<PAGE>   1
                                   FORM 10-Q
                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549
                   QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934  
                     --------------------------------------
                     

For Quarter Ended            September 30, 1996                             
                     ----------------------------------------------------------

Commission file number             0-13563                                  
                         ------------------------------------------------------

                      DAMSON/BIRTCHER REALTY INCOME FUND - I                  
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             (Exact name of registrant as specified in its charter)


                   Pennsylvania                         13-3264491          
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            (State or other jurisdiction of          (I.R.S. Employer
            incorporation or organization)          Identification No.)


 27611 La Paz Road, P.O. Box A-1, Laguna Niguel, California    92677-0100   
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          (Address of principal executive offices)             (Zip Code)


                                  (714) 643-7700                              
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              (Registrant's telephone number, including area code)


                                       N/A                                    
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              (Former name, former address and former fiscal year,
                         if changed since last report.)


Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 12(g), 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve 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
                                    ---       ---

<PAGE>   2
                      DAMSON/BIRTCHER REALTY INCOME FUND-I
                         QUARTERLY REPORT ON FORM 10-Q
                 FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
                 ---------------------------------------------
                 
                                     INDEX
                                     -----

<TABLE>
<CAPTION>
                                                                                                                           Page
                                                                                                                           ----
<S>              <C>                                                                                                       <C>
PART I.          FINANCIAL INFORMATION

Item 1.          Financial Statements

                 Balance Sheets -
                 September 30, 1996 (Unaudited) and December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . .         3

                 Statements of Operations (Unaudited) -
                 Three and Nine Months Ended September 30, 1996 and 1995  . . . . . . . . . . . . . . . . . . . . . .         4

                 Statements of Cash Flows (Unaudited) -
                 Nine Months Ended September 30, 1996 and 1995  . . . . . . . . . . . . . . . . . . . . . . . . . . .         5

                 Notes to Financial Statements (Unaudited)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         6

Item 2.          Management's Discussion and Analysis of
                 Financial Condition and Results of Operations  . . . . . . . . . . . . . . . . . . . . . . . . . . .         9


PART II.         OTHER INFORMATION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        14
</TABLE>





                                       2
<PAGE>   3
                         PART I.  FINANCIAL INFORMATION
                         ------------------------------

ITEM 1.    FINANCIAL STATEMENTS
           --------------------

                      DAMSON/BIRTCHER REALTY INCOME FUND-I
                                 BALANCE SHEETS           
                      ------------------------------------
<TABLE>
<CAPTION>
                                                              September 30,              December 31,
                                                                  1996                       1995    
                                                              -------------              ------------
                                                               (Unaudited)                 (Note)
<S>                                                            <C>                      <C>
ASSETS
------

Properties held for sale (net of valuation                     $37,033,000                $36,996,000
   allowance of $6,640,000 in 1996 and
   $4,770,000 in 1995)

Cash and cash equivalents                                          215,000                    301,000
Accounts receivable (net of allowance for
   doubtful accounts of $46,000 in 1996 and
   $63,000 in 1995)                                                 39,000                     43,000
Accrued rent receivable                                            487,000                    443,000
Prepaid expenses and other assets                                  706,000                    710,000 
                                                               -----------                -----------

                                                               $38,480,000                $38,493,000 
                                                               ===========                ===========

LIABILITIES AND PARTNERS' CAPITAL
---------------------------------

Accounts payable and accrued liabilities                       $   932,000                $ 1,153,000
Secured loan(s) payable                                          3,679,000                  3,116,000 
                                                               -----------                -----------
   Total liabilities                                             4,611,000                  4,269,000 
                                                               -----------                -----------

Partners' capital (deficit):
   Limited Partners                                             34,363,000                 34,714,000
   General Partner                                                (494,000)                  (490,000)
                                                               -----------                -----------
                                                                33,869,000                 34,224,000

Commitments and contingencies                                            -                          - 
                                                               -----------                -----------

                                                               $38,480,000                $38,493,000 
                                                               ===========                ===========
</TABLE>





Note:  The balance sheet at December 31, 1995 has been prepared from the
       audited financial statements as of that date.


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





                                       3
<PAGE>   4
                      DAMSON/BIRTCHER REALTY INCOME FUND-I
                            STATEMENTS OF OPERATIONS
                                   (UNAUDITED)            
                      ------------------------------------

<TABLE>
<CAPTION>
                                                              Three Months Ended                       Nine Months Ended
                                                                 September 30,                           September 30,      
                                                        -----------------------------            -----------------------------
                                                            1996             1995                    1996             1995   
                                                        ----------         ----------            ----------         ----------
<S>                                                     <C>                <C>                   <C>                <C>
REVENUES
--------

Rental income                                           $1,590,000         $1,442,000            $4,737,000         $4,411,000
Interest income                                              4,000             12,000                 6,000             33,000 
                                                        ----------         ----------            ----------         ----------

  Total revenues                                         1,594,000          1,454,000             4,743,000          4,444,000 
                                                        ----------         ----------            ----------         ----------

EXPENSES
--------

Operating expenses                                         429,000            475,000             1,318,000          1,338,000
Real estate taxes                                          230,000            257,000               568,000            709,000
Depreciation and amortization                               56,000            505,000               140,000          1,510,000
General and administrative                                 230,000            243,000               708,000            728,000
Interest                                                    84,000             72,000               240,000            218,000
Adjustment to carrying value
  of real estate                                           335,000                  -             1,870,000                  - 
                                                        ----------         ----------            ----------         ----------

  Total expenses                                         1,364,000          1,552,000             4,844,000          4,503,000 
                                                        ----------         ----------            ----------         ----------

NET INCOME (LOSS)                                       $  230,000         $ ( 98,000)           $ (101,000)        $  (59,000)
                                                        ==========         ==========            ==========         ==========

NET INCOME (LOSS) ALLOCABLE TO:

  General Partner                                       $    2,000         $   (1,000)           $   (1,000)        $  ( 1,000)
                                                        ==========         ==========            ==========         ==========

  Limited Partners                                      $  228,000         $  (97,000)           $ (100,000)        $  (58,000)
                                                        ==========         ==========            ==========         ==========
</TABLE>





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





                                       4
<PAGE>   5
                      DAMSON/BIRTCHER REALTY INCOME FUND-I
                            STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)            
                      ------------------------------------

<TABLE>
<CAPTION>
                                                            Nine Months Ended September 30, 
                                                          ----------------------------------- 
                                                             1996                      1995    
                                                          -----------              ---------- 
<S>                                                       <C>                      <C>
Cash flows from operating activities:
   Net loss                                               $  (101,000)             $  (59,000)

Adjustments to reconcile net loss to
  net cash (used in) provided by operating
  activities:
   Depreciation and amortization                              140,000               1,510,000
Adjustment to carrying value of real estate                 1,870,000                       -
Changes in:
   Additions to properties held for sale                   (1,907,000)                      -
   Accounts receivable                                          4,000                  51,000
   Accrued rent receivable                                    (44,000)                (26,000)
   Prepaid expenses and other assets                         (135,000)               (106,000)
   Accounts payable and accrued liabilities                  (221,000)                 95,000 
                                                          -----------              ---------- 
Net cash (used in) provided by operating
  activities                                                 (394,000)              1,465,000

Cash flows from investing activities:
   Investments in real estate                                       -                (514,000)
                                                          -----------              ---------- 
Net cash used in investing activities                               -                (514,000)

Cash flows from financing activities:
   Proceeds from secured loan                                 700,000                       -
   Secured loan payments                                     (137,000)               (125,000)
   Distributions                                             (255,000)               (766,000)
                                                          -----------              ---------- 
Net cash provided by (used in) financing
   activities                                                 308,000                (891,000)

Net (decrease) increase in cash and cash
  equivalents                                                 (86,000)                 60,000

Cash and cash equivalents, beginning of
   period                                                     301,000                 648,000 
                                                          -----------              ---------- 

Cash and cash equivalents, end of period                  $   215,000              $  708,000 
                                                          ===========              ==========
</TABLE>





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





                                       5
<PAGE>   6
                      DAMSON/BIRTCHER REALTY INCOME FUND-I


NOTES TO FINANCIAL STATEMENTS - UNAUDITED
-----------------------------------------

(1)      Accounting Policies
         -------------------
         
         The financial statements of Damson/Birtcher Realty Income Fund-I (the
         "Partnership") included herein have been prepared by the General
         Partner, without audit, pursuant to the rules and regulations of the
         Securities and Exchange Commission.  These financial statements
         include all adjustments which are of a normal recurring nature and, in
         the opinion of the General Partner, are necessary for a fair
         presentation.  Certain information and footnote disclosures normally
         included in financial statements prepared in accordance with generally
         accepted accounting principles have been condensed or omitted,
         pursuant to the rules and regulations of the Securities and Exchange
         Commission.  These financial statements should be read in conjunction
         with the financial statements and notes thereto included in the
         Partnership's annual report on Form 10-K for the year ended December
         31, 1995.

         Earnings Per Unit

         The Partnership Agreement does not designate investment interests in
         units.  All investment interests are calculated on a "percent of
         Partnership" basis, in part to accommodate original reduced rates on
         sales commissions for subscriptions in excess of certain specified
         amounts.

         A Limited Partner who was charged a reduced sales commission or no
         sales commission was credited with proportionately larger Invested
         Capital and therefore had a disproportionately greater interest in the
         capital and revenues of the Partnership than a Limited Partner who
         paid commissions at a higher rate.  As a result, the Partnership has
         no set unit value as all accounting, investor reporting and tax
         information is based upon each investor's relative percentage of
         Invested Capital.  Accordingly, earnings or loss per unit is not
         presented in the accompanying financial statements.

         Carrying Value of Real Estate

         In March 1995, the Financial Accounting Standards Board issued
         Statement of Financial Accounting Standards No. 121 "Accounting for
         the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
         Disposed Of," ("FAS 121").  This Statement requires that if the
         General Partner believes factors are present that may indicate
         long-lived assets are impaired, the undiscounted cash flows, before
         debt service, related to the assets should be estimated.  If these
         estimated cash flows are less than the carrying value of the asset,
         then impairment is deemed to exist.  If impairment exists, the asset
         should be written down to the estimated fair value.





                                       6
<PAGE>   7
                      DAMSON/BIRTCHER REALTY INCOME FUND-I


NOTES TO FINANCIAL STATEMENTS - UNAUDITED (Cont'd.)
-----------------------------------------

(1)      Accounting Policies (Cont'd.)
         -------------------

         Further, assets held for sale, including any unrecoverable accrued
         rent receivable or capitalized leasing commissions, should be carried
         at the lower of carrying value or fair value less estimated selling
         costs.  Any adjustment to carrying value is recorded as a valuation
         allowance against property held for sale.  Each reporting period, the
         General Partner will review its estimates of fair value, which may be
         decreased or increased up to the original carrying value.  Finally,
         assets held for sale are no longer depreciated.  The General Partner
         adopted FAS 121 at December 31, 1995 and the adoption did not have a
         material impact on the Partnership's operations or financial position,
         as prior to December 31, 1995, the Partnership had not had any
         properties held for sale.

         As noted above, as of December 31, 1995 the General Partner decided to
         account for the Partnership's properties as assets held for sale,
         instead of for investment.  Assuming an average 12 month holding
         period, the General Partner compared the carrying value of each
         property to its appraised value as of January 1, 1996.  If the
         carrying value of a property and certain related assets was greater
         than its appraised value, less selling costs, the General Partner
         reduced the carrying value of the property by the difference.  Using
         this methodology, as of December 31, 1995, the General Partner
         determined that The Cornerstone, Ladera I Shopping Center,
         Terracentre, Arlington Executive Plaza and Washington Technical Center
         had carrying values greater than their appraised values, and
         accordingly reduced those carrying values by $1,600,000, $560,000,
         $590,000, $1,250,000 and $770,000 to $9,032,000, $6,234,000,
         $2,397,000, $2,740,000 and $2,612,000, respectively.

         For the three and nine months ended September 30, 1996, the
         Partnership spent an aggregate of approximately $335,000 and
         $1,870,000, respectively, related to tenant/building improvements and
         leasing commissions with respect to the aforementioned properties.
         Because these expenditures exceeded the estimate of fair value of each
         of those properties as of December 31, 1995, the General Partner
         adjusted the carrying value of the Partnership's portfolio by an
         aggregate of $1,870,000 for the nine months ending September 30, 1996.


(2)      Transactions with Affiliates
         ----------------------------
         
         The Partnership has no employees and, accordingly, the General Partner
         and its affiliates perform services on behalf of the Partnership in
         connection with administering the affairs of the Partnership.  The
         General Partner and affiliates are reimbursed for their general and
         administrative costs actually incurred and associated with services
         performed on behalf of the Partnership.  For the three months ended
         September 30, 1996 and 1995, the Partnership incurred approximately
         $49,000 and $49,000, respectively, of such expenses.  For the nine
         months ended September 30, 1996 and 1995, such payments were $147,000
         and $157,000 respectively.





                                       7
<PAGE>   8
                      DAMSON/BIRTCHER REALTY INCOME FUND-I


         NOTES TO FINANCIAL STATEMENT - UNAUDITED (Cont'd.)
         ----------------------------------------

(2)      Transactions with Affiliates (Cont'd.)
         ----------------------------

         An affiliate of the General Partner provides property management
         services with respect to the Partnership's properties and receives a
         fee for such services not to exceed 3% of the gross receipts from the
         properties under management.  Such fees amounted to approximately
         $46,000 and $39,000 for the three months ended September 30, 1996 and
         1995, respectively, and $135,000 and $116,000 for the nine months
         ended September 30, 1996 and 1995.  In addition, an affiliate of the
         General Partner received $89,000 and $79,000 for the three months
         ended September 30, 1996 and 1995, respectively, as reimbursement of
         costs of on-site property management personnel and other reimbursable
         costs.  For the nine months ended September 30, 1996 and 1995, such
         payments were $284,000 and $243,000, respectively.

         As previously reported, on June 24, 1993, the Partnership completed
         its solicitation of written consent from its Limited Partners.  A
         majority in interest of the Partnership's Limited Partners approved
         each of the proposals contained in the Information Statement dated May
         5, 1993.  Those proposals have been implemented by the Partnership as
         contemplated by the Information Statement as amendments to the
         Partnership Agreement, and are reflected in these financial statements
         as such.

         The Amended Partnership Agreement provides for the Partnership's
         payment to the General Partner of an annual asset management fee equal
         to .75% of the aggregate appraised value of the Partnership's
         properties as determined by independent appraisal undertaken in
         January of each year.  Such fees for the three months ended September
         30, 1996 and 1995, amounted to $76,000 and $76,000, respectively.  For
         the nine months there ended, such fees amounted to $227,000 and
         $228,000, respectively.

         In addition, the Amended Partnership Agreement provides for payment to
         the General Partner of a leasing fee for services rendered in
         connection with leasing space in a Partnership property after the
         expiration or termination of leases.  Fees for leasing services for
         the three months ended September 30, 1996 and 1995, amounted to $5,000
         and $21,000, respectively, and for the nine months there ended they
         amounted to $13,000 and $28,000, respectively.

(3)      Commitments and Contingencies
         -----------------------------
         
         Litigation

         The Partnership is not a party to any material pending legal
         proceedings other than ordinary routine litigation incidental to its
         business.  It is the General Partner's belief that the outcome of
         these proceedings will not be material to the business or financial
         condition of the Partnership.





                                       8
<PAGE>   9
                      DAMSON/BIRTCHER REALTY INCOME FUND-I


NOTES TO FINANCIAL STATEMENT - UNAUDITED (Cont'd.)
----------------------------------------

(4)      Subsequent Events
         -----------------
         
         In August 1996, the General Partner entered into a contract to sell
         Arlington Executive Plaza for $3,041,250.  The property is currently
         in escrow and is scheduled to close on or before November 30, 1996.
         Proceeds from the sale will be used to retire the existing debt on
         Ladera-I Shopping Center (approximately $700,000) with any remainder
         being distributed to the Limited Partners.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

         Liquidity and Capital Resources
         -------------------------------
         
         Since completion of its acquisition program in September 1985, the
         Partnership has been engaged primarily in the operation of its
         properties. The Partnership's objective has been to hold its
         properties as long-term investments, although properties may be sold
         at any time depending upon the General Partner's judgment of the
         anticipated remaining economic benefits of continued ownership.
         Working capital is and will be provided principally from the operation
         of the Partnership's properties and the working capital reserve
         established for the properties.  The Partnership may incur mortgage
         indebtedness relating to such properties by borrowing funds primarily
         to fund capital improvements or to obtain financing proceeds for
         distribution to the partners.

         On July 30, 1993, the Partnership obtained a loan secured by a First
         Deed of Trust on the Certified Distribution Center in Salt Lake City,
         Utah.  The loan, in the amount of $3,500,000, carries a fixed interest
         rate of 9% per annum over a 13-year fully amortizing term.  The
         Partnership's first payment of $38,138.82 was paid on September 1,
         1993, with monthly installments due thereafter.  Proceeds from that
         loan, along with $500,000 of Partnership cash reserves, were used to
         retire the Partnership's then existing debt of $4,000,000.

         In March 1996, the Partnership entered into a loan agreement pursuant
         to which it may borrow up to $1,500,000, evidenced by a note secured
         by a first deed of trust and financing statement on the Ladera-I
         Shopping Center in Albuquerque, New Mexico.  Pursuant to the note and
         loan agreement, until March 3, 1997 the Partnership is to pay interest
         only at the rate of 1% over prime (currently, the loan rate is 9.25%)
         on the amounts it borrows.  Thereafter, the outstanding balance of all
         advances made under the note is to be converted to a fully amortizing
         loan payable in 24 equal monthly payments of principal plus accrued
         interest, commencing April 3, 1997.  The Partnership has agreed to
         repay the loan from the first sale of the Partnership's property.  The
         net proceeds of the foregoing loan are to be used to fund a portion of
         the renovation and tenant improvements at The Cornerstone and tenant
         improvements at Oakpointe, with any remainder added to the
         Partnership's working capital reserves. As of September 30, 1996, 
         the Partnership had borrowed





                                       9
<PAGE>   10
                      DAMSON/BIRTCHER REALTY INCOME FUND-I



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS (Cont'd.)

         Liquidity and Capital Resources (Cont'd.)
         -------------------------------
         
         $700,000 pursuant to the aforementioned loan agreement to fund a
         portion of the renovation at the Cornerstone Shopping Center, which
         was completed during the second quarter of 1996.  There will be
         additional costs for tenant improvements as the vacant space in the
         center is leased.

         Certain of the Partnership's properties are not fully leased.  The
         Partnership is actively marketing the vacant space in these
         properties, subject to the competitive environment in each of their
         respective market areas.  To the extent the Partnership is not
         successful in maintaining or increasing occupancy levels at these
         properties, the Partnership's future cash flow may be reduced.

         Distributions through September 30, 1996 represent cash flow generated
         from operations of the Partnership's properties and interest earned on
         the temporary investment of working capital net of capital reserve
         requirements.  Future cash distributions will be made principally to
         the extent of cash flow attributable to operations and sales of the
         Partnership's properties and interest earned on the investment of
         capital reserves, after loan repayments, capital improvements  and
         providing for future capital reserves.

         In accordance with the terms of the Partnership Agreement, each year
         the Partnership secures an independent appraisal of each of the
         Partnership's properties as of January 1.  Prior to the January 1,
         1995 appraisals, the independent appraiser had estimated each
         property's "Investment Value," utilizing a seven to ten-year cash flow
         model to estimate value based upon an income approach.

         The Amendment to the Partnership Agreement consented to by the Limited
         Partners in June 1993 mandated, among other things, that the General
         Partner seek a vote of (and provide an analysis and recommendation to)
         the Limited Partners no later than December 31, 1996 regarding the
         prompt liquidation of the Partnership in the event that properties
         with (then) current appraised values (constituting at least one-half
         of the total (then) current appraised values) of all of the
         Partnership's properties are not sold or under contract for sale by
         the end of 1996.

         Given that mandate, the General Partner requested that the appraiser
         provide an assessment of value that reflects a shorter investment
         holding term.  Although the General Partner does not currently have a
         specific liquidation plan for the Partnership's properties, it
         requested that the appraiser assume  that the entire portfolio would
         be sold over four years, in connection with the January 1995
         appraisals and over three years in connection with the January 1996
         appraisals.





                                       10
<PAGE>   11
                      DAMSON/BIRTCHER REALTY INCOME FUND-I


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS (Cont'd.)

         Liquidity and Capital Resources (Cont'd.)
         -------------------------------

         Using the shorter-term investment methodology that is consistent with
         the mandate of the 1993 Amendment to the Partnership Agreement, the
         appraiser estimated the value of the Partnership's properties at
         January 1, 1996 to be  $40,390,000, or $4,155 per $10,000 original
         investor subscription.

         Over the past year, the General Partner has examined several
         alternative methods to achieve the Partnership's goal of selling
         properties and liquidating the Partnership at the earliest practicable
         time consistent with achieving reasonable value for the Limited
         Partners' investment.  As explained in the Partnership's May 5, 1993
         Information Statement,  "achieving reasonable value" has  meant for
         the  Partnership  to balance receiving higher sales prices per
         property than their 1993 values while at the same time not waiting
         forever to sell at a theoretical "top of the market."  Alternatives
         under consideration by the General Partner may include a property-
         by-property liquidation or selling all of the properties as a single
         portfolio.  The General Partner has had preliminary discussions
         regarding disposition, in whole or in part, of the Partnership's
         properties with various potential purchasers of some or all of the
         Partnership's portfolio.

         In connection with its consideration of these alternatives, the
         General Partner has decided to treat its properties as held for sale,
         instead of for investment, for financial statement purposes.  In
         accordance with Statement of Financial Accounting Standards No. 121
         "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
         Assets to Be Disposed Of," the carrying value of these properties was
         evaluated to ensure that each property was carried on the
         Partnership's Balance Sheet at the lower of cost or fair value less
         estimated selling costs.  The General Partner estimated fair value for
         this purpose based on appraisals performed as of January 1, 1996.
         However, fair value can only be determined based upon sales to third
         parties and sales proceeds could differ substantially.

         Based upon the General Partner's survey of the current marketplace,
         the General Partner believes, in fact, that in the relatively short
         term the Partnership's properties could generate sales prices that, in
         the aggregate, could be materially less than their aggregate appraised
         values based upon an "Investment Value" appraisal model.  The amount
         of the possible variance between the aggregate appraised values and
         potential sales prices cannot be reliably estimated at this time,
         because of the numerous variables that could affect the sales prices,
         including but not limited to the time frame in which the properties
         must be sold, method of sale (property-by-property or single
         transaction), prevailing capitalization rates at which comparable
         properties are being sold at the time of the Partnership's sales,
         constantly changing local market conditions and the state of leasing
         negotiations and capital expenditures for the properties at the time
         of sale.





                                       11
<PAGE>   12
                      DAMSON/BIRTCHER REALTY INCOME FUND-I



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS (Cont'd.)

         Results of Operations for the Three Months Ended September 30, 1996
         -------------------------------------------------------------------
         Compared With the Three Months Ended September 30, 1995 and for the
         -------------------------------------------------------------------
         Nine Months Ended September 30, 1996 Compared With the Nine Months
         ------------------------------------------------------------------
         Ended September 30, 1995
         ------------------------

         The increases in rental income for the three and nine months ended
         September 30, 1996, as compared to the corresponding periods in 1995,
         were primarily attributable to the increase's in revenue at Oakpointe,
         Terracentre and Arlington Executive Plaza. At Oakpointe, a new lease
         was successfully negotiated with Symbol Technologies, Inc,
         encompassing 22,801 square feet, for a five year term effective in
         February 1996. In addition, a new lease was negotiated at Terracentre
         with Ragland Design Group, Inc., in July 1996,  encompassing 1,194
         square feet for a three year term. At Arlington Executive Plaza, new
         leases were successfully negotiated with Dawes Laboratories
         encompassing 4,832 square feet in October 1995, Drs. Jessen, Wesley &
         Assoc., encompassing 1,620 square feet in November 1995, Tony Stallone
         Produce Co., encompassing 741 square feet in February 1996 and
         Associates in Psychotherapy encompassing 1,724 square feet in July
         1996.

         The decrease in interest income from 1995 to 1996 was attributable to
         a decrease in the average level of working capital available for short
         term investments.

         The decrease in real estate taxes for the three months ended September
         30, 1996, as compared to the corresponding period in 1995 was
         primarily a result of a decrease in real estate taxes at The
         Cornerstone.

         The decrease in real estate taxes for the nine months ended September
         30, 1996, as compared to the corresponding period in 1995, was
         primarily a result of successful tax appeals at Arlington Executive
         Plaza and Oakpointe.

         The decrease in operating expenses for the three months ended
         September 30, 1996, as compared to the corresponding period in 1995,
         resulted from several factors.  At The Cornerstone, legal and
         professional fees were reduced by $25,000.  At Arlington Executive
         Plaza, general building repair and maintenance, electricity and
         painting costs decreased ($9,000). In addition, general building
         repair and maintenance, electricity and space planning costs
         decreased at Terracentre ($12,000) during the period.

         The decrease in operating expenses for the nine months ended September
         30, 1996, as compared to the corresponding period in 1995, was
         primarily attributable to a decrease in utility costs, advertising and
         space planning at The Cornerstone ($29,000).





                                       12
<PAGE>   13
                      DAMSON/BIRTCHER REALTY INCOME FUND-I


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS (Cont'd.)

         Results of Operations for the Three Months Ended September 30, 1996
         -------------------------------------------------------------------
         Compared With the Three Months Ended September 30, 1995 and for the
         -------------------------------------------------------------------
         Nine Months Ended September 30, 1996 Compared With the Nine Months
         ------------------------------------------------------------------
         Ended September 30, 1995 (Cont'd.)
         ------------------------

         The decreases in depreciation and amortization expenses for the three
         and  nine months ended September 30, 1996 as compared to the
         corresponding periods in 1995 were attributable to the adoption of
         Statement of Financial Accounting Standards No. 121, "Accounting for
         the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
         Disposed Of," pursuant to which assets held for sale are no longer
         depreciated.

         For the nine months ended September 30, 1996, the carrying value of
         the Partnership's portfolio was reduced by $1,870,000, which is
         representative of the amount spent on building improvements, tenant
         improvements, leasing commissions and other related assets at The
         Cornerstone, Ladera-I Shopping Center, Terracentre, Arlington
         Executive Plaza and Washington Technical Center during the period.

         General and administrative expenses for the nine months ended
         September 30, 1996 and 1995, include charges of $387,000 and $414,000,
         respectively, from the General Partner and its affiliates for services
         rendered in connection with administering the affairs of the
         Partnership and operating the Partnership's properties.  Also included
         in general and administrative expenses for the nine months ended
         September, 1996 and 1995, are direct charges of $321,000 and $314,000,
         respectively, relating to audit fees, tax preparation fees, legal fees
         and professional services, liability insurance expenses, costs
         incurred in providing information to the Limited Partners and other
         miscellaneous costs.

         The decreases in general and administrative expenses for the three and
         nine months ended September 30, 1996, as compared to the corresponding
         periods in 1995, were primarily attributable to a decrease in leasing
         fees and appraisal fees. The aforementioned decreases were partially
         offset by an increase in professional services.

         The increases in interest expenses for the three and nine months ended
         September 30, 1996, as compared to the corresponding periods in 1995,
         were attributable to a new loan arrangement that commenced in March
         1996.  Pursuant to that arrangement, the Partnership borrowed $700,000
         for which it is paying interest only at 1% over the prime rate
         (currently 9.25%) on the outstanding principal.  Such interest
         amounted to $16,000 and $34,000 for the three and nine months ended
         September 30, 1996, respectively.





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<PAGE>   14
                      DAMSON/BIRTCHER REALTY INCOME FUND-I

                          PART II.  OTHER INFORMATION
                          ---------------------------

ITEM 1.  LEGAL PROCEEDINGS
         -----------------
         
         So far as is known to the General Partner, neither the Partnership nor
         its properties are subject to any material pending legal proceedings.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
         --------------------------------
         
         a)      Exhibits:

                 27 - Financial Data Schedule

         b)      Reports on Form 8-K:

                 None filed in quarter ended September 30, 1996.





                                       14
<PAGE>   15
                      DAMSON/BIRTCHER REALTY INCOME FUND-I


                                   SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.




DAMSON/BIRTCHER REALTY INCOME FUND-I


By: DAMSON/BIRTCHER PARTNERS    By: BIRTCHER PARTNERS,
    (General Partner)               a California general partnership

                                By: BIRTCHER INVESTMENTS,
                                    a California general partnership,
                                    General Partner of Birtcher Partners

                                    By: BIRTCHER LIMITED,
                                        a California limited partnership,
                                        General Partner of Birtcher Investments

                                        By: BREICORP,
                                            a California corporation,
                                            formerly known as Birtcher
                                            Real Estate Inc., General
                                            Partner of Birtcher Limited

Date:    November 12, 1996                  By: /s/ Robert M. Anderson
                                                ------------------------------
                                                Robert M. Anderson
                                                Executive Director
                                                BREICORP

                                By: LF Special Fund II, L.P.,
                                    a California limited partnership

                                    By: Liquidity Fund Asset Management, Inc.,
                                        a California corporation, General
                                        Partner of LF Special Fund II, L.P.

Date:    November 12, 1996              By: /s/ Brent R. Donaldson
                                            --------------------------------
                                            Brent R. Donaldson
                                            President
                                            Liquidity Fund Asset Management, 
                                            Inc.





                                       15