of 2002.

99.2 Certification of Principal
Executive Officer and
Principal Financial Officer
Regarding Annual Report
pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K: No reports on Form
8-K were filed during the last quarter of
the period covered by this report.

- ----------
(6) Incorporated by reference to Exhibit 10 (dd) to Registrant's Annual Report
on Form 10-K for the year ended December 31, 2000.

33

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.

CORPORATE REALTY INCOME FUND I, L.P.
(Registrant)

By: 1345 REALTY CORPORATION
as Corporate General Partner

Dated: March 28, 2003 By: /s/ Robert F. Gossett, Jr.
--------------------------------
ROBERT F. GOSSETT, JR.,
President

Dated: March 28, 2003 By: /s/ Robert F. Gossett, Jr.
--------------------------------
ROBERT F. GOSSETT, JR.
Individual General Partner

34

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities (with respect to the Corporate General Partner)
and on the dates indicated.

1345 REALTY CORPORATION

Dated: March 28, 2003 By: /s/ Robert F. Gossett, Jr.
--------------------------------

Robert F. Gossett, Jr.
President, Director

Dated: March 28, 2003 By: /s/ Pauline G. Gossett
--------------------------------
Pauline G. Gossett
Secretary

35

Corporate Realty Income Fund I, L.P.
and Subsidiaries

Consolidated Financial Statements

F-1

Corporate Realty Income Fund I, L.P.
and Subsidiaries

List of Consolidated Financial Statements and
Consolidated Financial Statement Schedules

The following consolidated financial statements of Corporate Realty Income Fund
I, L.P. and Subsidiaries are included in Item 8:

Report of Independent Auditors - Ernst & Young LLP......................... F- 3

Consolidated Financial Statements

Consolidated Balance Sheets as of December 31, 2002 and 2001............... F- 4
Consolidated Statements of Operations for the Years Ended
December 31, 2002, 2001 and 2000........................................ F- 5
Consolidated Statements of Changes in Partners' Capital (Deficit) for the
Years Ended December 31, 2002, 2001 and 2000............................ F- 6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2002, 2001 and 2000........................................ F- 7
Notes to Consolidated Financial Statements................................. F- 8

Schedule III--Real Estate and Accumulated Depreciation..................... F-24

All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted since
(1) the information required is disclosed in the consolidated financial
statements and notes thereto; (2) the schedules are not required under the
related instructions; or (3) the schedules are inapplicable.

F-2

Report of Independent Auditors

To the Partners of
Corporate Realty Income Fund I, L.P.

We have audited the accompanying consolidated balance sheets of Corporate Realty
Income Fund I, L.P. (a Delaware limited partnership) and subsidiaries (the
"Partnership") as of December 31, 2002 and 2001 and the related consolidated
statements of operations, changes in partners' capital (deficit) and cash flows
for each of the three years in the period ended December 31, 2002. Our audits
also included the financial statement schedule listed in the Index at Item 15.
These financial statements and schedule are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 consolidated financial position of Corporate Realty
Income Fund I, L.P. and subsidiaries at December 31, 2002 and 2001, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.

/s/ Ernst & Young LLP

New York, New York
February 7, 2003

F-3

Corporate Realty Income Fund I, L.P.
and Subsidiaries

Consolidated Balance Sheets

December 31
2002 2001
------------------------------

Assets
Real estate, at cost:
Land $ 18,795,477 $ 18,795,477
Buildings and improvements 100,481,119 99,031,250
Equipment and furniture 262,607 262,607
------------------------------
119,539,203 118,089,334
Less accumulated depreciation 30,792,711 27,462,963
------------------------------
88,746,492 90,626,371

Cash and cash equivalents 1,320,368 1,077,273
Accounts receivable, net of allowance for doubtful accounts of $165,226 245,841 398,089
and $252,228 in 2002 and 2001
Note receivable, net of unamortized discount of $4,569 and $11,195
in 2002 and 2001 140,252 240,485
Deferred rent receivable 2,702,838 2,546,931
Deferred financing costs, net of accumulated amortization of $734,956
and $448,464 in 2002 and 2001 708,323 994,815
Lease commissions, net of accumulated amortization of $1,882,132 and
$1,426,842 in 2002 and 2001 2,140,311 2,634,446
Escrow deposits 400,613 1,196,814
Deposits and other assets 967,709 817,242
------------------------------
Total assets $ 97,372,747 $ 100,532,466
==============================

Liabilities and partners' capital
Accounts payable and accrued expenses $ 2,777,560 $ 2,430,003
Mortgage loans payable 55,040,618 55,879,036
Due to General Partners 1,000,653 --
Other liabilities 1,243,564 1,302,330
------------------------------
Total liabilities 60,062,395 59,611,369

Commitments and contingencies
Partners' capital (deficit):
General partners:
Capital contributions 1,000 1,000
Net income 341,214 368,280
Cash distributions (684,596) (675,555)
------------------------------
(342,382) (306,275)
------------------------------
Limited partners: ($25 per unit; 4,000,000 units authorized,
2,983,531 issued and outstanding in 2002 and 2001)
Capital contributions, net of offering costs 71,724,856 71,724,856
Net income 33,779,921 36,459,500
Cash distributions (67,852,043) (66,956,984)
------------------------------
37,652,734 41,227,372
------------------------------
Total partners' capital 37,310,352 40,921,097
------------------------------
Total liabilities and partners' capital $ 97,372,747 $ 100,532,466
==============================

See accompanying notes.

F-4

Corporate Realty Income Fund I, L.P.
and Subsidiaries

Consolidated Statements of Operations

Years ended December 31
2002 2001 2000
--------------------------------------------

Revenue:
Rental $ 15,426,412 $ 16,149,439 $ 15,109,228
Lease cancellation -- 575,923 102,469
Interest and other income 165,469 259,429 343,172
--------------------------------------------
15,591,881 16,984,791 15,554,869
--------------------------------------------
Expenses:
Interest 3,549,769 4,019,262 4,356,650
Depreciation 3,329,748 3,535,432 3,486,070
Amortization 916,243 1,062,902 958,010
Property operations 7,774,829 8,062,211 7,742,251
Management fees--affiliate 1,024,211 1,191,489 1,030,050
Professional fees 582,594 372,768 675,940
Bad debt expense 453,424 128,516 273,381
General and administrative 667,708 392,091 334,956
--------------------------------------------
18,298,526 18,764,671 18,857,308
--------------------------------------------
Loss from real estate operations (2,706,645) (1,779,880) (3,302,439)
Gain on sale of real estate -- 103,333 5,111,393
--------------------------------------------
Net (loss) income $ (2,706,645) $ (1,676,547) $ 1,808,954
============================================
Net (loss) income allocated:
General partners $ (27,066) $ (16,765) $ 18,090
Limited partners (2,679,579) (1,659,782) 1,790,864
--------------------------------------------
$ (2,706,645) $ (1,676,547) $ 1,808,954
============================================
Net (loss) income per unit of limited
partnership interest--basic and diluted $ (0.90) $ (0.56) $ 0.60
============================================

See accompanying notes.

F-5

Corporate Realty Income Fund I, L.P.
and Subsidiaries

Consolidated Statements of Changes in Partners' Capital (Deficit)

General Limited
Total Partners Partners
--------------------------------------------
Partners' capital (deficit) at
December 31, 1999 $ 48,021,491 $ (235,272) $ 48,256,763
Cash distributions to partners (3,616,400) (36,164) (3,580,236)
Net income 1,808,954 18,090 1,790,864
--------------------------------------------
Partners' capital (deficit) at
December 31, 2000 46,214,045 (253,346) 46,467,391
Cash distributions to partners (3,616,401) (36,164) (3,580,237)
Net loss (1,676,547) (16,765) (1,659,782)
--------------------------------------------
Partners' capital (deficit) at
December 31, 2001 40,921,097 (306,275) 41,227,372
Cash distributions to partners (904,100) (9,041) (895,059)
Net loss (2,706,645) (27,066) (2,679,579)
--------------------------------------------
Partners' capital (deficit) at
December 31, 2002 $ 37,310,352 $ (342,382) $ 37,652,734
============================================

See accompanying notes.

F-6

Corporate Realty Income Fund I, L.P.
and Subsidiaries

Consolidated Statements of Cash Flows

Years ended December 31
2002 2001 2000
--------------------------------------------

Operating activities
Net (loss) income $ (2,706,645) $ (1,676,547) $ 1,808,954
--------------------------------------------
Adjustments to reconcile net (loss) income to net cash provided by operating
activities:
Depreciation and amortization 4,245,991 4,598,334 4,444,080
Gain on sale of real estate -- (103,333) (5,111,393)
Increase in deferred rent receivable, net (155,907) (22,977) (142,531)
Changes in operating assets and liabilities:
Decrease in accounts receivable, net 152,248 42,707 137,684
Change in due to/(from) general partners 1,000,653 273,252 (336,786)
Decrease (increase) in note receivable 100,233 (55,762) 59,920
Decrease in escrow deposits--operating 228,994 166,668 523,848
Increase in lease commissions (135,616) (546,080) (1,505,194)
(Increase) decrease in deposits and other assets (150,467) (19,324) 8,657
Increase (decrease) in accounts payable and
accrued expenses 347,557 (535,344) 410,859
(Decrease) increase in other liabilities (58,766) (224,222) 163,600
--------------------------------------------
Total adjustments 5,574,920 3,573,919 (1,347,256)
--------------------------------------------
Net cash provided by operating activities 2,868,275 1,897,372 461,698
--------------------------------------------
Investing activities
Decrease (increase) in escrow deposits--investing 567,207 1,459,825 (46,008)
Proceeds from sale of real estate -- -- 12,142,626
Acquisition of real estate (1,449,869) (5,618,443) (5,039,804)
--------------------------------------------
Net cash (used in) provided by investing activities (882,662) (4,158,618) 7,056,814
--------------------------------------------
Financing activities
Deferred financing costs -- -- (609,259)
Proceeds from mortgage loan payable -- 5,300,000 19,641,440
Repayments of mortgage loan payable (838,418) (756,828) (23,844,864)
Cash distributions to partners (904,100) (3,616,401) (3,616,400)
--------------------------------------------
Net cash (used in) provided by financing activities (1,742,518) 926,771 (8,429,083)
--------------------------------------------
Net increase (decrease) in cash and cash equivalents 243,095 (1,334,475) (910,571)
Cash and cash equivalents at beginning of year 1,077,273 2,411,748 3,322,319
--------------------------------------------
Cash and cash equivalents at end of year $ 1,320,368 $ 1,077,273 $ 2,411,748
============================================

See accompanying notes.

F-7

Corporate Realty Income Fund I, L.P.
and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2002

1. Organization

Corporate Realty Income Fund I, L.P. ("CRIF") was formed as a limited
partnership on November 25, 1985 under the laws of the State of Delaware. CRIF
was formed for the purpose of acquiring and owning income-producing commercial
and industrial real estate properties for lease to others. CRIF will terminate
on December 31, 2010 or sooner, in accordance with the Partnership Agreement.

During 1999, in connection with refinancing a portion of its debt, CRIF formed a
wholly-owned subsidiary to which it transferred ownership of its New York City
property.

The general partners of CRIF are 1345 Realty Corporation, the corporate general
partner, and Robert F. Gossett, Jr., the individual general partner.

On November 30, 1994, all of the outstanding capital stock of the corporate
general partner of CRIF was acquired by the individual general partner in a
transaction which was effective as of July 1, 1994. As a result of this
acquisition, the entire interest of the general partners is controlled by the
individual general partner.

The initial capital was $1,025 representing capital contributions of $1,000 by
the general partners and $25 by the original limited partner. The Partnership
commenced operations on June 2, 1986 with the acceptance of subscriptions for
1,082,640 Depositary Units of limited partnership interest (the "Units"). The
Partnership had authorized the issuance of up to 4,000,000 Units. The
Partnership sold 3,200,000 Units, representing $80,000,000, which completed the
offering. Upon the first admittance of the additional limited partners and
unitholders, the original limited partner withdrew from the Partnership.

Offering costs incurred in connection with the initial offering are
nonamortizable and have been deducted from limited partners' capital.

There were no unit redemptions during 2002, 2001 and 2000.

F-8

Corporate Realty Income Fund I, L.P.
and Subsidiaries

Notes to Consolidated Financial Statements (continued)

2. Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of CRIF and its
wholly-owned subsidiaries (collectively, the "Partnership"). All significant
intercompany accounts and transactions have been eliminated.

Real Estate and Depreciation

Costs directly related to the acquisition and improvement of real estate are
capitalized. Ordinary repairs and maintenance are expensed as incurred.

For financial reporting purposes, depreciation of buildings, improvements, and
equipment and furniture is computed under the straight-line method over the
estimated economic useful life of the assets which range from five to forty
years.

In October 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144), which addresses financial accounting
and reporting for the impairment or disposal of long-lived assets and supersedes
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and
the accounting and reporting provisions of APB Opinion No. 30, Reporting the
Results of Operations for a disposal of a segment of a business. SFAS 144
requires that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of the
Partnership's assets, which are held for use, are measured by a comparison of
the carrying amount of an asset to the future net undiscounted cash flow
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured as the amount by which the
carrying amount of the assets exceeds the fair value. Assets to be disposed of
are reported at the lower of carrying amount or fair value less costs to sell.
SFAS 144 is effective for fiscal years beginning after December 15, 2001. The
adoption of SFAS 144 in 2002 had no impact on the Partnership's

F-9

Corporate Realty Income Fund I, L.P.
and Subsidiaries

Notes to Consolidated Financial Statements (continued)

2. Significant Accounting Policies (continued)

financial position or results of operations. No impairment losses were required
on any of the properties owned by the Partnership.

Deferred Financing Costs

Deferred financing costs are being amortized over the term of the loan
agreements.

Lease Commissions

Leasing commissions are capitalized and amortized over the term of the related
leases.

Deferred Rent

Rental income is recognized on the straight-line basis over the entire term of
the lease including rent-free periods. Accordingly, rental income for the years
ended December 31, 2002, 2001 and 2000, includes approximately $348,400,
$186,500 and $222,000, respectively, of the excess of income on the
straight-line basis over the actual amount billed.

During 2002, 2001, and 2000, the Partnership wrote off deferred rent receivable
of approximately $193,000, $164,000, and $79,000, respectively, relating to
tenants vacating the properties prior to the expiration of their lease terms.

Income Taxes

No provision for income taxes has been made since all items of income or losses
and tax benefits are passed through to the individual partners.

Cash Equivalents

The Partnership considers all highly liquid financial instruments with a
maturity of three months or less when purchased to be cash equivalents. Cash
equivalents, which consist principally of money market funds, are carried at
cost which approximates market value.

F-10

Corporate Realty Income Fund I, L.P.
and Subsidiaries

Notes to Consolidated Financial Statements (continued)

2. Significant Accounting Policies (continued)

Fair Value of Financial Instruments

SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," defines
fair value of a financial instrument as the amount at which the instrument could
be exchanged in a current transaction between willing parties. The Partnership's
accounts receivable, deposits, accounts payable and accrued expenses, and
interest payable are carried at cost, which approximates fair value due to the
short maturities of such items.

The carrying value of notes receivable approximates fair value because such
notes bear interest at market rates for similar types of notes.

The carrying value of the variable rate mortgage loan payable portion of the
Partnership's debt approximates fair value at December 31, 2002 and 2001 as such
loan is variable rate debt that reprices frequently.

The fair value of the Partnership's fixed rate long term borrowings are
estimated using discounted cash flow analysis, based on current borrowing rates
for similar types of borrowing arrangements. The carrying amount and fair value
of the Partnership's fixed rate long-term debt at December 31, 2002 is
$31,235,683 and $36,600,000, respectively.

Segments

SFAS No. 131 "Disclosure about Segments of an Enterprise and Related
Information", requires disclosures about segments of an enterprise and related
information regarding the different types of business activities in which an
enterprise engages and the different economic environments in which it operates.

The Partnership is engaged in owning and managing office properties and has one
reportable segment, office real estate. The primary sources of revenue are
tenant rents and escalations and reimbursement revenue. Real estate property
operating expenses primarily consist of real estate taxes, security, maintenance
and utility costs.

F-11

Corporate Realty Income Fund I, L.P.
and Subsidiaries

Notes to Consolidated Financial Statements (continued)

2. Significant Accounting Policies (continued)

Recently Issued Accounting Pronouncements

In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" ("SFAS 145"). This statement eliminates the requirement to report
gains and losses from extinguishment of debt as extraordinary unless they meet
the criteria of APB Opinion 30. SFAS 145 also requires sale-leaseback accounting
for certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. The changes related to lease accounting are
effective for transactions occurring after May 15, 2002 and the changes related
to debt extinguishment are effective for fiscal years beginning after May 15,
2002. The impact of adopting the provisions related to lease accounting did not
have a material impact on the Partnership's financial position or results of
operations. The impact of adopting the provisions related to debt extinguishment
is not expected to have a material impact on the Partnership's financial
position or results of operations.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" ("SFAS 146"). SFAS No. 146 nullifies Emerging
Issues Task Force Issue No. 94-3 and requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred. This statement also establishes that fair value is the objective for
initial measurement of the liability. SFAS 146 is effective for exit or disposal
activities that are initiated after December 31, 2002. The adoption of SFAS. 146
is not expected to have a material impact on the Partnership's financial
position or results of operations.

In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires that upon
issuance of a guarantee a guarantor must recognize a liability for the fair
value of an obligation assumed under a guarantee. FIN 45 also requires
additional disclosures by a guarantor in its interim and annual financial
statements about the obligations associated with guarantees issued. The
recognition

F-12

Corporate Realty Income Fund I, L.P.
and Subsidiaries

Notes to Consolidated Financial Statements (continued)

2. Significant Accounting Policies (continued)

provisions of FIN 45 are effective for any guarantees issued or modified after
December 31, 2002. The disclosure requirements are effective for financial
statements of interim or annual periods ending after December 15, 2002. The
adoption of the disclosure requirements of FIN 45 did not have a material impact
on the Partnership's financial statements. The Partnership does not expect the
adoption of the recognition provision of FIN 45 to have a material impact on its
financial position or results of operations.

In January 2003, the FASB issued Interpretation No. 46 "Consolidation of
Variable Interest Entities" ("FIN 46"). In general, a variable interest entity
is a corporation, partnership, trust, or any other legal structure used for
business purposes that either (a) does not have equity investors with voting
rights or (b) has equity investors that do not provide sufficient financial
resources for the entity to support its activities. A variable interest entity
often holds financial assets, including loans or receivables, real estate or
other property. Until now, a company generally has included another entity in
its consolidated financial statements only if it controlled the entity through
voting interests. FIN 46 changes that by requiring a variable interest entity to
be consolidated by a company if that company is subject to a majority of the
risk of loss from the variable interest entity's activities or entitled to
receive a majority of the entity's residual returns or both. FIN 46's
consolidation requirements apply immediately to variable interest entities
created or acquired after January 31, 2003. The consolidation requirements apply
to older entities in the first fiscal year or interim period beginning after
June 15, 2003. The Partnership does not anticipate that the adoption of FIN 46
will have a material impact on its consolidated financial condition or results
of operations.

Use of Estimates

The general partners have made a number of estimates and assumptions relating to
the reporting of assets and liabilities and the disclosure of contingent assets
and liabilities to prepare these consolidated financial statements in conformity
with accounting principles generally accepted in the United States. Actual
results could differ from those estimates.

F-13

Corporate Realty Income Fund I, L.P.
and Subsidiaries

Notes to Consolidated Financial Statements (continued)

3. Partnership Agreement

The Partnership Agreement provides that profits, losses and distributions shall
be allocated 99% to the limited partners and 1% to the general partners.

Sale or refinancing proceeds will generally be distributed 99% to the limited
partners and 1% to the general partners until the limited partners have received
an amount which, when added to all prior distributions of cash, will equal their
original invested capital plus an 8% per annum cumulative noncompounded return.
Thereafter, after payment of the subordinated disposition fee to the general
partner, as defined in the agreement, proceeds will be distributed 75% to the
limited partners and 25% to the general partners.

The Partnership Agreement further provides that net income shall be allocated to
each calendar month of the year, and shall be apportioned on a monthly basis to
the holders of interests, in the ratio in which the number of interests owned by
each limited partner or unitholder on the first day of the month bears to the
total number of interests owned by the limited partners and unitholders as of
that date.

4. Investments in Real Estate

LightCross Building

On July 10, 1986, the Partnership purchased the LightCross Building (formerly
the Monterey Park Building), an office building located at 2630 Corporate Place,
Monterey Park, California, and the 90,000 square feet of underlying land. The
property contains approximately 22,250 square feet of net rentable area.

The terms of the agreement with the seller provided for a purchase price,
including capitalized closing and related costs, of approximately $4,182,000.

F-14

Corporate Realty Income Fund I, L.P.
and Subsidiaries

Notes to Consolidated Financial Statements (continued)

4. Investments in Real Estate (continued)

During 2000, the building was approximately 45% leased to one tenant under a
lease which expired in November 2000. In November 2000, the Partnership entered
into a 10 year net lease with Lightcross for the entire building. The tenant
occupied the premises in August 2001.

The Directory Building

On October 27, 1986, the Partnership purchased the Directory Building (formerly
the IBM Building), an office building located in Las Colinas, Texas, and the
6.67 acres of underlying land. The property contains approximately 152,100
square feet of net rentable area. The terms of the agreement with the seller
provided for a purchase price, including capitalized closing and related costs,
of approximately $24,580,000.

The building is 100% leased to Verizon Directories Corp. ( a successor to GTE
Directories Corporation) for a term which, pursuant to an extension effective as
of January 1, 2003, extended the term of the lease from its original expiration
of September 30, 2003 to the new expiration date of December 31, 2007. Rent from
the tenant represented approximately 20%, 20%, and 18% of the Partnership's
total rental revenue in 2002, 2001 and 2000, respectively.

Tumi Building

On December 30, 1986, the Partnership purchased the Tumi Building (formerly the
Austin Place Building), an office building located in South Plainfield, New
Jersey, and the five acres of underlying land. The property contains
approximately 107,900 square feet of net rentable area.

The terms of the agreement with the seller provided for a purchase price,
including capitalized closing and related costs, of approximately $16,473,000.

F-15

Corporate Realty Income Fund I, L.P.
and Subsidiaries

Notes to Consolidated Financial Statements (continued)

4. Investments in Real Estate (continued)

In March 1999, Gdynia America Line, Inc. ("Gdynia"), a tenant who had occupied
approximately 20% of the Tumi Building, filed for protection under Chapter 11 of
the U.S. Bankruptcy Code. The lease was rejected in bankruptcy proceedings and
the Partnership is currently pursuing amounts from Polish Ocean Lines, a Polish
corporation partially owned by the Polish government, that is jointly and
severally obligated under Gdynia's lease.

As of December 31, 2002, the building was approximately 76% leased to various
tenants under leases with remaining terms ranging from three to eight years.

Flatiron Building

On January 5, 1988, the Partnership purchased the Flatiron Building (formerly
the Cadnetix Building) located in Boulder, Colorado, and the five acres of
underlying land. The building contains approximately 96,000 square feet of net
rentable area.

The terms of the agreement with the seller provided for a purchase price,
including capitalized closing and related costs, of approximately $9,003,000.

On June 30, 2000, the Partnership sold the Flatiron Building for $13,050,000 and
recognized a gain of approximately $5,111,000, net of closing costs of
approximately $473,000.

An escrow account of $434,466 was established from the proceeds of the sale
which will be released to the Partnership if and when it finds a replacement for
a tenant who applied for bankruptcy protection. As of December 31, 2002, a
balance of $210,942 remains in the escrow. The recognition of gain on sale, to
the extent held in such escrow, has been deferred and is included in other
liabilities in the accompanying consolidated balance sheet.

F-16

Corporate Realty Income Fund I, L.P.
and Subsidiaries

Notes to Consolidated Financial Statements (continued)

4. Investments in Real Estate (continued)

Marathon Oil Building

On March 21, 1988, the Partnership purchased the Marathon Oil Building (formerly
the Tenneco Oil Building) located in Oklahoma City, Oklahoma, and the 6.1 acres
of underlying land. The building contains approximately 90,925 net rentable
square feet plus a 10,016 square foot basement.

The terms of the agreement with the seller provided for a purchase price,
including capitalized closing and related costs, of approximately $10,736,000.

As of December 31, 2002, the building was approximately 76% leased to various
tenants under leases with remaining terms ranging from two years to five years.
The Marathon Oil Company leases approximately 65,700 square feet of space
pursuant to a lease which expires in February, 2006. Approximately 10,450 square
feet of the remaining space is leased to two tenants.

475 Fifth Avenue

On December 6, 1996 the Partnership purchased an office building and the
underlying land, approximately one third of an acre, located at 475 Fifth
Avenue, New York, New York (the "New York Building"). The building contains
approximately 244,000 net rentable square feet.

The terms of the agreement with the seller provided for a purchase price,
including capitalized closing and related costs, of approximately $27,440,000.

As of December 31, 2002, the building was approximately 79% leased to various
tenants under operating leases with remaining terms ranging from one to sixteen
years.

F-17

Corporate Realty Income Fund I, L.P.
and Subsidiaries

Notes to Consolidated Financial Statements (continued)

4. Investments in Real Estate (continued)

During 2001, the Partnership recognized lease cancellation income of
approximately $576,000, net of the write off of deferred rent receivable of
approximately $144,000. For the year ended December 31, 2000, $70,000 was earned
from tenants that terminated their leases prior to the end of their lease terms.

Alamo Towers

On March 17, 1997, the Partnership purchased an office building and the thirteen
acre underlying land located in San Antonio, Texas, for a purchase price,
including capitalized closing and related costs, of approximately $12,002,000.
The building contains approximately 191,000 net rentable square feet.

As of December 31, 2002, the building was approximately 79% leased to various
tenants under operating leases with remaining terms ranging from one to six
years.

During 2000 the partnership earned lease cancellation fees aggregating
approximately $32,000 from tenants that terminated leases prior to the end of
their respective lease terms.

5. Leases

Minimum future rentals from tenants under noncancellable operating leases as of
December 31, 2002 are approximately as follows:

2003 $11,768,000
2004 9,359,000
2005 8,894,000
2006 6,392,000
2007 7,138,000
Thereafter 9,853,000
-----------
Total $53,404,000
===========

F-18

Corporate Realty Income Fund I, L.P.
and Subsidiaries

Notes to Consolidated Financial Statements (continued)

5. Leases (continued)

In addition to the minimum lease amounts, the leases provide for escalation
charges to the tenants for operating expenses, electric and real estate taxes.
For the years ended December 31, 2002, 2001 and 2000, escalation charges
amounting to approximately $1,422,000, $1,421,000 and $1,846,000, respectively,
have been included in rental income.

6. Transactions With General Partners and Affiliates

The general partners or their affiliates receive a property management fee equal
to either 1% for a long-term net lease or 6% for other types of leases on the
gross revenue from the property, and a partnership management fee equal to 7% of
adjusted cash from operations, as defined, and reimbursement of administrative
expenses. The general partners also receive leasing commissions in connection
with leasing, re-leasing or leasing related services performed on behalf of the
Partnership in connection with the negotiation of tenant leases. Such
commissions are computed at a rate equal to 3% of the gross revenues for the
first five years of each lease signed where the general partners have performed
such leasing services.

Following is a summary of the fees earned and reimbursable expenses for the
years ended December 31, 2002, 2001 and 2000:

2002 2001 2000
------------------------------------
Partnership management fees $129,485 $253,148 $106,508
Property management fees 894,726 938,341 923,542
Administrative expenses 50,000 67,800 70,000

There were no leasing commissions billed by the general partners in 2002, 2001
and 2000. In addition, the general partners have deferred the receipt of
substantially all of the 2002 partnership management fees and property
management fees. Such unpaid amounts are reflected as amounts due to general
partners in the accompanying consolidated balance sheet.

F-19

Corporate Realty Income Fund I, L.P.
and Subsidiaries

Notes to Consolidated Financial Statements (continued)

7. Loans Payable

On September 26, 1996, the Partnership entered into a $24,000,000 senior secured
revolving credit facility (the "Mortgage"). The purpose of the Mortgage was to
refinance the existing $7,800,000 secured revolving line of credit, to provide
working capital for tenant improvements and leasing commissions with respect to
the properties owned by the Partnership, and to provide funds for the
acquisition of additional properties. On December 6, 1996, the Partnership
amended the Mortgage, increasing the principal amount to $44,000,000. On
September 25, 1998, the Partnership further amended the Mortgage. The terms of
the Mortgage, as amended, provided for a term of four years and provided for
maximum gross borrowings of $49,000,000. On August 9, 1999, the Partnership
divided the Mortgage into two notes. One note, in the amount of $22,594,880, was
secured by the New York Building, and the second note in the amount of
$26,405,120 was secured by the six other properties owned by the Partnership.
The loan secured by the New York Building was repaid in 1999.

On October 12, 2000, the Partnership entered into an Amended and Restated Loan
Agreement in connection with the Mortgage (the "New Mortgage"). The terms of the
New Mortgage provide for maximum gross borrowings of $25,000,000, of which
$19,641,440 was advanced on October 12, 2000. The loan commitment is permanently
reduced by required monthly principal payments and any prepayments. The New
Mortgage provides for an initial maturity date of September 30, 2003, however,
the Partnership has the option to extend the maturity date for two additional
one year periods provided that certain conditions are met. The Partnership
intends to exercise the extension option. The New Mortgage is secured by the
properties owned by the Partnership, other than the New York Building.

In connection with obtaining the New Mortgage, the Partnership incurred fees and
expenses of $609,259, which have been capitalized and are being amortized over
the term of the loan agreement.

F-20

Corporate Realty Income Fund I, L.P.
and Subsidiaries

Notes to Consolidated Financial Statements (continued)

7. Loans Payable (continued)

Borrowings under the New Mortgage bear interest monthly at a rate, selected at
the option of the Partnership at the time of the associated borrowing, based on
(i) the prime rate plus .50% or (ii) the applicable LIBOR rate plus 2%. The New
Mortgage requires monthly amortization of principal in an amount equal to
1/500th of the outstanding principal on the first day of the applicable month
with a final payment of the then outstanding balance due at maturity. Borrowings
bearing interest based upon the prime rate can be prepaid any time without
penalty. The LIBOR based advances can be prepaid at the end of the interest
periods without penalty, and during the interest period subject to a penalty.
Upon the sale of any property, the Partnership is required to repay principal on
the total indebtedness under the New Mortgage in an amount equal to 110% of that
portion of the outstanding balance of the loan attributable to the sold
property, as defined in the New Mortgage agreement, or 100% of the sales price,
if greater, for Alamo Towers and the Directory Building. The New Mortgage
requires the Partnership to comply with certain covenants, including but not
limited to, maintenance of certain financial ratios.

In addition, the New Mortgage provides that the Partnership may distribute to
its partners up to 90% of the sum of its cumulative net income from real estate
operations, adjusted for depreciation, amortization, and write-offs of deferred
rent receivables. Compliance with this distribution provision is tested as of
the last day of each fiscal quarter for the period from and including January 1,
2001, through the date as of which compliance is tested. As of December 31,
2002, the Partnership is in compliance with such covenants.

At December 31, 2002, $23,804,935 of LIBOR based borrowings was outstanding
under the New Mortgage at an interest rate of approximately 3.8%.

On August 9, 1999, the Partnership obtained a $32,000,000 fixed rate mortgage
(the "New York Loan"). The loan is secured by the New York Building, matures on
September 1, 2009, and bears interest on the outstanding balance, payable
monthly, at a fixed rate of 8.27%. The terms of the note require monthly
principal and interest payments of $240,855. In connection with the New York
Loan, the Partnership incurred fees aggregating approximately $834,000. These
fees have been deferred and are being amortized over the term of the New York
Loan.

F-21

Corporate Realty Income Fund I, L.P.
and Subsidiaries

Notes to Consolidated Financial Statements (continued)

7. Loans Payable (continued)

As of December 31, 2002, the outstanding balance of the loan was $31,235,683.
The New York Loan can be prepaid in full and not in part, subject to a
prepayment penalty. Pursuant to the New York Loan agreement, the Partnership had
approximately $190,000 included in escrow deposits on December 31, 2002 in
restricted funds for capital improvements, repairs and replacements, and real
estate taxes.

Minimum future principal payments pursuant to the Partnership's loan agreements
as of December 31, 2002 are as follows:

2003 $24,087,136
2004 299,029
2005 332,652
2006 361,641
2007 393,157
Thereafter 29,567,003
-----------
Total $55,040,618
===========

8. Supplemental Disclosure of Cash Flow Information

2002 2001 2000
------------------------------------
Cash paid during the year for interest $3,551,617 $4,083,149 $4,388,197
====================================

9. Employee Savings Plan

During 1997, the Partnership established an employee savings plan (the "Plan")
in accordance with Section 401(k) of the Internal Revenue Code. The Plan permits
eligible employees to make contributions through salary reductions. For the
years ended December 31, 2002, 2001 and 2000, the Partnership made contributions
of $30,250, $25,000, and $0, respectively to the Plan.

F-22

Corporate Realty Income Fund I, L.P.
and Subsidiaries

Notes to Consolidated Financial Statements (continued)

10. Earnings and Distributions per Limited Partnership Unit

Basic earnings per limited partnership unit amounts were computed based on
2,983,531 (2002, 2001 and 2000) weighted average limited partnership units
outstanding.

For each of the three years ended December 31, 2002, there were no partnership
unit equivalents and, in accordance with the provisions of SFAS No. 128,
dilutive earnings per limited partnership unit for the three years ended
December 31, 2002, was computed based on the weighted-average limited
partnership units outstanding.

Distributions paid per limited partnership unit were $0.30 during the year ended
December 31, 2002, and $1.20 during each of the years ended December 31, 2001
and 2000.

F-23

Corporate Realty Income Fund I, L.P.
and Subsidiaries

Schedule III--Real Estate and Accumulated Depreciation

December 31, 2002

Costs
Capitalized
Subsequent to Gross Amount at Which
Initial Cost (B) Acquisition Carried at Close of Period
--------------------------------------------------------------------
Building Building
Encumbrances and Building and and
Description (A) Land Improvements Improvements Land Improvements
- ---------------------------------------------------------------------------------------------------------

Office Building
Monterey Park, CA $ 1,166,442 $ 1,762,126 $ 2,459,141 $ 1,593,359 $ 1,762,126 $ 4,052,500
Office Building
Las Colinas, TX 8,569,777 4,925,745 19,702,979 3,348,026 4,925,745 23,051,005
Office Building
So. Plainfield, NJ 5,641,770 3,147,912 13,378,294 2,068,253 3,147,912 15,446,547
Office Building
San Antonio, TX 6,284,503 2,408,000 9,636,883 6,568,747 2,408,000 16,205,630
Office Building
Oklahoma City, OK 2,142,443 1,063,694 9,713,348 572,155 1,063,694 10,285,503
Office Building
New York, NY 31,235,683 5,488,000 21,951,998 9,750,543 5,488,000 31,702,541
----------------------------------------------------------------------------------
$55,040,618 $18,795,477 $76,842,643 $23,901,083 $18,795,477 $100,743,726
==================================================================================

Accumulated Life on Which
Total Depreciation Date of Date Depreciation
Description (C) (D) Construction Acquired Is Computed
- -----------------------------------------------------------------------------------------------

Office Building
Monterey Park, CA $ 5,814,626 $ (1,228,905) 1985 7/10/1986 5 to 40 years
Office Building
Las Colinas, TX 27,976,750 (10,680,528) 1982 10/27/1986 5 to 40 years
Office Building
So. Plainfield, NJ 18,594,459 (6,547,107) 1986 12/30/1986 5 to 40 years
Office Building
San Antonio, TX 18,613,630 (2,303,324) 1975/1981 3/17/1997 5 to 40 years
Office Building
Oklahoma City, OK 11,349,197 (4,020,691) 1986 3/21/1988 5 to 40 years
Office Building
New York, NY 37,190,541 (6,012,156) 1927 12/6/1996 5 to 40 years
---------------------------
$119,539,203 $(30,792,711)
===========================

F-24

Corporate Realty Income Fund I, L.P.
and Subsidiaries

Schedule III - Real Estate and Accumulated Depreciation (continued)

December 31, 2002

Notes:

(A) Encumbrances represents loans secured by deeds of trust given with respect
to all of the properties of the Partnership.

(B) The initial cost to the Partnership represents the original purchase price
of the properties net of purchase price adjustments, including amounts
incurred subsequent to acquisition which were contemplated. The initial
cost includes the purchase price paid by the Partnership and acquisition
fees and expenses.

(C) Reconciliation Summary of Transactions - Real Estate Owned

Years ended December 31
2002 2001 2000
----------------------------------------------

Balance at beginning of year $ 118,089,334 $ 113,741,052 $ 118,185,492
Net additions during the year 1,449,869 5,618,443 5,039,804
Cost of real estate sold -- -- (9,395,006)
Write off fully depreciated assets -- (1,270,161) (89,238)
----------------------------------------------
Balance at close of year $ 119,539,203 $ 118,089,334 $ 113,741,052
==============================================

The aggregate cost of land, buildings and improvements for federal income
tax purposes at December 31, 2002 was approximately $121,431,497.

(D) Reconciliation Summary of Transactions - Accumulated Depreciation

Years ended December 31
2002 2001 2000
-------------------------------------------

Balance at beginning of year $ 27,462,963 $ 25,197,692 $ 24,361,971
Depreciation charged to expense 3,329,748 3,535,432 3,486,070
Accumulated depreciation of real estate
sold -- -- (2,561,111)
Write-off of fully depreciated assets -- (1,270,161) (89,238)
-------------------------------------------
Balance at close of year $ 30,792,711 $ 27,462,963 $ 25,197,692
===========================================

F-25