Install a 1 K end-of-line resistor across each of the zone outputs on the C8137 to supervise the zone loops between the C8137 and the C601 encoder.
Program the C601 as Type 2 and put the P-1 jumper in the down position. Then program the zone response for Alarm on Short/Trouble on Open. Program the reports for All (IE alarm, trouble, and restoral).