<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, 1998
                         -------------------------------------------------------

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

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


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


   27611 La Paz Road, P.O. Box 30009, Laguna Niguel, California   92607-0009
--------------------------------------------------------------------------------
            (Address of principal executive offices)              (Zip Code)


                                 (949) 643-7700
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)


                                       N/A
--------------------------------------------------------------------------------
              (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, 1998
                  ---------------------------------------------

                                      INDEX
                                      -----


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

Item 1.   Financial Statements

          Statements of Net Assets in Liquidation - September 30, 1998
          (Unaudited)and December 31, 1997 (Audited)...............................      3

          Statements of Changes of Net Assets in Liquidation -
          Three Months Ended September 30, 1998 and 1997 and Nine Months
          Ended September 30, 1998(Unaudited)......................................      4

          Statement of Operations (Unaudited) -
          Three Months Ended March 31, 1997........................................      5

          Statement of Cash Flows (Unaudited) -
          Three Months Ended March 31, 1997........................................      6

          Notes to Financial Statements (Unaudited)................................      7

Item 2.   Management's Discussion and Analysis of
          Financial Condition and Results of Operations............................     12


PART II.  OTHER INFORMATION........................................................     17


</TABLE>











                                       2


<PAGE>   3

                          PART I. FINANCIAL INFORMATION
                          -----------------------------


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

                      DAMSON/BIRTCHER REALTY INCOME FUND-I
                     STATEMENTS OF NET ASSETS IN LIQUIDATION
                     ---------------------------------------


<TABLE>
<CAPTION>
                                                                            September 30,       December 31,
                                                                               1998                 1997
                                                                            -------------       ------------
ASSETS (Liquidation Basis):                                                 (unaudited)
---------------------------
<S>                                                                        <C>                 <C>
Properties                                                                  $34,327,000         $36,090,000

Cash and cash equivalents                                                       456,000             461,000
Accounts receivable, net                                                         43,000             100,000
Other assets                                                                    224,000              99,000
                                                                            -----------         -----------

   Total Assets                                                              35,050,000          36,750,000
                                                                            -----------         -----------

LIABILITIES (Liquidation Basis):
--------------------------------

Accounts payable and accrued liabilities                                        935,000             945,000
Secured loan payable                                                          2,566,000           2,730,000
Accrued expenses for liquidation                                              1,049,000           1,049,000
                                                                            -----------         -----------

   Total Liabilities                                                          4,550,000           4,724,000
                                                                            -----------         -----------

Net Assets in Liquidation                                                   $30,500,000         $32,026,000
                                                                            ===========         ===========

</TABLE>











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


                                       3

<PAGE>   4



                      DAMSON/BIRTCHER REALTY INCOME FUND-I
               STATEMENTS OF CHANGES OF NET ASSETS IN LIQUIDATION
                                   (UNAUDITED)
               --------------------------------------------------

<TABLE>
<CAPTION>

                                                                                              Nine Months
                                                             Three Months Ended                  Ended
                                                                September 30,                September 30,
                                                            1998               1997              1998
                                                        ------------       ------------      -------------
<S>                                                    <C>                <C>             <C>

  Net assets in liquidation at beginning
  of period                                              $29,922,000       $32,081,000        $32,026,000
  Increase (decrease) during period:
    Operating activities:
      Property operating income, net                         922,000           859,000          2,514,000
      Interest income                                          3,000             8,000              9,000
      General and administrative expenses                   (240,000)         (304,000)          (748,000)
      Interest expense on mortgage payable                   (59,000)          (63,000)          (179,000)
      Leasing commissions                                    (48,000)          (61,000)          (266,000)
                                                         -----------       -----------        -----------
                                                             578,000           439,000          1,330,000
                                                         -----------       -----------        -----------

  Liquidating activities:
      Adjustment to the carrying value
       of properties in liquidation                               --                --         (2,600,000)
      Distributions to partners                                   --          (256,000)          (256,000)
                                                         -----------       -----------        -----------

                                                                  --          (256,000)        (2,856,000)
                                                         -----------       -----------        -----------

  Net increase (decrease) in assets
   in liquidation                                            578,000           183,000         (1,526,000)
                                                         -----------       -----------        -----------

  Net assets in liquidation at end
  of period                                              $30,500,000       $32,264,000        $30,500,000
                                                         ===========       ===========        ===========

</TABLE>








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



                                       4


<PAGE>   5

                      DAMSON/BIRTCHER REALTY INCOME FUND-I
                             STATEMENT OF OPERATIONS
                                   (UNAUDITED)
                      ------------------------------------


<TABLE>
<CAPTION>
                                                                  For the
                                                                Three Months
                                                                   Ended
                                                                  3/31/97
                                                                ------------
<S>                                                            <C>
           REVENUES
           --------

           Rental income                                         $1,479,000
           Interest income                                           10,000
                                                                 ----------
              Total revenues                                      1,489,000
                                                                 ----------
           EXPENSES
           --------

           Operating expenses                                       377,000
           Real estate taxes                                        201,000
           Amortization                                              70,000
           General and administrative                               369,000
           Interest                                                  66,000
                                                                 ----------
              Total expenses                                      1,083,000
                                                                 ----------
           NET INCOME                                            $  406,000
                                                                 ==========
           NET INCOME ALLOCABLE TO:

              General Partner                                    $    4,000
                                                                 ==========
              Limited Partners                                   $  402,000
                                                                 ==========
</TABLE>





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






                                       5


<PAGE>   6

                      DAMSON/BIRTCHER REALTY INCOME FUND-I
                             STATEMENT OF CASH FLOWS
                                   (UNAUDITED)
                      ------------------------------------


<TABLE>
<CAPTION>
                                                                   For the
                                                                 Three Months
                                                                    Ended
                                                                March 31, 1997
                                                                --------------
<S>                                                           <C>
Cash flows from operating activities:
   Net income                                                      $ 406,000
Adjustments to reconcile net income to
  net cash provided by operating
  activities:
   Amortization                                                       70,000
Changes in:
   Accounts receivable                                               (48,000)
   Prepaid expenses and other assets                                 112,000
  Accrued rent receivable                                              6,000
   Accounts payable and accrued liabilities                         (146,000)
                                                                   ---------
Net cash provided by operating activities                            400,000

Cash flows from investing activities:
   Investments in real estate                                        (34,000)
                                                                   ---------
Net cash used in investing activities                                (34,000)

Cash flows from financing activities:
   Principal payments on secured loan payable                        (49,000)
   Distributions                                                    (255,000)
                                                                   ---------
Net cash used in financing activities                               (304,000)

Net increase in cash and cash equivalents                             62,000

Cash and cash equivalents, beginning of
   period                                                            711,000
                                                                   ---------
Cash and cash equivalents, end of period                           $ 773,000
                                                                   =========

</TABLE>











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








                                       6


<PAGE>   7

                      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, 1997.

        Liquidation Basis of Accounting

        On February 18, 1997, the Partnership mailed a Consent Solicitation to
        the Limited Partners which sought their consent to dissolve the
        Partnership and sell and liquidate all of its remaining properties as
        soon as practicable, consistent with selling the Partnership's
        properties to the best advantage under the circumstances. A majority in
        interest of the Limited Partners consented by March 14, 1997. As a
        result, the Partnership adopted the liquidation basis of accounting as
        of March 31, 1997. The liquidation basis of accounting is appropriate
        when liquidation appears imminent, the Partnership can no longer be
        classified as a going concern and the net realizable values of the
        Partnership's assets are reasonably determinable. The difference between
        the adoption of the liquidation basis of accounting as of March 14, 1997
        and March 31, 1997 was not material.

        Under the liquidation basis of accounting, assets are stated at their
        estimated net realizable values and liabilities are stated at their
        anticipated settlement amounts. The valuation of assets and liabilities
        necessarily requires many estimates and assumptions, and there are
        substantial uncertainties in carrying out the dissolution of the
        Partnership. The actual values upon dissolution and costs associated
        therewith could be higher or lower than the amounts recorded.

        The Partnership adopted the liquidation basis of accounting on March 31,
        1997. Comparison of results of operations to prior years through March
        31, 1997, therefore, is not practical. The Statements of Net Assets in
        Liquidation and Statements of Changes of Net Assets in Liquidation
        reflect the Partnership in the process of liquidation. Prior financial
        statements reflect the Partnership as a going concern.

        Sale of the Properties

        On April 30, 1998, the General Partner accepted an offer to purchase all
        of the Partnership's properties for $39,140,000, subject to customary
        contingencies, including due diligence review by the purchaser and
        negotiation of a definitive Purchase and Sale Agreement (the "Purchase
        Offer"). At that time, the buyer, Abbey Investments, Inc. ("Abbey"),
        anticipated closing the transaction in approximately 60-90 days.


                                       7

<PAGE>   8

                      DAMSON/BIRTCHER REALTY INCOME FUND-I


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

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

        Sale of the Properties (Cont'd.)

        Since that time, the General Partner and the buyer have been working to
        finalize a definitive Purchase and Sale Agreement, and that negotiation
        culminated in an executed agreement dated as of November 9, 1998.

        As previously reported, several of the Partnership's properties,
        including The Cornerstone (76% leased), Certified Distribution Center
        (39% leased), Ladera-I Shopping Center (80% leased) and Oakpointe (91%
        leased) have not performed to expectations. As a consequence, the buyer
        has reduced its offer, based upon lower than expected revenue and the
        anticipated cost to reconfigure, build out and lease-up these
        properties. As a result, the parties have agreed to a final purchase
        price range between $34,500,000 and $36,000,000, depending upon final
        occupancy rates at the time of closing, as described below. Based upon
        an aggregate price of $34,500,000, the purchase price would be allocated
        as follows:

<TABLE>
<CAPTION>
        ----------------------------------------------  --------------------- -----------------
                         PROPERTIES                        PURCHASE PRICE       DISPOSITION
                                                                                FEES EARNED
        ----------------------------------------------- --------------------- -----------------
     <S>                                                 <C>                    <C>
        Certified Distribution Center                       $ 6,500,000              -0-
        ----------------------------------------------- --------------------- -----------------
        The Cornerstone                                       7,700,000              -0-
        ----------------------------------------------- --------------------- -----------------
        Terracentre                                           3,300,000            $82,500
        ----------------------------------------------- --------------------- -----------------
        Ladera-I Shopping Center                              5,400,000              -0-
        ----------------------------------------------- --------------------- -----------------
        Oakpointe                                             7,100,000              -0-
        ----------------------------------------------- --------------------- -----------------
        Washington Technical Center                           4,500,000           $112,500
        ----------------------------------------------- --------------------- -----------------
            Total                                           $34,500,000           $195,000
        ----------------------------------------------- --------------------- -----------------
</TABLE>

        Deposit. Abbey will deposit into an interest-bearing escrow an initial
        deposit of $200,000. This deposit plus all interest earned is refundable
        to Abbey (less one-half of any escrow charges) until the Partnership has
        satisfied all of its presale obligations or those obligations are waived
        by Abbey, or until January 23, 1999. Thereafter, the deposit is
        nonrefundable and it and all interest earned shall be applied to the
        payment of the purchase price.

        Conditions. The close of the sale is subject to, among other things,
        Abbey's approval of title conditions, review of operating documents and
        reports, physical inspection of the properties, and receipt of tenant
        estoppel certificates. Escrow fees and costs will be shared equally; in
        general, other costs will be borne in accordance with how those cost are
        shared in each county in which the real property is located.

        Default. If the Partnership defaults in its obligations under the
        Purchase and Sale Agreements, Abbey may either (i) terminate the
        agreements, take back its deposit plus any interest earned, and receive
        from the Partnership Abbey's actual out-of-pocket expenses, including
        reasonable attorneys fees and costs or (ii) seek specific performance of
        the agreements. If Abbey defaults after the contingency period, the
        Partnership is entitled to keep the deposit plus any interest earned.
        Abbey and the Partnership have also agreed to refer any disputes to a
        retired judge or other private arbitrator should a dispute arise.





                                       8


<PAGE>   9

                      DAMSON/BIRTCHER REALTY INCOME FUND-I


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

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

        Sale of the Properties (Cont'd.)

        Price adjustments; vacant space; earnout. The purchase price will be
        between $34,500,000 and $36,000,000, depending upon whether or not
        certain space in the Partnership's properties that is currently vacant
        or soon-to-be-vacant is leased before closing. The General Partner and
        Abbey have agreed on a formula that, in general, credits the Partnership
        for new leases on certain vacant space, or expanding certain current
        leases, prior to closing. According to this formula, the purchase price
        will never drop below $34,500,000 nor rise above $36,000,000. A sale in
        this price range will provide Limited Partners with a final distribution
        of approximately $306 to $322 per $1,000 original investment.

        Disposition fees. Pursuant to the Partnership Agreement, the General
        Partner will earn a Disposition Fee of 2.5% of the sale price of certain
        properties, as set forth in the table above. The amount of the fee will
        vary depending upon the final sale price of each property. The General
        Partner will not receive any other fees or distribution of proceeds from
        the sale of the properties to Abbey.

        Management agreement. At closing, Abbey will enter into a property
        management agreement with Birtcher Property Services ("BPS") to manage
        all of the Partnership's properties, plus the properties currently owned
        by Damson/Birtcher Realty Income Fund-II and Real Estate Income Partners
        III. BPS is an affiliate of Birtcher Partners. BPS has no relationship
        or affiliation with Liquidity Fund or any of its affiliates.

        The property management agreement has a three year term, during which
        time BPS will be Abbey's exclusive agent to lease, operate and maintain
        the properties. For these services, Abbey will pay BPS an annual asset
        management fee based on performance of the properties measured by the
        net operating income they generate. The asset management fee will never
        be greater than an amount equal to 1% of the final sales price of each
        property as set forth in the Purchase and Sale Agreements. In addition,
        Abbey will pay BPS a property management fee equal to 3% of gross rents
        collected, and leasing fees of 6.5% of total lease consideration (less
        third-party brokerage commissions, which are expected to be 5-6%) for
        new leases and 2% (0% if third-party brokers are involved) for renewals.
        BPS will be responsible for all of its costs and expenses associated
        with performing pursuant to the management agreement. The agreement
        (covering all of the Partnership's properties plus those of
        Damson/Birtcher Realty Income Fund-II and Real Estate Income Partners
        III) may be terminated without cause by Abbey at any time six months
        after closing. Termination requires 60 days notice and payment of a
        termination fee that approximates a 1% asset management fee, plus a 3%
        property management fee, for the remainder of the term that is equal to
        $2.7 million, less $100,000 for each month of the contract term that has
        expired.

        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


                                       9
<PAGE>   10

                      DAMSON/BIRTCHER REALTY INCOME FUND-I


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

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

        Earnings Per Unit (Cont'd.)

        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.

(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, 1998 and 1997, the Partnership incurred approximately
        $25,000 and $43,000, respectively. For the nine months there ended, such
        expenses were $115,000 and $122,000, respectively.

        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 $47,000
        and $42,000 for the three months ended September 30, 1998 and 1997,
        respectively. For the nine months there ended, these fees amounted to
        $133,000 and $123,000, respectively. In addition, an affiliate of the
        General Partner received $76,000 and $79,000 for the three months ended
        September 30, 1998 and 1997, respectively, as reimbursement of costs of
        on-site property management personnel and other reimbursable costs. For
        the nine months there ended, such reimbursements were $236,000 and
        $236,000, respectively.

        As previously reported, on June 24, 1993, the Partnership completed its
        solicitation of written consents from its Limited Partners. A majority
        in interest of the Partnership's Limited Partners approved each of the
        proposals contained in the Information Statement dated May 5, 1993.
        Those proposals were 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 .55%
        for 1998 and .65% for 1997 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, 1998 and 1997, amounted to $52,000 and $61,000,
        respectively. For the nine months there ended, these fees amounted to
        $157,000 and $184,000, respectively.




                                       10


<PAGE>   11

                      DAMSON/BIRTCHER REALTY INCOME FUND-I


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

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

        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, 1998 and 1997, amounted to $8,000 and $16,000,
        respectively. For the nine months there ended, such fees were $43,000
        and $25,000, respectively.

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

        Litigation

        On March 25, 1997, a limited partner named Bigelow/Diversified Secondary
        Partnership Fund 1990 filed a purported class action lawsuit in the
        Court of Common Pleas of Philadelphia County against Damson/Birtcher
        Partners, Birtcher Investors, Birtcher/Liquidity Properties, Birtcher
        Investments, L.F. Special Fund II, L.P., L.F. Special Fund I, L.P.,
        Arthur Birtcher, Ronald Birtcher, Robert Anderson, Richard G. Wollack
        and Brent R. Donaldson alleging breach of fiduciary duty and breach of
        contract and seeking to enjoin the Consent Solicitation dated February
        18, 1997. On April 18, 1997, the court denied the plaintiff's motion for
        a preliminary injunction. On June 10, 1997, the court dismissed the
        plaintiff's complaint on the basis of lack of personal jurisdiction and
        forum non conveniens.

        In September 1998, Bigelow/Diversified Secondary Partnership 1990
        informed the Partnership that it was filing suit in the Delaware
        Chancery Court against Damson/Birtcher Partners, Birtcher Investors,
        Birtcher Liquidity Properties, Birtcher Investments, BREICORP, LF
        Special Fund I, LP, LF Special Fund II. LP, Arthur Birtcher, Ronald
        Birtcher, Robert Anderson, Richard G. Wollack and Brent R. Donaldson
        alleging a purported class action on behalf of the limited partners of
        Damson/Birtcher Realty Income Fund-I, Damson/Birtcher Realty Income
        Fund-II and Real Estate Income Partners III alleging breach of fiduciary
        duty and incorporating the allegations set forth in the previously
        dismissed March 25, 1998 complaint filed in the Court of Chancery of
        Philadelphia County. One of the stated purposes of the Delaware
        complaint is to enjoin the pending transaction with Abbey. Plaintiff has
        engaged in preliminary discovery and the parties have held settlement
        discussions. No motions are pending at this time.

(4)     Accrued Expenses for Liquidation
        --------------------------------

        Accrued expenses for liquidation as of September 30, 1998, include
        estimates of costs to be incurred in carrying out the dissolution and
        liquidation of the Partnership. These costs include estimates of legal
        fees, accounting fees, tax preparation and filing fees, other
        professional services, the general partner's liability insurance and the
        pre-payment penalty associated with the anticipated early retirement of
        the mortgage loan secured by the Certified Distribution Center property.
        The actual costs could vary significantly from the related provisions
        due to the uncertainty related to the length of time required to
        complete the liquidation and dissolution and the complexities which may
        arise in disposing of the Partnership's remaining assets.




                                       11


<PAGE>   12

                      DAMSON/BIRTCHER REALTY INCOME FUND-I


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

        Liquidity and Capital Resources
        -------------------------------

        Since the completion of its acquisition program in September 1985, the
        Partnership has been engaged in the operation of its properties. The
        Partnership's original objective had been to hold its properties as
        long-term investments. However, an Information Statement, dated May 5,
        1993, mandated that the General Partner seek a vote of the Limited
        Partners no later than December 31, 1996, regarding prompt liquidation
        of the Partnership in the event that properties with appraised values as
        of January 1993 which constituted at least one half of the aggregate
        appraised values of all Partnership properties as of that date were not
        sold or under contract for sale by the end of 1996. Given the mandate of
        the May 5, 1993 Information Statement, as of December 31, 1995, the
        General Partner decided to account for the Partnership's properties as
        assets held for sale, instead of for investment. In a Consent
        Solicitation dated February 18, 1997, the Partnership solicited and
        received the consent of the Limited Partners on March 14, 1997 to
        dissolve the Partnership and sell and liquidate all of its remaining
        properties as soon as practicable, consistent with selling the
        Partnership's properties to the best advantage under the circumstances.
        The Partnership's properties were held for sale throughout 1997 and
        continue to be held for sale.

        On April 30, 1998, the General Partner accepted an offer to purchase all
        of the Partnership's properties for $39,140,000, subject to customary
        contingencies, including due diligence review by the purchaser and
        negotiation of a definitive Purchase and Sale Agreement (the "Purchase
        Offer"). At that time, the buyer anticipated closing the transaction in
        approximately 60-90 days.

        Since that time, the General Partner and the buyer have been working to
        finalize a definitive Purchase and Sale Agreement, and that negotiation
        culminated in an executed agreement dated as of November 9, 1998.

        The prospective buyer (the "Purchaser") is Abbey Investments, Inc., an
        affiliate of The Abbey Company. The Abbey Company is a Southern
        California-based real estate operating company founded in 1990. The
        Purchaser is not affiliated in any way with the Partnership or the
        General Partner, or any of the General Partner's principals or
        affiliates.

        As previously reported, several of the Partnership's properties,
        including The Cornerstone (76% leased), Certified Distribution Center
        (39% leased), Ladera-I Shopping Center (80% leased) and Oakpointe (91%
        leased) have not performed to expectations. As a consequence, the buyer
        has reduced its offer, based upon lower than expected revenue and the
        anticipated cost to reconfigure, build out and lease-up these
        properties. As a result, the parties have agreed to a final purchase
        price range between $34,500,000 and $36,000,000, depending upon final
        occupancy rates at the time of closing, as described below. Based upon
        an aggregate price of $34,500,000, the purchase price would be allocated
        as follows:

                                       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.)
        -----------------------

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

<TABLE>
<CAPTION>
        ----------------------------------------------  --------------------- -----------------
                         PROPERTIES                        PURCHASE PRICE       DISPOSITION
                                                                                FEES EARNED
        ----------------------------------------------- --------------------- -----------------
     <S>                                               <C>                      <C>
        Certified Distribution Center                       $ 6,500,000              -0-
        ----------------------------------------------- --------------------- -----------------
        The Cornerstone                                       7,700,000              -0-
        ----------------------------------------------- --------------------- -----------------
        Terracentre                                           3,300,000            $82,500
        ----------------------------------------------- --------------------- -----------------
        Ladera-I Shopping Center                              5,400,000              -0-
        ----------------------------------------------- --------------------- -----------------
        Oakpointe                                             7,100,000              -0-
        ----------------------------------------------- --------------------- -----------------
        Washington Technical Center                           4,500,000           $112,500
        ----------------------------------------------- --------------------- -----------------
            Total                                           $34,500,000           $195,000
        ----------------------------------------------- --------------------- -----------------
</TABLE>

        Deposit. Abbey will deposit into an interest-bearing escrow an initial
        deposit of $200,000. This deposit plus all interest earned is refundable
        to Abbey (less one-half of any escrow charges) until the Partnership has
        satisfied all of its presale obligations or those obligations are waived
        by Abbey, or until January 23, 1999. Thereafter, the deposit is
        nonrefundable and it and all interest earned shall be applied to the
        payment of the purchase price.

        Conditions. The close of the sale is subject to, among other things,
        Abbey's approval of title conditions, review of operating documents and
        reports, physical inspection of the properties, and receipt of tenant
        estoppel certificates. Escrow fees and costs will be shared equally; in
        general, other costs will be borne in accordance with how those cost are
        shared in each county in which the real property is located.

        Default. If the Partnership defaults in its obligations under the
        Purchase and Sale Agreements, Abbey may either (i) terminate the
        agreements, take back its deposit plus any interest earned, and receive
        from the Partnership Abbey's actual out-of-pocket expenses, including
        reasonable attorneys fees and costs or (ii) seek specific performance of
        the agreements. If Abbey defaults after the contingency period, the
        Partnership is entitled to keep the deposit plus any interest earned.
        Abbey and the Partnership have also agreed to refer any disputes to a
        retired judge or other private arbitrator should a dispute arise.

        Price adjustments; vacant space; earnout. The purchase price will be
        between $34,500,000 and $36,000,000, depending upon whether or not
        certain space in the Partnership's properties that is currently vacant
        or soon-to-be-vacant is leased before closing. The General Partner and
        Abbey have agreed on a formula that in general, credits the Partnership
        for new leases on certain vacant space, or expanding certain current
        leases, prior to closing. According to this formula, the purchase price
        will never drop below $34,500,000 nor rise above $36,000,000. A sale in
        this price range will provide Limited Partners with a final distribution
        of approximately $306 to $322 per $1,000 original investment.

        Disposition fees. Pursuant to the Partnership Agreement, the General
        Partner will earn a Disposition Fee of 2.5% of the sale price of certain
        properties, as set forth in the table above. The amount of the fee will




                                       13


<PAGE>   14

                      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.)
        -------------------------------

        vary depending upon the final sale price of each property. The General
        Partner will not receive any other fees or distribution of proceeds from
        the sale of the properties to Abbey.

        Management agreement. At closing, Abbey will enter into a property
        management agreement with Birtcher Property Services ("BPS") to manage
        all of the Partnership's properties, plus the properties currently owned
        by Damson/Birtcher Realty Income Fund-II and Real Estate Income Partners
        III. BPS is an affiliate of Birtcher Partners. BPS has no relationship
        or affiliation with Liquidity Fund or any of its affiliates.

        The property management agreement has a three year term, during which
        time BPS will be Abbey's exclusive agent to lease, operate and maintain
        the properties. For these services, Abbey will pay BPS an annual asset
        management fee based on performance of the properties measured by the
        net operating income they generate. The asset management fee will never
        be greater than an amount equal to 1% of the final sales price of each
        property as set forth in the Purchase and Sale Agreements. In addition,
        Abbey will pay BPS a property management fee equal to 3% of gross rents
        collected, and leasing fees of 6.5% of total lease consideration (less
        third-party brokerage commissions, which are expected to be 5-6%) for
        new leases and 2% (0% if third-party brokers are involved) for renewals.
        BPS will be responsible for all of its costs and expenses associated
        with performing pursuant to the management agreement. The agreement
        (covering all of the Partnership's properties plus those of
        Damson/Birtcher Realty Income Fund-II and Real Estate Income Partners
        III) may be terminated without cause by Abbey at any time six months
        after closing. Termination requires 60 days notice and payment of a
        termination fee that approximates a 1% asset management fee, plus a 3%
        property management fee, for the remainder of the term that is equal to
        $2.7 million, less $100,000 for each month of the contract term that has
        expired.

        In contemplation of the proposed transaction, the General Partner
        reduced the carrying value of properties in liquidation by $2,600,000 at
        June 30, 1998. However, there can be no assurance that the proposed sale
        of the properties will be completed.

        Regular distributions through September 30, 1998 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, payment for capital improvements to the
        Partnership's



                                       14



<PAGE>   15

                      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.)
        -------------------------------

        properties and providing for capital reserves.

        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 and a
        prepayment penalty of approximately $600,000 at current interest rates,
        if fully paid off after July 1, 1998.

        In March 1996, the Partnership entered into a loan agreement pursuant to
        which it could borrow up to $1,500,000 (similar to a credit line
        arrangement), 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, the Partnership
        borrowed $700,000 in March 1996. The net proceeds of the foregoing loan
        were used to fund a portion of the renovation and tenant improvements at
        The Cornerstone and tenant improvements at Oakpointe. The Partnership
        made interest only payments at the rate of 1% over prime (the loan rate
        was 9.25%) through November 1996, when the entire balance was paid off
        utilizing a portion of the proceeds from the sale of Arlington Executive
        Plaza. The Partnership has the ability to borrow against this credit
        facility (up to $1,500,000) through March 31, 1999.

        Results of Operations for the Three Months Ended September 30, 1998
        -------------------------------------------------------------------

        Because the Partnership adopted the liquidation basis of accounting on
        March 31, 1997, a comparison of the results of operations is not
        practical. As the Partnership's assets (properties) are sold, the
        results of operations will be generated from a smaller asset base, and
        are therefore not comparable. The Partnership's operating results have
        been reflected on the Statement of Changes of Net Assets in Liquidation
        since March 31, 1997 (the date of adoption of the liquidation basis of
        accounting).

        For the three months ended September 30, 1998, the Partnership generated
        $922,000 of net operating income from operations of its properties. The
        increase in net operating income for the three months ended September
        30, 1998 when compared to the same period in 1997 was primarily
        attributable to an increase in rental income at The Cornerstone
        ($103,000) and the collection of an early lease termination fee at
        Ladera-I Shopping Center($100,000). The aforementioned increases were
        partially offset by a decrease in rental income at Certified
        Distribution Center ($162,000) that resulted from lower occupancy in
        1998.

        In September and November 1997, Certified Warehouse and Transfer
        Company, Inc. vacated Certified Distribution Center. Although the
        General Partner successfully completed negotiation of a 123,074 square
        foot lease with Quality Distribution effective March 1, 1998 at a rate
        greater than before, the remaining 189,115 square foot vacancy will have
        a negative impact on future distributions of cash from operations to the
        Limited Partners.

        Interest income resulted from the temporary investment of Partnership
        working capital. For the three months ended September 30, 1998, interest


                                       15



<PAGE>   16

                      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, 1998
-------------------------------------------------------------------
(Cont'd.)

        income was approximately $3,000.

        General and administrative expenses for the three months ended
        September30, 1998, include charges of $85,000 from the General Partner
        and its affiliates for services rendered in connection with
        administering the affairs of the Partnership and operating the
        Partnership's properties. Also included in general and administrative
        expenses for the three months ended September 30, 1998, are direct
        charges of $155,000, relating to audit fees, tax preparation fees, legal
        fees and professional services, liability insurance expenses, costs
        incurred in providing information to the Limited Partners and other
        miscellaneous costs.

        The decrease in general and administrative expenses for the three months
        ended September 30, 1998, as compared to the corresponding period in
        1997, was primarily attributable to the decrease in legal, professional
        services, asset management fees and administrative costs.

        Accrued expenses for liquidation, as reflected in the Statements of Net
        Assets in Liquidation since March 31, 1997, are not included in results
        of operations for the three month period ended March 31, 1997. The
        liquidation basis of accounting was adopted on March 31, 1997 therefore,
        it was not appropriate to include such adjustments in the results of
        operations for prior periods. Accrued expenses for liquidation as of
        September 30, 1998, includes estimates of costs to be incurred in
        carrying out the dissolution and liquidation of the Partnership. These
        costs include estimates of legal fees, accounting fees, tax preparation
        and filing fees, professional services, the general partner's liability
        insurance and the pre-payment penalty associated with the anticipated
        early retirement of the mortgage loan secured by the Certified
        Distribution Center property. The actual costs could vary significantly
        from the related provisions due to the uncertainty related to the length
        of time required to complete the liquidation and dissolution and the
        complexities which may arise in disposing of the Partnership's remaining
        assets.

        Interest expense resulted from interest on the first deed of trust on
        Certified Distribution Center.





                                       16


<PAGE>   17

                      DAMSON/BIRTCHER REALTY INCOME FUND-I


                           PART II. OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS

        On March 25, 1997, a limited partner named Bigelow/Diversified Secondary
        Partnership Fund 1990 filed a purported class action lawsuit in the
        Court of Common Pleas of Philadelphia County against Damson/Birtcher
        Partners, Birtcher Investors, Birtcher/Liquidity Properties, Birtcher
        Investments, L.F. Special Fund II, L.P., L.F. Special Fund I, L.P.,
        Arthur Birtcher, Ronald Birtcher, Robert Anderson, Richard G. Wollack
        and Brent R. Donaldson alleging breach of fiduciary duty and breach of
        contract and seeking to enjoin the Consent Solicitation dated February
        18, 1997. On April 18, 1997, the court denied the plaintiff's motion for
        a preliminary injunction. On June 10, 1997, the court dismissed the
        plaintiff's complaint on the basis of lack of personal jurisdiction and
        forum non conveniens.

        In September 1998, Bigelow/Diversified Secondary Partnership 1990
        informed the Partnership that it was filing suit in the Delaware
        Chancery Court against Damson/Birtcher Partners, Birtcher Investors,
        Birtcher Liquidity Properties, Birtcher Investments, BREICORP, LF
        Special Fund I, LP, LF Special Fund II. LP, Arthur Birtcher, Ronald
        Birtcher, Robert Anderson, Richard G. Wollack and Brent R. Donaldson
        alleging a purported class action on behalf of the limited partners of
        Damson/Birtcher Realty Income Fund-I, Damson/Birtcher Realty Income
        Fund-II and Real Estate Income Partners III alleging breach of fiduciary
        duty and incorporating the allegations set forth in the previously
        dismissed March 25, 1998 complaint filed in the Court of Chancery of
        Philadelphia County. One of the stated purposes of the Delaware
        complaint is to enjoin the pending transaction with Abbey. Plaintiff has
        engaged in preliminary discovery and the parties have held settlement
        discussions. No motions are pending at this time.




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, 1998.





                                       17


<PAGE>   18

                      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

<TABLE>
<CAPTION>
<S>                                <C>
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 10, 1998                             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 10, 1998                   By: /s/ Brent R. Donaldson
                                                ----------------------
                                                Brent R. Donaldson
                                                President
                                                Liquidity Fund Asset Management, Inc.
</TABLE>



                                       18


<PAGE>   19


                                 EXHIBIT INDEX

Exhibit
No.                 Description
-------             -----------

 27            Financial Data Schedule