FORM 10-KSB--ANNUAL OR TRANSITIONAL REPORT UNDER
                                SECTION 13 OR 15(d)

                                   Form 10-KSB
(Mark One)

[X]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE ACT OF
     1934 [No Fee Required]

                    For the fiscal year ended December 31, 2000

[ ]  TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934 [No Fee Required]

                For the transition period from _________to _________

                         Commission file number 0-14530

                         DAVIDSON INCOME REAL ESTATE, L.P.
                   (Name of small business issuer in its charter)

         Delaware                                                62-1242144
(State or other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                              Identification No.)

                          55 Beattie Place, PO Box 1089
                        Greenville, South Carolina 29602
                      (Address of principal executive offices)

                    Issuer's telephone number (864) 239-1000

           Securities registered under Section 12(b) of the Exchange Act:

                                      None

           Securities registered under Section 12(g) of the Exchange Act:

                          Units of Limited Partnership
                                (Title of class)

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. Yes X No___

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the best of the  Partnership's  knowledge  in  definitive  proxy or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [X]

State issuer's revenues for its most recent fiscal year.  $5,008,000

State the aggregate  market value of the voting  partnership  interests  held by
non-affiliates  computed  by  reference  to the price at which  the  partnership
interests  were sold,  or the average bid and asked  prices of such  partnership
interests as of December 31, 2000. No market exists for the limited  partnership
interests of the Registrant,  and,  therefore,  no aggregate market value can be
determined.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None

<PAGE>
                                     PART I

Item 1.     Description of Business

Davidson  Income Real Estate,  L.P. (the  "Partnership"  or  "Registrant")  is a
Delaware  limited  partnership  organized in April 1985. The general partners of
the  Partnership  are  Davidson  Diversified   Properties,   Inc.,  a  Tennessee
corporation  ("Managing  General  Partner"),  David W.  Talley and James T. Gunn
(collectively,   "Individual  General  Partners")  (collectively,  the  "General
Partners").  The  Registrant is engaged in the business of operating and holding
real  estate  properties  for  investment.  The  Managing  General  Partner is a
subsidiary  of  Apartment  Investment  and  Management  Company  ("AIMCO").  The
Partnership  Agreement provides that the Partnership is to terminate on December
31, 2010, unless terminated prior to such date.

The offering of the Partnership's  limited partnership units ("Units") commenced
on July 26, 1985, and terminated on May 30, 1986. The Registrant  received gross
proceeds from the offering of $26,776,000 and net proceeds of  $25,700,160.  All
of the net  proceeds of the offering  were  invested in the  Partnership's  four
residential  properties  and in a 17.5% joint  venture  interest  which owns one
residential property.  See "Item 2. Description of Properties" for a description
of the Partnership's properties.

Both  the  income  and  expenses  of  operating  the  properties  owned  by  the
Partnership are subject to factors outside of the Partnership's control, such as
changes in the supply and demand for similar  properties  resulting from various
market  conditions,  increases/decreases  in unemployment or population  shifts,
changes in the availability of permanent mortgage  financing,  changes in zoning
laws,  or changes in patterns or needs of users.  In  addition,  there are risks
inherent in owning and operating residential  properties because such properties
are  susceptible to the impact of economic and other  conditions  outside of the
control of the Partnership.

The Registrant  has no employees.  Management  and  administrative  services are
provided by the Managing  General Partner and by agents retained by the Managing
General Partner. An affiliate of the Managing General Partner has been providing
such property management services.

The  real  estate  business  in which  the  Partnership  is  engaged  is  highly
competitive.  There are other  residential  properties within the market area of
the Partnership's properties.  The number and quality of competitive properties,
including  those which may be managed by an affiliate  of the  Managing  General
Partner,  in such market area could have a material  effect on the rental market
for the  apartments at the  Partnership's  properties  and the rents that may be
charged  for  such  apartments.  While  the  Managing  General  Partner  and its
affiliates  own and/or  control a significant  number of apartment  units in the
United  States,  such  units  represent  an  insignificant  percentage  of total
apartment  units in the United  States and  competition  for the  apartments  is
local.

There have been, and it is possible there may be other, Federal, state and local
legislation  and  regulations   enacted   relating  to  the  protection  of  the
environment.  The Partnership is unable to predict the extent,  if any, to which
such new  legislation  or  regulations  might occur and the degree to which such
existing or new legislation or regulations might adversely affect the properties
owned by the Partnership.

The Partnership  monitors its properties for evidence of pollutants,  toxins and
other dangerous substances, including the presence of asbestos. In certain cases
environmental  testing has been performed which resulted in no material  adverse
conditions or liabilities.  In no case has the Partnership  received notice that
it is a potentially  responsible party with respect to an environmental clean up
site.

A further description of the Partnership's business is included in "Management's
Discussion and Analysis or Plan of Operation"  included in "Item 6" of this Form
10-KSB.

Transfer of Control

Pursuant  to a series  of  transactions  which  closed  on  October  1, 1998 and
February 26, 1999,  Insignia Financial Group, Inc. and Insignia Properties Trust
merged into AIMCO, a publicly traded real estate  investment  trust,  with AIMCO
being the surviving  corporation  (the "Insignia  Merger").  As a result,  AIMCO
ultimately acquired 100% ownership interest in the Managing General Partner. The
Managing  General Partner does not believe that this transaction has had or will
have a material effect on the affairs and operations of the Partnership.

Item 2.     Description of Properties

The following table sets forth the Partnership's investments in properties:
<TABLE>
<CAPTION>

                                  Date of
Property                          Purchase       Type of Ownership           Use

Northsprings Apartments           11/13/85   Fee ownership subject to   Apartment
<S>                                                                     <C>
  Atlanta, Georgia                           first and second           120 units
                                             mortgages (1)

Lakeside Apartments               05/20/86   Fee ownership subject to   Apartment
  Charlotte, North Carolina                  first mortgage             216 units

Bexley House Apartments           09/30/86   Fee ownership subject to   Apartment
  Columbus, Ohio                             first mortgage (1)         64 units

Covington Pointe Apartments       03/10/87   Fee ownership subject to   Apartment
  Dallas, Texas                              first and second           180 units
                                             mortgages (1)

Brighton Crest Apartments         Phase I    Registrant has a 17.5%     Apartment
  Marietta, Georgia               06/30/87   interest in the joint      320 units
                                             venture which has fee
                                  Phase II   ownership subject to
                                  12/15/87   first and second
                                             mortgages
</TABLE>

(1)   Property is held by a limited  partnership in which the Partnership owns a
      100% interest.

Schedule of Properties

Set forth below for each of the  Partnership's  properties is the gross carrying
value, accumulated depreciation,  depreciable life, method of depreciation,  and
Federal tax basis.
<TABLE>
<CAPTION>

                          Gross
                         Carrying    Accumulated                         Federal
Property                  Value     Depreciation     Rate    Method     Tax Basis
                             (in thousands)                          (in thousands)

<S>                      <C>           <C>         <C>                   <C>
Northsprings             $ 5,041       $ 2,761     5-25 yrs    S/L       $ 3,264
Lakeside                   6,982         3,582     5-25 yrs    S/L         4,423
Bexley House               3,995         2,102     5-25 yrs    S/L         2,506
Covington Pointe          10,258         4,602     5-25 yrs    S/L         6,542
                         $26,276       $13,047                           $16,735
</TABLE>

See  "Note A" to the  consolidated  financial  statements  included  in "Item 7.
Financial  Statements"  for a  description  of  the  Partnership's  depreciation
policy.

Schedule of Property Indebtedness

The  following  table  sets  forth  certain  information  relating  to the loans
encumbering the Partnership's properties.
<TABLE>
<CAPTION>

                       Principal                                         Principal
                       Balance At     Stated                              Balance
                      December 31,   Interest    Period     Maturity       Due At
     Property             2000         Rate     Amortized     Date      Maturity (2)
                     (in thousands)                                    (in thousands)

Northsprings
<S>                     <C>            <C>      <C>         <C>   <C>     <C>
  1st mortgage          $ 1,801        7.83%    28.67 yrs   10/15/03      $ 1,701
  2nd mortgage               61        7.83%       (1)      10/15/03           61
Lakeside
  1st mortgage            4,100        7.33%       (1)      11/01/03        4,100
Bexley House
  1st mortgage            2,425        7.32%    20 years    01/01/21           --
Covington Pointe
  1st mortgage            4,412        7.83%    28.67 yrs   10/15/03        4,169
  2nd mortgage              150        7.83%       (1)      10/15/03          150

Total                    12,949                                           $10,181
Less unamortized
  discounts                 (49)

Total                   $12,900
</TABLE>

(1)   Payments consist of interest only.

(2)   See  "Note  D" of  the  consolidated  financial  statements  in  "Item  7.
      Financial  Statements" for information  with respect to the  Partnership's
      ability to repay these loans and other specific details about the loans.

On December 15, 2000, the Partnership refinanced the mortgage encumbering Bexley
House   Apartments.   The   refinancing   replaced   mortgage   indebtedness  of
approximately  $1,205,000  with a new mortgage of  $2,425,000.  The mortgage was
refinanced at a rate of 7.32%,  as compared to the prior rate of 7.60%,  and the
new mortgage  matures on January 1, 2021. The  Partnership  was also required to
establish  a  repair  escrow  of  approximately  $96,000  at  the  date  of  the
refinancing.   Capitalized   loan  costs  incurred  for  the  refinancing   were
approximately  $38,000.  The  Partnership  wrote off  approximately  $16,000  of
unamortized  loan  costs  and  approximately  $24,000  of  unamortized  mortgage
discounts and paid prepayment penalties of approximately $43,000 resulting in an
extraordinary loss on the early extinguishment of debt of approximately $83,000.

Schedule of Rental Rate and Occupancy

Average annual rental rates and occupancy for 2000 and 1999 for each property:

                                    Average Annual                  Average
                                     Rental Rates                  Occupancy
                                      (per Unit)
 Property                         2000           1999         2000          1999
 Northsprings (1)               $10,648        $10,175         94%          97%
 Lakeside                         7,124          6,804         92%          93%
 Bexley House                    12,633         12,102         95%          94%
 Covington Pointe                 9,884          9,682         91%          93%

(1)   The  Managing  General  Partner  attributes  the  decrease in occupancy at
      Northsprings to tenants buying homes in the area.

As noted under "Item 1.  Description of Business",  the real estate  industry is
highly  competitive.  All of the  properties of the  Partnership  are subject to
competition from other residential apartment complexes in the area. The Managing
General Partner believes that all of the properties are adequately insured. Each
property is an  apartment  complex  which  leases units for terms of one year or
less.  No tenant leases 10% or more of the  available  rental space.  All of the
properties are in good physical  condition,  subject to normal  depreciation and
deterioration as is typical for assets of this type and age.

Schedule of Real Estate Taxes and Rates

Real estate taxes and rates in 2000 for each property were:

                                            2000               2000
                                           Billing             Rate
                                       (in thousands)
       Northsprings                         $  93              3.89%
       Lakeside                                79              1.33%
       Bexley House                            96              9.30%
       Covington Pointe                       182              2.72%

Capital Improvements

Northsprings Apartments

The  Partnership  completed  approximately  $88,000 in capital  expenditures  at
Northsprings  Apartments as of December 31, 2000, consisting primarily of carpet
and vinyl replacement, air conditioning unit replacement, plumbing enhancements,
appliances  and structural  improvements.  These  improvements  were funded from
operating  cash flow and  Partnership  reserves.  The  Partnership  is currently
evaluating the capital  improvement needs of the property for the upcoming year.
The  minimum  amount to be  budgeted is expected to be $275 per unit or $33,000.
Additional  improvements  may be  considered  and will  depend  on the  physical
condition of the property as well as replacement  reserves and anticipated  cash
flow generated by the property.

Lakeside Apartments

The  Partnership  completed  approximately  $176,000 in capital  expenditures at
Lakeside  Apartments  as of December  31,  2000,  consisting  primarily of major
landscaping, air conditioning unit, carpet and vinyl and appliance replacements,
and structural improvements.  These improvements were funded from operating cash
flow and  Partnership  reserves.  The  Partnership  is currently  evaluating the
capital  improvement  needs of the property for the upcoming  year.  The minimum
amount to be budgeted  is  expected  to be $275 per unit or $59,400.  Additional
improvements may be considered and will depend on the physical  condition of the
property as well as replacement  reserves and anticipated cash flow generated by
the property.

Bexley House Apartments

The  Partnership  completed  approximately  $65,000 in capital  expenditures  at
Bexley  House  Apartments  as of December  31,  2000,  consisting  primarily  of
plumbing and electrical upgrades, carpet and vinyl replacement,  heating and air
conditioning unit replacement, and cabinet replacement.  These improvements were
funded from Partnership  reserves.  The Partnership is currently  evaluating the
capital  improvement  needs of the property for the upcoming  year.  The minimum
amount to be budgeted  is  expected  to be $275 per unit or $17,600.  Additional
improvements may be considered and will depend on the physical  condition of the
property as well as replacement  reserves and anticipated cash flow generated by
the property.

Covington Pointe Apartments

The  Partnership  completed  approximately  $179,000 in capital  expenditures at
Covington  Pointe  Apartments as of December 31, 2000,  consisting  primarily of
appliance and carpet and vinyl replacements,  air conditioning unit replacement,
plumbing, and pool upgrades.  These improvements were funded from operating cash
flow and  Partnership  reserves.  The  Partnership  is currently  evaluating the
capital  improvement  needs of the property for the upcoming  year.  The minimum
amount to be budgeted  is  expected  to be $275 per unit or $49,500.  Additional
improvements may be considered and will depend on the physical  condition of the
property as well as replacement  reserves and anticipated cash flow generated by
the property.

Item 3.     Legal Proceedings

In March 1998, several putative unit holders of limited partnership units of the
Partnership  commenced an action  entitled  Rosalie  Nuanes,  et al. v. Insignia
Financial  Group,  Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs  named as defendants,  among others,
the  Partnership,  its Managing  General Partner and several of their affiliated
partnerships  and corporate  entities.  The action  purports to assert claims on
behalf of a class of limited  partners and derivatively on behalf of a number of
limited  partnerships  (including  the  Partnership)  which are named as nominal
defendants,  challenging,  among other things,  the  acquisition of interests in
certain general partner entities by Insignia Financial Group, Inc.  ("Insignia")
and entities which were, at one time, affiliates of Insignia; past tender offers
by the Insignia affiliates to acquire limited  partnership units;  management of
the  partnerships  by the  Insignia  affiliates;  and the Insignia  Merger.  The
plaintiffs  seek  monetary  damages and  equitable  relief,  including  judicial
dissolution of the  Partnership.  On June 25, 1998, the Managing General Partner
filed a motion  seeking  dismissal of the action.  In lieu of  responding to the
motion, the plaintiffs filed an amended complaint.  The Managing General Partner
filed demurrers to the amended complaint which were heard February 1999.

Pending the ruling on such  demurrers,  settlement  negotiations  commenced.  On
November 2, 1999,  the parties  executed and filed a Stipulation  of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the  settlement  was obtained on November 3, 1999 from the Court,  at which time
the Court set a final  approval  hearing for  December  10,  1999.  Prior to the
December  10,  1999  hearing,  the  Court  received  various  objections  to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement.  On
December 14, 1999, the Managing  General  Partner and its affiliates  terminated
the  proposed  settlement.  In  February  2000,  counsel  for some of the  named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated  the  settlement.  On June  27,  2000,  the  Court  entered  an order
disqualifying  them  from the case and an  appeal  was  taken  from the order on
October 5, 2000. On December 4, 2000, the Court  appointed the law firm of Lieff
Cabraser  Heimann & Bernstein  LLP as new lead  counsel for  plaintiffs  and the
putative class.  Plaintiffs filed a third amended complaint on January 19, 2001.
On March 2, 2001,  the  Managing  General  Partner  and its  affiliates  filed a
demurrer to the third amended  complaint.  The Managing General Partner does not
anticipate  that  costs  associated  with  this  case  will be  material  to the
Partnership's overall operations.

The  Partnership is unaware of any other pending or outstanding  litigation that
is not of a routine nature arising in the ordinary course of business.

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

During the quarter ended  December 31, 2000, no matters were submitted to a vote
of Unit holders through the solicitation of proxies or otherwise.


                                     PART II

Item 5.     Market for the Partnership Equity and Related Partner Matters

As of December 31, 2000,  there are 1,710  holders of record owning an aggregate
of 26,776 units.  Affiliates of the Managing  General Partner owned 11,487 Units
or 42.90% as of December 31, 2000.  No public  trading  market has developed for
the Units,  and it is not  anticipated  that such a market  will  develop in the
future.

The following table sets forth the distributions made by the Partnership for the
years ended  December 31, 1999 and 2000 and subsequent to December 31, 2000 (see
"Item 6. Management's  Discussion and Analysis or Plan of Operation" for further
details):

                                              Distributions
                                                           Per Limited
                                       Aggregate         Partnership Unit
                                    (in thousands)

      01/01/99 - 12/31/99             $   655 (1)(2)          $23.72
      01/01/00 - 12/31/00               2,448 (3)              88.70
    Subsequent to 12/31/00                187 (4)               6.76

(1)  Distributions were made from operations.

(2)  Of this amount,$380,000 was accrued at December 31,1999 and paid in January
     2000.

(3)  Distributions  were  made  from  cash  from  operations  of  approximately
     $1,457,000  and proceeds from  refinancing  the mortgage note  encumbering
     Bexley House of approximately $991,000.

(4)  Distribution was made from cash from operations of approximately  $120,000
     and remaining  proceeds from refinancing the mortgage  encumbering  Bexley
     House of approximately $67,000.

Future cash  distributions  will depend on the levels of net cash generated from
operations,   the  availability  of  cash  reserves,  and  the  timing  of  debt
maturities,  refinancings, and/or property sales. The Partnership's distribution
policy is reviewed on a quarterly  basis.  There can be no  assurance,  however,
that the  Partnership  will  generate  sufficient  funds from  operations  after
required capital expenditures to permit further distributions to its partners in
2001 or subsequent  periods.  See "Item 2.  Description  of Properties - Capital
Improvements" for information  relating to anticipated  capital  expenditures at
the  properties.  Distributions  may be restricted by the requirement to deposit
net operating  income (as defined in the mortgage  note) into a reserve  account
until the reserve  account is funded a minimum of $200 and a maximum of $400 per
apartment unit at Northsprings  Apartments and Covington Pointe Apartments for a
total of approximately $60,000 to $120,000.  The reserve account at December 31,
2000 was approximately $91,000.

In addition to its  indirect  ownership of the general  partner  interest in the
Partnership,  AIMCO and its affiliates  currently own 11,487 limited partnership
units in the Partnership  representing 42.90% of the outstanding units. A number
of these  units were  acquired  pursuant  to tender  offers made by AIMCO or its
affiliates.  It is possible that AIMCO or its  affiliates  will make one or more
additional offers to acquire  additional  limited  partnership  interests in the
Partnership  for cash or in exchange for units in the operating  partnership  of
AIMCO. Under the Partnership  Agreement,  unitholders  holding a majority of the
Units are  entitled to take action with  respect to a variety of matters,  which
would  include  without   limitation,   voting  on  certain  amendments  to  the
Partnership  Agreement and voting to remove the Managing General  Partner.  As a
result  of its  ownership  of  42.90% of the  outstanding  units,  AIMCO is in a
position to  significantly  influence all voting  decisions  with respect to the
Partnership.  When voting on matters,  AIMCO  would in all  likelihood  vote the
Units it acquired in a manner  favorable to the interest of the Managing General
Partner because of their affiliation with the Managing General Partner.

Item 6.     Management's Discussion and Analysis or Plan of Operation

The  matters  discussed  in this Form  10-KSB  contain  certain  forward-looking
statements  and  involve  risks and  uncertainties  (including  changing  market
conditions, competitive and regulatory matters, etc.) detailed in the disclosure
contained  in this Form 10-KSB and the other  filings  with the  Securities  and
Exchange  Commission made by the Registrant from time to time. The discussion of
the Partnership's business and results of operations,  including forward-looking
statements pertaining to such matters, does not take into account the effects of
any changes to the Registrant's business and results of operation.  Accordingly,
actual   results   could  differ   materially   from  those   projected  in  the
forward-looking  statements as a result of a number of factors,  including those
identified herein.

This  item  should  be read  in  conjunction  with  the  consolidated  financial
statements and other items contained elsewhere in this report.

Results of Operations

The  Partnership's  net  income  as  reported  in  the  consolidated   financial
statements  for the year ended  December  31,  2000 was  approximately  $369,000
compared to net income of approximately $463,000 for the year ended December 31,
1999. The decrease in net income is partially  attributable to the extraordinary
loss on the early extinguishment of the debt encumbering Bexley House Apartments
during the year ended December 31, 2000 (see discussion  below). The Partnership
recognized income before  extraordinary  item of approximately  $452,000 for the
year ended December 31, 2000 as compared to approximately  $463,000 for the year
ended  December 31, 1999.  The decrease in income before  extraordinary  item is
primarily  attributable to an increase in total expenses  partially offset by an
increase in total revenues. The increase in total revenues is due to an increase
in rental income as a result of increases in the average  rental rates at all of
the Partnership's investment properties,  which more than offset the decrease in
occupancy at three of the Partnership's investment properties.

The increase in total expenses is due to increases in operating and depreciation
expenses  partially  offset by a decrease in  property  tax  expense.  Operating
expenses  increased  due to  increases in property,  maintenance  and  insurance
expenses. Property expenses increased due to an increase in employee apartments,
sewer,  and  administrative   and  maintenance   salaries  at  Covington  Pointe
Apartments,  Northsprings  Apartments  and  Lakeside  Apartments  and  increased
commissions and bonuses at Covington Pointe Apartments and Lakeside  Apartments.
Maintenance  expenses  increased  due to an  increase  in  interior  painting at
Covington  Pointe  Apartments and  Northsprings  Apartments.  Insurance  expense
increased due to an increase in insurance  premiums at  Northsprings  Apartments
and  Covington  Pointe  Apartments.  Property tax expense  decreased  due to the
timing of the receipt of the tax bills for Bexley House Apartments and Covington
Pointe  Apartments  which  affected the  accruals at both  December 31, 2000 and
1999.

General and administrative expenses only increased slightly. The increase in the
cost of  services  included  in the  management  reimbursements  to the  General
Partner as allowed under the  Partnership  Agreement  was largely  offset by the
decrease in legal fees  associated  with the  settlement of the Everest  lawsuit
settled during 1999. In addition, costs associated with the quarterly and annual
communications  with  investors  and  regulatory  agencies  and the annual audit
required  by  the  Partnership  Agreement  are  also  included  in  general  and
administrative expenses.

As part of the ongoing  business plan of the  Partnership,  the Managing General
Partner  monitors  the  rental  market  environment  of each  of its  investment
properties  to assess  the  feasibility  of  increasing  rents,  maintaining  or
increasing  occupancy  levels and protecting the  Partnership  from increases in
expenses. As part of this plan, the Managing General Partner attempts to protect
the Partnership  from the burden of  inflation-related  increases in expenses by
increasing rents and maintaining a high overall occupancy level. However, due to
changing market  conditions,  which can result in the use of rental  concessions
and  rental  reductions  to  offset  softening  market  conditions,  there is no
guarantee that the Managing General Partner will be able to sustain such a plan.

Liquidity and Capital Resources

At  December  31,  2000,  the  Partnership  had  cash and  cash  equivalents  of
approximately  $573,000  compared to  approximately  $1,675,000  at December 31,
1999. The net decrease in cash and cash  equivalents for the year ended December
31, 2000 was approximately  $1,102,000 from the prior year. The decrease in cash
and cash equivalents is due to approximately  $774,000 of cash used in investing
activities and  approximately  $1,841,000 of cash used in financing  activities,
which was  partially  offset by  approximately  $1,513,000  of cash  provided by
operating  activities.  Cash used in investing activities consisted primarily of
property  improvements and replacements and, to a lesser extent, net deposits to
escrow  accounts   maintained  by  the  mortgage  lender   partially  offset  by
distributions received from the joint venture. Cash used in financing activities
consisted of distributions to the partners,  repayment of the previous  mortgage
encumbering Bexley House Apartments, a prepayment penalty and loan costs paid in
relation to the refinancing, and principal payments on the mortgages encumbering
the Partnership's  properties  partially offset by the proceeds from refinancing
the mortgage note encumbering Bexley House. The Partnership  invests its working
capital reserves in interest bearing accounts.

The sufficiency of existing  liquid assets to meet future  liquidity and capital
expenditure   requirements   is  directly   related  to  the  level  of  capital
expenditures  required at the  properties  to  adequately  maintain the physical
assets and other  operating needs of the Partnership and to comply with Federal,
state, and local legal and regulatory requirements. The Partnership is currently
evaluating  the  capital  improvement  needs of each of its  properties  for the
upcoming year. The minimum amount to be budgeted for the Partnership is expected
to be $275 per unit or $159,500.  Additional  improvements may be considered and
will depend on the physical  condition of the  properties as well as replacement
reserves and anticipated  cash flow generated by the properties.  The additional
capital  expenditures for the year 2001 at the Partnership's  properties will be
incurred only if cash is available from operations or from Partnership reserves.
To the  extent  that such  budgeted  capital  improvements  are  completed,  the
Partnership's  distributable  cash flow,  if any, may be  adversely  affected at
least in the short term.

On December 15, 2000, the Partnership refinanced the mortgage encumbering Bexley
House   Apartments.   The   refinancing   replaced   mortgage   indebtedness  of
approximately  $1,205,000  with a new mortgage of  $2,425,000.  The mortgage was
refinanced at a rate of 7.32%,  as compared to the prior rate of 7.60%,  and the
new mortgage  matures on January 1, 2021. The  Partnership  was also required to
establish  a  repair  escrow  of  approximately  $96,000  at  the  date  of  the
refinancing.   Capitalized   loan  costs  incurred  for  the  refinancing   were
approximately  $38,000.  The  Partnership  wrote off  approximately  $16,000  of
unamortized  loan  costs  and  approximately  $24,000  of  unamortized  mortgage
discounts and paid prepayment penalties of approximately $43,000 resulting in an
extraordinary loss on the early extinguishment of debt of approximately $83,000.

The Partnership's  current assets are thought to be sufficient for any near-term
needs  (exclusive  of capital  improvements)  of the  Partnership.  The mortgage
indebtedness of approximately  $12,900,000,  net of discounts, is amortized over
varying  periods.  The Managing General Partner will attempt to refinance and/or
sell the properties  prior to such maturity dates.  If the properties  cannot be
refinanced or sold for a sufficient  amount,  the  Partnership  will risk losing
such properties through foreclosure.

The  Partnership  declared and paid  distributions  of cash from  operations  of
approximately  $1,457,000  (approximately  $1,413,000 to the limited partners or
$52.77 per limited partnership unit) and approximately  $991,000  (approximately
$962,000 to the limited partners or $35.93 per limited partnership unit) of cash
from  refinancing  the mortgage  note  encumbering  Bexley House during the year
ended  December  31,  2000.  During  the  year  ended  December  31,  1999,  the
Partnership  declared  distributions  of cash from  operations of  approximately
$655,000  (approximately  $635,000 to the limited partners or $23.72 per limited
partnership  unit).  Of this  amount,  approximately  $380,000  was  declared at
December 31, 1999 and paid in January 2000. Subsequent to December 31, 2000, the
Partnership   declared  and  paid  a  distribution  of  approximately   $187,000
(approximately $181,000 to the limited partners or $6.76 per limited partnership
unit).  This  distribution  consisted of cash from  operations of  approximately
$120,000  (approximately  $116,000 to the limited  partners or $4.33 per limited
partnership  unit)  and the  remaining  proceeds  from  the  refinancing  of the
mortgage   encumbering   Bexley  House  Apartments  of   approximately   $67,000
(approximately  $65,000 to the limited partners or $2.43 per limited partnership
unit). Future cash distributions will depend on the levels of net cash generated
from  operations,  the  availability  of cash  reserves,  and the timing of debt
maturities,  refinancing,  and/or property sales. The Partnership's distribution
policy is reviewed on a quarterly  basis.  There can be no  assurance,  however,
that the  Partnership  will  generate  sufficient  funds from  operations  after
required capital expenditures to permit further distributions to its partners in
the year 2001 or  subsequent  periods.  Distributions  may be  restricted by the
requirement  to deposit net operating  income (as defined in the mortgage  note)
into a reserve account until the reserve account is funded a minimum of $200 and
a maximum of $400 per apartment  unit at  Northsprings  Apartments and Covington
Pointe Apartments for a total of approximately $60,000 to $120,000.  The reserve
account at December 31, 2000 was approximately $91,000.

In addition to its  indirect  ownership of the general  partner  interest in the
Partnership,  AIMCO and its affiliates  currently own 11,487 limited partnership
units in the Partnership  representing 42.90% of the outstanding units. A number
of these  units were  acquired  pursuant  to tender  offers made by AIMCO or its
affiliates.  It is possible that AIMCO or its  affiliates  will make one or more
additional offers to acquire  additional  limited  partnership  interests in the
Partnership  for cash or in exchange for units in the operating  partnership  of
AIMCO. Under the Partnership  Agreement,  unitholders  holding a majority of the
Units are  entitled to take action with  respect to a variety of matters,  which
would  include  without   limitation,   voting  on  certain  amendments  to  the
Partnership  Agreement and voting to remove the Managing General  Partner.  As a
result  of its  ownership  of  42.90% of the  outstanding  units,  AIMCO is in a
position to  significantly  influence all voting  decisions  with respect to the
Partnership.  When voting on matters,  AIMCO  would in all  likelihood  vote the
Units it acquired in a manner  favorable to the interest of the Managing General
Partner because of their affiliation with the Managing General Partner.

<PAGE>

Item 7.     Financial Statements

DAVIDSON INCOME REAL ESTATE, L.P.

LIST OF CONSOLIDATED FINANCIAL STATEMENTS

Report of Ernst & Young LLP, Independent Auditors

Consolidated Balance Sheet - December 31, 2000

Consolidated Statements of Operations - Years ended December 31, 2000 and 1999

Consolidated  Statements of Changes in Partners' (Deficit) Capital - Years ended
December 31, 2000 and 1999

Consolidated Statements of Cash Flows - Years ended December 31, 2000 and 1999

Notes to Consolidated Financial Statements


<PAGE>


                 Report of Ernst & Young LLP, Independent Auditors



The Partners
Davidson Income Real Estate, L.P.


We have audited the accompanying  consolidated  balance sheet of Davidson Income
Real  Estate,  L.P.  as of  December  31,  2000,  and the  related  consolidated
statements of operations, changes in partners' (deficit) capital, and cash flows
for each of the two years in the period ended December 31, 2000. These financial
statements  are  the  responsibility  of  the  Partnership's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made  by the  Partnership's  management,  as  well  as  evaluating  the  overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the consolidated  financial position of Davidson Income
Real  Estate,  L.P. at December 31, 2000,  and the  consolidated  results of its
operations  and its cash  flows  for each of the two years in the  period  ended
December 31, 2000, in conformity with accounting  principles  generally accepted
in the United States.


                                                            /s/ERNST & YOUNG LLP



Greenville, South Carolina
March 2, 2001



<PAGE>

                         DAVIDSON INCOME REAL ESTATE, L.P.

                           CONSOLIDATED BALANCE SHEET
                          (in thousands, except unit data)

                                December 31, 2000

<TABLE>
<CAPTION>


Assets
<S>                                                                          <C>
   Cash and cash equivalents                                                 $   573
   Receivables and deposits                                                      199
   Restricted escrows                                                            276
   Other assets                                                                  211
   Investment properties (Notes D and G):
      Land                                                    $ 4,120
      Buildings and related personal property                   22,156
                                                                26,276
      Less accumulated depreciation                            (13,047)       13,229

   Investment in joint venture (Note C)                                          109
                                                                            $ 14,597
Liabilities and Partners' (Deficit) Capital
Liabilities
      Accounts payable                                                       $   120
      Tenant security deposit liabilities                                         72
      Accrued property taxes                                                     272
      Other liabilities                                                          211
      Mortgage notes payable (Note D)                                         12,900

Partners' (Deficit) Capital
   General partners                                            $  (740)
   Limited partners (26,776 units issued and
      outstanding)                                               1,762         1,022
                                                                            $ 14,597


           See Accompanying Notes to Consolidated Financial Statements

</TABLE>

<PAGE>


                         DAVIDSON INCOME REAL ESTATE, L.P.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                          (in thousands, except unit data)

<TABLE>
<CAPTION>


                                                           Years Ended December 31,
                                                              2000         1999
Revenues:
<S>                                                          <C>          <C>
   Rental income                                             $ 4,759      $ 4,691
   Other income                                                  249          241
      Total revenues                                           5,008        4,932

Expenses:
   Operating                                                   2,004        1,903
   General and administrative                                    251          233
   Depreciation                                                1,024          968
   Interest                                                      983          992
   Property taxes                                                389          461
      Total expenses                                           4,651        4,557

Income before equity in income of joint venture and
   extraordinary item                                            357          375
Equity in income of joint venture                                 95           88

Income before extraordinary item                                 452          463
Extraordinary loss on early extinguishment of debt
   (Note D)                                                      (83)          --
Net income (Note E)                                           $  369        $ 463

Net income allocated to general partners (3%)                 $   11         $ 14

Net income allocated to limited partners (97%)                   358          449

                                                              $  369        $ 463
Per limited partnership unit:
   Income before extraordinary item                          $ 16.36      $ 16.77
   Extraordinary item                                          (2.99)          --
Net income                                                   $ 13.37      $ 16.77

Distributions per limited partnership unit                   $ 88.70      $ 23.72

           See Accompanying Notes to Consolidated Financial Statements

</TABLE>

<PAGE>


                        DAVIDSON INCOME REAL ESTATE, L.P.

        CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
                        (in thousands, except unit data)

<TABLE>
<CAPTION>


                                        Limited
                                       Partnership    General     Limited
                                          Units       Partners   Partners     Total

<S>                                       <C>          <C>        <C>        <C>
Original capital contributions            26,776       $    1     $26,776    $26,777

Partners' (deficit) capital at
  December 31, 1998                       26,776       $ (672)    $ 3,965    $ 3,293

Distributions to partners                     --          (20)       (635)      (655)

Net income for the year ended
  December 31, 1999                           --           14         449        463

Partners' (deficit) capital at
  December 31, 1999                       26,776         (678)      3,779      3,101

Distributions to partners                     --          (73)     (2,375)    (2,448)

Net income for the year ended
  December 31, 2000                           --           11         358        369

Partners' (deficit) capital at
  December 31, 2000                       26,776       $ (740)    $ 1,762    $ 1,022
</TABLE>

           See Accompanying Notes to Consolidated Financial Statements


<PAGE>

<TABLE>
<CAPTION>

                         DAVIDSON INCOME REAL ESTATE, L.P.

                      CONSOLDIATED STATEMENTS OF CASH FLOWS
                                   (in thousands)
                                                              Years Ended December 31,
                                                                  2000        1999
Cash flows from operating activities:
<S>                                                              <C>          <C>
  Net income                                                     $  369       $  463
  Adjustments to reconcile net income to net
   cash provided by operating activities:
     Depreciation                                                 1,024          968
     Amortization of discounts and loan costs                        77           81
     Equity in income of joint venture                              (95)         (88)
     Extraordinary loss on early extinguishment of debt              83           --
     Change in accounts:
      Receivables and deposits                                      161          128
      Other assets                                                    7          (41)
      Accounts payable                                              (23)          92
      Tenant security deposit liabilities                           (12)           2
      Accrued property taxes                                       (129)          30
      Other liabilities                                              51           35
          Net cash provided by operating activities               1,513        1,670

Cash flows from investing activities:
  Property improvements and replacements                           (751)        (845)
  Net (deposits to) withdrawals from restricted escrows            (119)         155
  Distributions from joint venture                                   96          194
          Net cash used in investing activities                    (774)        (496)

Cash flows from financing activities:
  Payments on mortgage notes payable                               (152)        (144)
  Distributions to partners                                      (2,828)        (275)
  Proceeds from mortgage note payable                             2,425           --
  Repayment of mortgage note payable                             (1,205)          --
  Prepayment penalty                                                (43)          --
  Loan costs paid                                                   (38)          --
          Net cash used in financing activities                  (1,841)        (419)

Net (decrease) increase in cash and cash equivalents             (1,102)         755
Cash and cash equivalents at beginning of year                    1,675          920
Cash and cash equivalents at end of year                         $  573      $ 1,675

Supplemental disclosure of cash flow information:
  Cash paid for interest                                         $  909        $ 913

Supplemental disclosure of non-cash activity:
  Distribution payable                                            $  --        $ 380

  Property improvements and replacements included in
   accounts payable                                               $  --        $ 243

           See Accompanying Notes to Consolidated Financial Statements
</TABLE>


<PAGE>

                         DAVIDSON INCOME REAL ESTATE, L.P.

                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 2000


Note A - Organization and Significant Accounting Policies

Organization

Davidson  Income Real Estate,  L.P. (the  "Partnership"  or  "Registrant")  is a
Delaware  limited  partnership  organized  in April 1985 to acquire  and operate
residential real estate  properties.  The general partners of the Registrant are
Davidson  Diversified  Properties,  Inc.,  a  Tennessee  corporation  ("Managing
General Partner"), David W. Talley and James T. Gunn (collectively,  "Individual
General Partners") (collectively,  the "General Partners"). The Partnership owns
and  operates  four  apartment  properties  located in the  Mid-West,  South and
Southeast  and  owns a joint  venture  interest  in an  entity  which  owns  one
residential property.  The Managing General Partner is a subsidiary of Apartment
Investment  and  Management  Company  ("AIMCO")  (See  "Note  B  -  Transfer  of
Control"). The directors and officers of the Managing General Partner also serve
as executive  officers of AIMCO.  The  Partnership  Agreement  provides that the
Partnership  is to terminate on December 31, 2010,  unless  terminated  prior to
such date.

Principles of Consolidation

The  consolidated  financial  statements  of the  Partnership  include  its 100%
ownership  interests  in the  following  partnerships:  Bexley  House,  L.P. and
Davidson IRE  Associates,  L.P. All significant  interpartnership  balances have
been eliminated.

Use of Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial  statements and accompanying notes.
Actual results could differ from those estimates.

Allocations to Partners

Net income (loss) of the Partnership and taxable income (loss) are allocated 97%
to the limited partners and 3% to the General Partners,  except for such amounts
which  are  allocated  prior  to  the  Partnership  meeting  the  minimum  close
requirements as defined in the Partnership Agreement. Distributions of available
cash from  operations  are allocated  97% to the limited  partners and 3% to the
General  Partners.  Cash from sales or refinancing  are allocated 97% to limited
partners and 3% to General  Partners until the limited partners have received an
amount of cumulative  distributions  from sales or refinancings that equal their
original  invested  capital  plus an  amount  which,  when  added  to the  prior
distributions  to  limited  partners,  will equal 12% per annum  cumulative  and
noncompounded  on  adjusted  invested  capital,  as defined  in the  Partnership
Agreement.  Thereafter,  upon payment to an  affiliate  of the General  Partners
certain  real  estate  commissions  and  incentive  fees  as  described  in  the
Partnership  Agreement,  remaining cash from sales or refinancings are allocated
97% to the limited partners and 3% to the General  Partners.  In connection with
the  liquidation of the  Partnership,  cash from sales or  refinancings  and any
remaining working capital reserves shall be allocated among, and distributed to,
the  partners in  proportion  to, and to the extent of, their  positive  capital
account balances.

Restricted Escrows

      Capital  Improvement  Reserve - At the time of the refinancing of Lakeside
      Apartments' mortgage note payable,  approximately $198,000 of the proceeds
      were  designated for a "capital  improvement  reserve" for certain capital
      improvements.  At December 31,  2000,  approximately  $22,000  remained in
      escrow for future capital  improvements  of which any excess funds will be
      returned for property  operations  once all  designated  improvements  are
      completed.

      Repair  Reserve  -  At  the  time  of  the  refinancing  of  Bexley  House
      Apartments' mortgage note payable in December 2000,  approximately $96,000
      of the  proceeds  were used to  establish a  replacement  reserve to cover
      necessary repairs at the property.

      Reserve  Account - A general  reserve  account  was  established  with the
      refinancing  and financing  proceeds of  Northsprings,  Bexley House,  and
      Covington Pointe.  These funds were established to cover necessary repairs
      and replacements of existing  improvements,  debt services,  out-of-pocket
      expenses  incurred for ordinary and necessary  administrative  tasks,  and
      payments of real property taxes and insurance  premiums.  The  Partnership
      was required to deposit net  operating  income (as defined in the mortgage
      notes) from the  properties to the respective  reserve  accounts until the
      reserve  accounts equal the minimum balance of $200 per apartment unit and
      a  maximum  balance  of $400  per  apartment  unit  for  Northsprings  and
      Covington  Pointe for a total of  approximately  $60,000 to $120,000.  The
      reserve account at December 31, 2000 was approximately  $91,000.  With the
      December 15, 2000  refinancing  of the mortgage  encumbering  Bexley House
      Apartments, this reserve is no longer a requirement for this property. The
      prior  lender  released  the  reserve  account  balance  for Bexley  House
      Apartments in January 2001.

Investment Properties

Investment properties,  which consist of four apartment complexes, are stated at
cost.  Acquisition fees are capitalized as a cost of real estate.  In accordance
with Statement of Financial  Accounting  Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of", the  Partnership  records  impairment  losses on long-lived  assets used in
operations  when  events and  circumstances  indicate  that the assets  might be
impaired  and the  undiscounted  cash flows  estimated  to be generated by those
assets are less than the carrying  amounts of those assets.  No adjustments  for
impairment of value were recorded in the years ended December 31, 2000 and 1999.

Depreciation

Depreciation is provided by the straight-line method over the estimated lives of
the investment properties and related personal property.  For Federal income tax
purposes,  the  accelerated  cost recovery  method is used (1) for real property
over 18 years for additions after March 15, 1984, and before May 9, 1985, and 19
years for additions  after May 8, 1985,  and before January 1, 1987, and (2) for
personal  property  over 5 years for  additions  prior to January 1, 1987.  As a
result of the Tax Reform Act of 1986, for additions after December 31, 1986, the
modified  accelerated  cost recovery method is used for depreciation of (1) real
property additions over 27 1/2 years, and (2) personal property additions over 5
years.

Cash and Cash Equivalents

Includes cash on hand, in banks and money market accounts. At certain times, the
amount of cash  deposited  at a bank may exceed  the limit on insured  deposits.
Cash  balances  include  approximately  $492,000 at  December  31, 2000 that are
maintained by the affiliated management company on behalf of affiliated entities
in cash concentration accounts.

Tenant Security Deposits

The Partnership  requires security deposits from lessees for the duration of the
lease and such deposits are included in receivables  and deposits.  The security
deposits  are  refunded  when the tenant  vacates,  provided  the tenant has not
damaged its space and is current on rental payments.

Loan Costs

Loan  costs  of  approximately  $455,000,   less  accumulated   amortization  of
approximately  $286,000, are included in other assets and are being amortized on
a straight-line basis over the life of the respective loans.

Leases

The Partnership generally leases apartment units for twelve-month terms or less.
The  Partnership  recognizes  income  as earned on its  residential  leases.  In
addition,  the Managing General Partner's policy is to offer rental  concessions
during  particularly  slow months or in response to heavy competition from other
similar complexes in the area.  Concessions are charged against rental income as
incurred.

Joint Venture

The Partnership  accounts for its investment in the Sterling Crest Joint Venture
using the equity method of accounting (see "Note C" for further discussion).

Segment Reporting

SFAS  No.  131,   "Disclosure  about  Segments  of  an  Enterprise  and  Related
Information"  established standards for the way that public business enterprises
report information about operating  segments in annual financial  statements and
required that those  enterprises  report  selected  information  about operating
segments in interim financial reports. It also establishes standards for related
disclosures about products and services,  geographic areas, and major customers.
As defined in SFAS No. 131, the Partnership has only one reportable segment. The
Managing General Partner believes that segment-based disclosures will not result
in a more meaningful  presentation than the consolidated financial statements as
currently presented.

Advertising

The  Partnership  expenses the costs of  advertising  as  incurred.  Advertising
expense, included in operating expenses, was approximately $129,000 and $128,000
for the years ended December 31, 2000 and 1999, respectively.

Fair Value of Financial Statements

SFAS No. 107 "Disclosures about Fair Value of Financial Instruments", as amended
by SFAS No. 119,  "Disclosures about Derivative  Financial  Instruments and Fair
Value of Financial  Instruments",  requires disclosure of fair value information
about financial  instruments whether or not recognized in the balance sheet, for
which it is  practicable  to estimate  fair value.  Fair value is defined in the
SFAS as the  amount at which the  instruments  could be  exchanged  in a current
transaction between willing parties, other than in a forced or liquidation sale.
The Partnership  believes that the carrying amount of its financial  instruments
(except for long term debt)  approximates their fair value due to the short term
maturity of these  instruments.  The fair value of the  Partnership's  long term
debt,  after  discounting  the  scheduled  loan  payments to  maturity  based on
borrowing  rates  currently  available  to  the  Partnership,  approximates  its
carrying amount.

Note B - Transfer of Control

Pursuant  to a series  of  transactions  which  closed  on  October  1, 1998 and
February 26, 1999,  Insignia Financial Group, Inc. and Insignia Properties Trust
merged into AIMCO, a publicly traded real estate  investment  trust,  with AIMCO
being the surviving  corporation  (the "Insignia  Merger").  As a result,  AIMCO
ultimately acquired 100% ownership interest in the Managing General Partner. The
Managing  General Partner does not believe that this transaction has had or will
have a material effect on the affairs and operations of the Partnership.

Note C - Investment in Joint Venture

The  Partnership  owns a 17.5%  interest in the  Sterling  Crest  Joint  Venture
("Sterling Crest") with Davidson Growth Plus, L.P., an affiliate of the Managing
General  Partner,  which  owns the  remaining  82.5% of the  joint  venture.  In
connection  with the  joint  venture's  purchase  of Phase I of  Brighton  Crest
Apartments on June 30, 1987, the Partnership invested  approximately  $2,727,000
in the joint  venture.  The joint venture  purchased  Phase II of Brighton Crest
Apartments on December 15, 1987.

The  Partnership  accounts  for its 17.5%  investment  in Sterling  Crest on the
equity  method.  In  accordance  with  the  equity  method  of  accounting,  the
Partnership's  original investment in Sterling Crest is increased by advances to
Sterling Crest and by the Partnership's  share of the earning of Sterling Crest.
The  investment is decreased by  distributions  from  Sterling  Crest and by the
Partnership's share of losses of Sterling Crest. The Partnership's equity in the
operations of Sterling  Crest  amounted to income of  approximately  $95,000 and
$88,000 for the years ended  December 31, 2000 and 1999,  respectively.  In 2000
and 1999, the Partnership  received  distributions of approximately  $96,000 and
$194,000, respectively, from the joint venture.

Note D - Mortgage Notes Payable

The principle terms of mortgage notes payable are as follows:
<TABLE>
<CAPTION>

                        Principal      Monthly                           Principal
                        Balance At     Payment     Stated                 Balance
                       December 31,   Including   Interest  Maturity       Due At
      Property             2000       Interest      Rate      Date        Maturity
                            (in thousands)                             (in thousands)
Northsprings
<S>                      <C>            <C>        <C>      <C>   <C>     <C>
  1st mortgage           $ 1,801        $  14      7.83%    10/15/03      $ 1,701
  2nd mortgage                61           (a)     7.83%    10/15/03           61

Lakeside                   4,100           25      7.33%    11/01/03        4,100

Bexley House               2,425           19      7.32%    01/01/21           --

Covington Pointe
  1st mortgage             4,412           35      7.83%    10/15/03        4,169
  2nd mortgage               150            1      7.83%    10/15/03          150
                          12,949        $  94                             $10,181
Less unamortized
  discounts                  (49)

Total                    $12,900
</TABLE>

(a)   Monthly payment is less than $1,000.

On December 15, 2000, the Partnership refinanced the mortgage encumbering Bexley
House   Apartments.   The   refinancing   replaced   mortgage   indebtedness  of
approximately  $1,205,000  with a new mortgage of  $2,425,000.  The mortgage was
refinanced at a rate of 7.32%,  as compared to the prior rate of 7.60%,  and the
new mortgage  matures on January 1, 2021. The  Partnership  was also required to
establish  a  repair  escrow  of  approximately  $96,000  at  the  date  of  the
refinancing.   Capitalized   loan  costs  incurred  for  the  refinancing   were
approximately  $38,000.  The  Partnership  wrote off  approximately  $16,000  of
unamortized  loan  costs  and  approximately  $24,000  of  unamortized  mortgage
discounts and paid prepayment penalties of approximately $43,000 resulting in an
extraordinary loss on the early extinguishment of debt of approximately $83,000.

The mortgage  notes  payable are  non-recourse  and are secured by pledge of the
respective  apartment  properties  and by pledge of revenues from the respective
apartment  properties.  Certain of the notes  require  prepayment  penalties  if
repaid  prior to  maturity  and  prohibit  resale of the  properties  subject to
existing indebtedness.

The Partnership  exercised  interest rate buy-down  options  reducing the stated
rate from 8.13% to 7.83% for Northsprings and Covington Pointe. The fees for the
interest rate reductions were approximately  $138,000 and are being amortized as
loan discounts using the effective  interest method over the lives of the loans.
The discount fees are reflected as a reduction of the mortgage notes payable and
increase the effective rate of the debt to 8.13% for  Northsprings and Covington
Pointe.

Scheduled  principal  payments  of the  mortgage  notes  payable  subsequent  to
December 31, 2000 are as follows (in thousands):

                               2001             $   167
                               2002                 185
                               2003              10,346
                               2004                  69
                               2005                  74
                            Thereafter            2,108
                                                $12,949

Note E - Income Taxes

The Partnership  received a ruling from the Internal  Revenue Service that it is
to be classified as a partnership for Federal income tax purposes.  Accordingly,
no provision for income taxes is made in the consolidated  financial  statements
of the Partnership. Taxable income or loss of the Partnership is reported in the
income tax returns of its partners.

The  following is a  reconciliation  of reported net income and Federal  taxable
income (in thousands, except per unit data):

                                    2000          1999

Net income as reported             $  369        $  463
Add (deduct)
  Depreciation differences            (41)         (143)
  Equity in joint venture              (5)           (6)
  Prepaid rents                         8           (27)
  Miscellaneous                        20             7

Federal taxable income             $ 351         $  294

Federal taxable income per
  limited partnership unit         $12.70        $10.65

The following is a reconciliation between the Partnership's reported amounts and
Federal  tax basis of net assets and  liabilities  as of  December  31, 2000 (in
thousands):

Net assets as reported                         $ 1,022
Land and buildings                               3,186
Accumulated depreciation                           320
Syndication                                      1,801
Other                                            2,933

Net assets - Federal tax basis                 $ 9,262

Note F - Transactions with Affiliated Parties

The  Partnership  has no employees  and is  dependent  on the  Managing  General
Partner  and  its  affiliates  for  the  management  and  administration  of all
Partnership  activities.  The  Partnership  Agreement  provides  for payments to
affiliates for property  management  services and for  reimbursement  of certain
expenses  incurred by  affiliates  on behalf of the  Partnership.  The following
transactions  with the  Managing  General  Partner  and/or its  affiliates  were
incurred during each of the years ended December 31, 2000 and 1999:

                                                        2000       1999
                                                         (in thousands)
Property management fees (included in
  operating expenses)                                   $ 256      $ 251
Reimbursement for services of affiliates
  (included in general and administrative expense,
  operating expense and investment properties)            148        110

During the years ended  December 31, 2000 and 1999,  affiliates  of the Managing
General  Partner were  entitled to receive 5% of gross  receipts from all of the
Partnership's  properties  as  compensation  for providing  property  management
services.  The Partnership  paid to such affiliates  approximately  $256,000 and
$251,000 for the years ended December 31, 2000 and 1999, respectively.

An  affiliate  of  the  Managing  General  Partner  received   reimbursement  of
accountable  administrative  expenses  amounting to  approximately  $148,000 and
$110,000 for the years ended December 31, 2000 and 1999, respectively.

On September 25, 1997, an affiliate of the Managing  General  Partner  purchased
Lehman  Brothers' Class "D" subordinated  bonds of SASCO,  1992, M1. These bonds
were secured by 55  multi-family  apartment  mortgage  loan pairs held in Trust,
including Bexley House  Apartments  owned by the Partnership.  With the December
15, 2000 refinancing of the mortgage of Bexley House  Apartments,  this property
is no longer security for these bonds.

In addition to its  indirect  ownership of the general  partner  interest in the
Partnership,  AIMCO and its affiliates  currently own 11,487 limited partnership
units in the Partnership  representing 42.90% of the outstanding units. A number
of these  units were  acquired  pursuant  to tender  offers made by AIMCO or its
affiliates.  It is possible that AIMCO or its  affiliates  will make one or more
additional offers to acquire  additional  limited  partnership  interests in the
Partnership  for cash or in exchange for units in the operating  partnership  of
AIMCO. Under the Partnership  Agreement,  unitholders  holding a majority of the
Units are  entitled to take action with  respect to a variety of matters,  which
would  include  without   limitation,   voting  on  certain  amendments  to  the
Partnership  Agreement and voting to remove the Managing General  Partner.  As a
result  of its  ownership  of  42.90% of the  outstanding  units,  AIMCO is in a
position to  significantly  influence all voting  decisions  with respect to the
Partnership.  When voting on matters,  AIMCO  would in all  likelihood  vote the
Units it acquired in a manner  favorable to the interest of the Managing General
Partner because of their affiliation with the Managing General Partner.

Note G - Investment Properties and Accumulated Depreciation
<TABLE>
<CAPTION>


                                               Initial Cost
                                              To Partnership
                                              (in thousands)
                                                                         Net Cost
                                                       Buildings       Capitalized
                                                      and Related     (Written Down)
                                                        Personal      Subsequent to
Description             Encumbrances       Land         Property       Acquisition
                       (in thousands)                                 (in thousands)
<S>                       <C>             <C>           <C>              <C>
Northsprings              $ 1,862         $   736       $ 4,196          $   109
Lakeside                    4,100           1,259         5,791              (68)
Bexley House                2,425             647         3,067              281
Covington Pointe            4,562           1,935         7,041            1,282

Totals                    $12,949         $ 4,577       $20,095          $ 1,604
</TABLE>

<TABLE>
<CAPTION>


                     Gross Amount At Which
                            Carried
                     At December 31, 2000
                        (in thousands)

                           Buildings
                          And Related
                           Personal            Accumulated     Date of      Date    Depreciable
   Description     Land    Property    Total   Depreciation  Construction Acquired  Life-Years
                                              (in thousands)
<S>                <C>      <C>       <C>        <C>             <C>        <C>        <C>
Northsprings       $  597   $ 4,444   $ 5,041    $ 2,761         1969       11/85      5-25
Lakeside            1,046     5,936     6,982      3,582         1980       05/86      5-25
Bexley House          542     3,453     3,995      2,102         1972       09/86      5-25
Covington Pointe    1,935     8,323    10,258      4,602         1982       03/87      5-25

Totals            $ 4,120   $22,156   $26,276    $13,047
</TABLE>


Reconciliation of "Investment Properties and Accumulated Depreciation"

                                              Years Ended December 31,
                                                 2000          1999
                                                   (in thousands)
Real Estate
Balance at beginning of year                    $25,768       $24,680
  Property Improvements                             508         1,088
Balance at end of year                          $26,276       $25,768

Accumulated Depreciation
Balance at beginning of year                    $12,023       $11,055
  Additions charged to expense                    1,024           968
Balance at end of year                          $13,047       $12,023

The  aggregate  cost of the real  estate  for  Federal  income tax  purposes  at
December  31,  2000 and 1999,  is  approximately  $29,462,000  and  $28,937,000,
respectively. The accumulated depreciation taken for Federal income tax purposes
at December 31, 2000 and 1999, is  approximately  $12,727,000  and  $11,662,000,
respectively.

Note H - Commitments and Contingencies

The Partnership  Agreement provides for payment of a fee to the Managing General
Partner for managing the affairs of the  Partnership.  The fee is 2% of adjusted
cash from  operations,  as  defined  in the  Partnership  Agreement.  The fee is
payable only after the Partnership  has  distributed,  to all limited  partners,
adjusted  cash  from  operations  in any year  equal  to 10% of  their  adjusted
invested capital as defined in the partnership  agreement.  No fees were payable
for the years ended December 31, 2000 and 1999.

Note I - Distributions

The  Partnership  declared and paid  distributions  of cash from  operations  of
approximately  $1,457,000  (approximately  $1,413,000 to the limited partners or
$52.77 per limited partnership unit) and approximately  $991,000  (approximately
$962,000 to the limited partners or $35.93 per limited partnership unit) of cash
from  refinancing  the mortgage  note  encumbering  Bexley House during the year
ended  December  31,  2000.  During  the  year  ended  December  31,  1999,  the
Partnership  declared  distributions  of cash from  operations of  approximately
$655,000  (approximately  $635,000 to the limited partners or $23.72 per limited
partnership  unit).  Of this  amount,  approximately  $380,000  was  declared at
December 31, 1999 and paid in January 2000. Subsequent to December 31, 2000, the
Partnership   declared  and  paid  a  distribution  of  approximately   $187,000
(approximately $181,000 to the limited partners or $6.76 per limited partnership
unit).  This  distribution  consisted of cash from  operations of  approximately
$120,000  (approximately  $116,000 to the limited  partners or $4.33 per limited
partnership  unit)  and the  remaining  proceeds  from  the  refinancing  of the
mortgage   encumbering   Bexley  House  Apartments  of   approximately   $67,000
(approximately  $65,000 to the limited partners or $2.43 per limited partnership
unit).

Note J - Legal Proceedings

In March 1998, several putative unit holders of limited partnership units of the
Partnership  commenced an action  entitled  Rosalie  Nuanes,  et al. v. Insignia
Financial  Group,  Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs  named as defendants,  among others,
the  Partnership,  its Managing  General Partner and several of their affiliated
partnerships  and corporate  entities.  The action  purports to assert claims on
behalf of a class of limited  partners and derivatively on behalf of a number of
limited  partnerships  (including  the  Partnership)  which are named as nominal
defendants,  challenging,  among other things,  the  acquisition of interests in
certain general partner entities by Insignia Financial Group, Inc.  ("Insignia")
and entities which were, at one time, affiliates of Insignia; past tender offers
by the Insignia affiliates to acquire limited  partnership units;  management of
the  partnerships  by the  Insignia  affiliates;  and the Insignia  Merger.  The
plaintiffs  seek  monetary  damages and  equitable  relief,  including  judicial
dissolution of the  Partnership.  On June 25, 1998, the Managing General Partner
filed a motion  seeking  dismissal of the action.  In lieu of  responding to the
motion, the plaintiffs filed an amended complaint.  The Managing General Partner
filed demurrers to the amended complaint which were heard February 1999.

Pending the ruling on such  demurrers,  settlement  negotiations  commenced.  On
November 2, 1999,  the parties  executed and filed a Stipulation  of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the  settlement  was obtained on November 3, 1999 from the Court,  at which time
the Court set a final  approval  hearing for  December  10,  1999.  Prior to the
December  10,  1999  hearing,  the  Court  received  various  objections  to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement.  On
December 14, 1999, the Managing  General  Partner and its affiliates  terminated
the  proposed  settlement.  In  February  2000,  counsel  for some of the  named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated  the  settlement.  On June  27,  2000,  the  Court  entered  an order
disqualifying  them  from the case and an  appeal  was  taken  from the order on
October 5, 2000. On December 4, 2000, the Court  appointed the law firm of Lieff
Cabraser  Heimann & Bernstein  LLP as new lead  counsel for  plaintiffs  and the
putative class.  Plaintiffs filed a third amended complaint on January 19, 2001.
On March 2, 2001,  the  Managing  General  Partner  and its  affiliates  filed a
demurrer to the third amended  complaint.  The Managing General Partner does not
anticipate  that  costs  associated  with  this  case  will be  material  to the
Partnership's overall operations.

The  Partnership is unaware of any other pending or outstanding  litigation that
is not of a routine nature arising in the ordinary course of business.


Item 8.  Changes  in  and  Disagreements  with  Accountants  on  Accounting  and
         Financial Disclosure

         None.


                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
        with Section 16(a) of the Exchange Act

The  Partnership  does not have any  directors  or  officers.  The  names of the
director and executive officers of Davidson  Diversified  Properties,  Inc. (the
"Managing  General  Partner"),  their  ages  and  the  nature  of all  positions
presently  held by them are set forth below.  There are no family  relationships
between or among any officers and directors.

      Name                 Age    Position

      Patrick J. Foye       43    Executive Vice President and Director

      Martha L. Long        41    Senior Vice President and Controller

Patrick J. Foye has been  Executive  Vice President and Director of the Managing
General  Partner  since October 1, 1998.  Mr. Foye has served as Executive  Vice
President  of AIMCO  since May 1998.  Prior to  joining  AIMCO,  Mr.  Foye was a
partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to
1998 and was  Managing  Partner  of the  firm's  Brussels,  Budapest  and Moscow
offices from 1992  through  1994.  Mr. Foye is also Deputy  Chairman of the Long
Island  Power   Authority  and  serves  as  a  member  of  the  New  York  State
Privatization  Council.  He received a B.A. from Fordham College and a J.D. from
Fordham University Law School.

Martha L. Long has been Senior Vice  President  and  Controller  of the Managing
General  Partner since October 1998 as a result of the  acquisition  of Insignia
Financial  Group,  Inc. As of February 2001, Ms. Long was also appointed head of
the service  business for AIMCO.  From June 1994 until January 1998, she was the
Controller for Insignia, and was promoted to Senior Vice President - Finance and
Controller in January 1998,  retaining that title until October 1999.  From 1988
to June 1994,  Ms. Long was Senior Vice  President and  Controller for The First
Savings Bank, FSB in Greenville, South Carolina.

One or more of the above persons are also directors and/or officers of a general
partner (or general partner of a general partner) of limited  partnerships which
either have a class of  securities  registered  pursuant to Section 12(g) of the
Securities Exchange Act of 1934, or are subject to the reporting requirements of
Section  15(d) of such Act:  Further,  one or more of the above persons are also
directors and/or officers of Apartment Investment and Management Company and the
general  partner  of  AIMCO  Properties,  L.P.,  entities  that  have a class of
securities  registered  pursuant to Section 12(g) of the Securities Exchange Act
of 1934, or are subject to the reporting  requirements of Section 15 (d) of such
Act.

The executive  officers and director of the Managing General Partner fulfill the
obligations  of the Audit  Committee  and  oversee the  Partnership's  financial
reporting process on behalf of the Managing General Partner.  Management has the
primary  responsibility  for the financial  statements and the reporting process
including  the  systems  of  internal  controls.  In  fulfilling  its  oversight
responsibilities,  the executive  officers and director of the Managing  General
Partner reviewed the audited  financial  statements with management  including a
discussion  of the  quality,  not  just  the  acceptability,  of the  accounting
principles,  the  reasonableness  of significant  judgments,  and the clarity of
disclosures in the financial statements.

The executive  officers and director of the Managing  General  Partner  reviewed
with the independent auditors,  who are responsible for expressing an opinion on
the conformity of those audited  financial  statements  with generally  accepted
accounting  principles,  their  judgments  as  to  the  quality,  not  just  the
acceptability, of the Partnership's accounting principles and such other matters
as are required to be discussed with the Audit Committee or its equivalent under
generally  accepted  auditing  standards.   In  addition,  the  Partnership  has
discussed  with  the  independent  auditors  the  auditors'   independence  from
management and the Partnership  including the matters in the written disclosures
required by the Independence Standards Board and considered the compatibility of
non-audit services with the auditors' independence.

The executive  officers and director of the Managing  General Partner  discussed
with the  Partnership's  independent  auditors  the overall  scope and plans for
their audit. In reliance on the reviews and discussions  referred to above,  the
executive officers and director of the Managing General Partner has approved the
inclusion of the audited  financial  statements  in the Form 10-KSB for the year
ended December 31, 2000 for filing with the Securities and Exchange Commission.

The Managing  General Partner has  reappointed  Ernst & Young LLP as independent
auditors to audit the financial  statements of the  Partnership  for the current
fiscal  year.  Fees for the last  fiscal  year were  annual  audit  services  of
approximately  $41,000  and  non-audit  services  (principally  tax-related)  of
approximately $20,000.

Item 10.    Executive Compensation

No  remuneration  was paid by the  Partnership to any officer or director of the
Managing General Partner during the year ended December 31, 2000.

Item 11.    Security Ownership of Certain Beneficial Owners and Management

Except as noted below, no person or entity was known by the Registrant to be the
beneficial  owners  of more  than 5% of the  Limited  Partnership  Units  of the
Registrant as of December 31, 2000.

                                                             Percentage
                 Entity                   Number of Units     of Total

Insignia Properites LP (1)                       570            2.13%
  (an affiliate of AIMCO)
AIMCO Properties LP (2)                        7,087           26.47%
  (an affiliate of AIMCO)
Cooper River Properties (1)                    3,830           14.30%
  (an affiliate of AIMCO)

Hospital Corporation of America                3,000           11.20%
201 West Main Street
Louisville, KY 40202

(1)  Entity is indirectly  ultimately owned by AIMCO. Its business address is 55
     Beattie Place, Greenville, SC 29602.

(2)  Entity is indirectly  ultimately  controlled by AIMCO. Its business address
     is 2000 South Colorado Boulevard, Denver, CO 80222.

As of December 31, 2000, no director or officer of the Managing  General Partner
owns,  nor do the  directors  or  officers  as a whole,  own more than 1% of the
Registrant's  Units.  No such  director  or  officer  had any  right to  acquire
beneficial ownership of additional Units of the Registrant.

Item 12.    Certain Relationships and Related Transactions

The  Partnership  has no employees  and is  dependent  on the  Managing  General
Partner  and  its  affiliates  for  the  management  and  administration  of all
Partnership  activities.  The  Partnership  Agreement  provides  for payments to
affiliates for property  management  services and for  reimbursement  of certain
expenses  incurred by  affiliates  on behalf of the  Partnership.  The following
transactions  with the  Managing  General  Partner  and/or its  affiliates  were
incurred during each of the years ended December 31, 2000 and 1999:

                                                   2000        1999
                                                    (in thousands)

Property management fees                          $ 256        $ 251
Reimbursement for services of affiliates            148          110

During the years ended  December 31, 2000 and 1999,  affiliates  of the Managing
General  Partner were  entitled to receive 5% of gross  receipts from all of the
Partnership's  properties  as  compensation  for providing  property  management
services.  The Partnership  paid to such affiliates  approximately  $256,000 and
$251,000 for the years ended December 31, 2000 and 1999, respectively.

An  affiliate  of  the  Managing  General  Partner  received   reimbursement  of
accountable  administrative  expenses  amounting to  approximately  $148,000 and
$110,000 for the years ended December 31, 2000 and 1999, respectively.

On September 25, 1997, an affiliate of the Managing  General  Partner  purchased
Lehman  Brothers' Class "D" subordinated  bonds of SASCO,  1992, M1. These bonds
were secured by 55  multi-family  apartment  mortgage  loan pairs held in Trust,
including Bexley House  Apartments  owned by the Partnership.  With the December
15, 2000 refinancing of the mortgage of Bexley House  Apartments,  this property
is no longer security for these bonds.

In addition to its  indirect  ownership of the general  partner  interest in the
Partnership,  AIMCO and its affiliates  currently own 11,487 limited partnership
units in the Partnership  representing 42.90% of the outstanding units. A number
of these  units were  acquired  pursuant  to tender  offers made by AIMCO or its
affiliates.  It is possible that AIMCO or its  affiliates  will make one or more
additional offers to acquire  additional  limited  partnership  interests in the
Partnership  for cash or in exchange for units in the operating  partnership  of
AIMCO. Under the Partnership  Agreement,  unitholders  holding a majority of the
Units are  entitled to take action with  respect to a variety of matters,  which
would  include  without   limitation,   voting  on  certain  amendments  to  the
Partnership  Agreement and voting to remove the Managing General  Partner.  As a
result  of its  ownership  of  42.90% of the  outstanding  units,  AIMCO is in a
position to  significantly  influence all voting  decisions  with respect to the
Partnership.  When voting on matters,  AIMCO  would in all  likelihood  vote the
Units it acquired in a manner  favorable to the interest of the Managing General
Partner because of their affiliation with the Managing General Partner.

Item 13.       Exhibits and Reports on Form 8-K

           (a) Exhibits:

               Exhibit 10RR,  Multifamily Note dated December 15, 2000,  between
               Davidson Income Real Estate, L.P., a Delaware limited partnership
               and  Reilly  Mortgage   Group,   Inc.,  a  District  of  Columbia
               corporation, related to Bexley House Apartments.

          (b)  Reports on Form 8-K filed in the fourth  quarter of calendar year
               2000:

               None.


<PAGE>


                                   SIGNATURES



In accordance  with Section 13 or 15(d) of the Exchange Act, the  Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


                                    DAVIDSON INCOME REAL ESTATE, L.P.


                                    By:   Davidson Diversified Properties, Inc.,
                                          Managing General Partner


                                    By:   /s/Patrick J. Foye
                                          Patrick J. Foye
                                          Executive Vice President


                                    By:   /s/Martha L. Long
                                          Martha L. Long
                                          Senior Vice President
                                          and Controller


                                    Date:


In  accordance  with the Exchange  Act, this report has been signed below by the
following  persons on behalf of the Partnership and in the capacities and on the
dates indicated.


/s/Patrick J. Foye      Executive Vice President      Date:
Patrick J. Foye         and Director


/s/Martha L. Long       Senior Vice President         Date:
Martha L. Long          and Controller




<PAGE>


                         DAVIDSON INCOME REAL ESTATE, LP
                                  EXHIBIT INDEX


Exhibit

2    Agreement  and Plan of Merger,  dated as of October 1, 1998, by and between
     AIMCO and IPT,  incorporated  by reference to Exhibit 2.1 of IPT's  Current
     Report on Form 8-Kdated October 1, 1998.

3    Agreement of Limited  Partnership is incorporated by reference to Exhibit A
     to the Prospectus of the  Registrant  dated July 26, 1985 as filed with the
     Commission pursuant to Rule 424(b) under the Act.

3A   Amendment to Partnership Agreement dated October 1, 1985 is incorporated by
     reference to Exhibit 3A to the Registrant's  Annual Report on Form 10-K for
     the fiscal year ended December 31, 1987.

4    Certificate of Limited  Partnership dated April 29, 1985 is incorporated by
     reference to Exhibit 4 to the Registrant's  Registration  Statement on Form
     S-11 dated May 7, 1985.

4A   Certificate of Amendment to Certificate of Limited  Partnership  dated July
     16, 1985 is  incorporated  by reference to Exhibit 4B in Amendment No. 1 to
     Registration Statement No. 2-97539, dated July 24, 1985.

10A  Agent's  Agreement  dated July 1, 1985  between the  Registrant  and Harvey
     Freeman & Sons,  Inc.  is  incorporated  by  reference  to  Exhibit  10B in
     Amendment No. 1 to Registration Statement No. 2-97539, dated July 24, 1985.

10B  Agreement  among Agents  dated July 1, 1985 by and among  Harvey  Freeman &
     Sons, Inc., Harvey Freeman & Sons, Inc. of Arkansas, Harvey Freeman & Sons,
     Inc. of Florida,  Harvey Freeman & Sons, Inc. of Georgia,  Harvey Freeman &
     Sons,  Inc. of Indiana,  Harvey  Freeman & Sons,  Inc. of Kentucky,  Harvey
     Freeman & Sons, Inc. of  Mississippi,  Harvey Freeman & Sons, Inc. of North
     Carolina,  Harvey Freeman & Sons,  Inc. of Ohio, and Harvey Freeman & Sons,
     Inc. of South  Carolina,  is  incorporated  by  reference to Exhibit 10C in
     Amendment No. 1 to Registration Statement No. 2-97539, dated July 24, 1985.

10C  Acquisition and Disposition  Services  Agreement dated July 1, 1985 between
     the Registrant and Criswell Freeman Company is incorporated by reference to
     Exhibit 10D in Amendment No. 1 to Registration  Statement No. 2-97539 dated
     July 24, 1985.

10D  Contract for Sale of Real Estate for Northsprings  Apartments dated October
     19, 1985 between James B. Miller,  Karina  Miller,  Dahlis Winn,  Christine
     Abrams,  and William  Lichirie,  as Tenants in Common and  Tennessee  Trust
     Company is incorporated  by reference to Exhibit 10(a) to the  Registrant's
     Current Report on Form 8-K dated November 13, 1985.

10E  Assignment of Contract for Sale of Real Estate of  Northsprings  Apartments
     dated November 12, 1985 between  Tennessee Trust Company and the Registrant
     is incorporated by reference to Exhibit 10(b) to the  Registrant's  Current
     Report on Form 8-K dated November 13, 1985.

10F  Promissory  Note dated  February 14, 1969 executed by Mt.  Pleasant  Plaza,
     Inc., a Georgia corporation payable to The Fulton National Bank of Atlanta,
     a  corporation  having its  principal  place of business in Fulton  County,
     Georgia,  is incorporated  by reference to Exhibit 10G to the  Registrant's
     Annual Report on Form 10-K for the fiscal year ended December 31, 1985.

10G  Agreement  dated  December  24,  1969  between  Massachusetts  Mutual  Life
     Insurance  Company,  a  Massachusetts  corporation  and Mt. Pleasant Plaza,
     Inc., a corporation of the State of Georgia,  is  incorporated by reference
     to  Exhibit  10H to the  Registrant's  Annual  Report  on Form 10-K for the
     fiscal year ended December 31, 1985.

10H  Purchase  Agreement  for  Lakeside  Apartments  dated April 4, 1986 between
     Lakeside  Apartments  Venture,  a North Carolina  general  partnership  and
     Tennessee  Trust  Company,  a Tennessee  corporation,  is  incorporated  by
     reference to Exhibit 10(a) to the  Registrant's  Current Report on Form 8-K
     dated May 20, 1986.

10I  Assignment of Agreement dated May 16, 1986 between Tennessee Trust Company,
     a Tennessee corporation, and the Registrant is incorporated by reference to
     Exhibit 10(b) to the Registrant's  Current Report on Form 8-K dated May 20,
     1986.

10J  Deed of Trust Note dated June 13, 1989 executed by the  Registrant  payable
     to John  Hancock  Variable  Life  Insurance  Company  relating  to Lakeside
     Apartments.

10K  Deed of Trust and Security  Agreement dated April 28, 1980 between Lakeside
     Properties,  Ltd., a North Carolina limited  partnership,  Gibson L. Smith,
     Jr.,  Trustee and Continental  Illinois  National bank and Trust Company of
     Chicago is incorporated  by reference to Exhibit 10(d) to the  Registrant's
     Current Report on Form 8-K dated May 20, 1986.

10L  Contract  for Sale of Real Estate for The Bexley  House dated July 16, 1986
     between Bexley House,  Limited,  an Ohio limited  partnership and Tennessee
     Trust  Company  is  incorporated  by  reference  to  Exhibit  10(a)  to the
     Registrant's Current Report on Form 8-K dated September 30, 1986.

10M  Reinstatement  and  Amendment  of Contract  for Sale of Real Estate for The
     Bexley House dated September 4, 1986 between Bexley House, Limited, an Ohio
     limited  partnership and Tennessee Trust Company, a Tennessee  corporation,
     is incorporated by reference to Exhibit 10(b) to the  Registrant's  Current
     Report on Form 8-K dated September 30, 1986.

10N  Amendment to Reinstated  and Amended for Sale of Real Estate for The Bexley
     House dated  September  19, 1986 between  Bexley  House,  Limited,  an Ohio
     limited  partnership and Tennessee Trust Company, a Tennessee  corporation,
     is incorporated by reference to Exhibit 10(c) to the  Registrant's  Current
     Report on Form 8-K dated September 30, 1986.

10O  Assignment  of Contract  for Sale of Real Estate dated  September  30, 1986
     between  Tennessee  Trust  Company and the  Registrant is  incorporated  by
     reference to Exhibit 10(d) to the  Registrant's  Current Report on Form 8-K
     dated September 30, 1986.

10P  Limited Warranty Deed dated September 28, 1986 between Bexley House,  Ltd.,
     an Ohio limited partnership and the Registrant is incorporated by reference
     to  Exhibit  10(e) to the  Registrant's  Current  Report  on Form 8-K dated
     September 30, 1986.

10Q  Contract  for Sale of Real Estate for  Covington  Pointe  Apartments  dated
     January 20, 1987 between  F.G.M.C.  Investment  Corp., a Texas  corporation
     Tennessee  Trust  Company,  a Tennessee  corporation,  is  incorporated  by
     reference to Exhibit 10(a) to the  Registrant's  Current Report on Form 8-K
     dated March 10, 1987.

10R  Amendment  to Contract  for  Purchase of Real Estate for  Covington  Pointe
     Apartments  dated January 23, 1987 between  F.G.M.C.  Investment  Corp.,  a
     Texas  corporation  Tennessee Trust Company,  a Tennessee  corporation,  is
     incorporated  by reference  to Exhibit  10(b) to the  Registrant's  Current
     Report on Form 8-K dated March 10, 1987.

10S  Assignment  of Contract  for Purchase of Real Estate for  Covington  Pointe
     Apartments  dated March 2, 1987  between  Tennessee  Trust  Company and the
     Registrant   is   incorporated   by  reference  to  Exhibit  10(c)  to  the
     Registrant's Current Report on Form 8-K dated March 10, 1987.

10T  Contract  for  Purchase  of  Real  Estate  for  Phase I of  Sterling  Crest
     Apartments  dated  March  10,  1987  between  Sterling  Crest   Development
     Partners, Ltd., a Georgia limited partnership, and Tennessee Trust Company,
     a Tennessee  corporation,  is incorporated by reference to Exhibit 10(d) to
     the Registrant's Current Report on Form 8-K dated March 10, 1987.

10U  Mortgage  Note dated March 23, 1987 executed by the  Registrant  payable to
     BANCOhio  National  Bank  relating to The Bexley House is  incorporated  by
     reference to Exhibit a(1) to the Registrant's Quarterly Report on Form 10-Q
     for the quarter ended March 31, 1987.

10V  Open-End  Mortgage,  Assignment of Rents and Security Agreement dated March
     23, 1987  executed by the  Registrant  in favor of BANCOhio  National  Bank
     relating to The Bexley House is  incorporated  by reference to Exhibit a(2)
     to the  Registrant's  Quarterly  Report on Form 10-Q for the quarter  ended
     March 31, 1987.

10W  Mortgage  Note dated March 23, 1987 executed by the  Registrant  payable to
     BANCOhio  National  Bank  relating to The Bexley House is  incorporated  by
     reference to Exhibit a(3) to the Registrant's Quarterly Report on Form 10-Q
     for the quarter ended March 31, 1987.

10X  Open-End  Mortgage,  Assignment of Rents and Security Agreement dated March
     23, 1987  executed by the  Registrant  in favor of BANCOhio  National  Bank
     relating to The Bexley House is  incorporated  by reference to Exhibit a(4)
     to the  Registrant's  Quarterly  Report on Form 10-Q for the quarter  ended
     March 31, 1987.

10Y  Sterling  Crest Joint  Venture  Agreement  dated June 29, 1987  between the
     Registrant and Freeman Georgia Ventures,  Inc. is incorporated by reference
     to Exhibit 10(b) to the Registrant's  Current Report on Form 8-K dated June
     30, 1987.

10Z  Assignment  of Contract for Purchase of Real Estate for Phase I of Sterling
     Crest  Apartments  dated June 29,  1987 is  incorporated  by  reference  to
     Exhibit 10(c) to the Registrant's Current Report on Form 8-K dated June 30,
     1987.

10AA Warranty  Deed dated  June 30,  1987  between  Sterling  Crest  Development
     Partners,  Ltd.  and  Sterling  Crest Joint  Venture,  is  incorporated  by
     reference to Exhibit 10(d) to the  Registrant's  Current Report on Form 8-K
     dated June 30, 1987.

10BB Sub-Management Agreement dated June 30, 1987 between Harvey Freeman & Sons,
     Inc. and Sterling Property Management Company, is incorporated by reference
     to Exhibit 10(k) to the Registrant's  Current Report on Form 8-K dated June
     30, 1987.

10CC Property  Management  Agreement dated June 30, 1987 between  Sterling Crest
     Joint Venture and Harvey Freeman & Sons, Inc., is incorporated by reference
     to Exhibit 10(l) to the Registrant's  Current Report on Form 8-K dated June
     30, 1987.

10DD Contract  for  Purchase  of Real  Estate  for  Phase II of  Sterling  Crest
     Apartments  dated  March  10,  1987  between  Sterling  Crest   Development
     Partners,  Ltd. and Tennessee Trust Company is incorporated by reference to
     Exhibit 10(a) to the Registrant's Report on Form 8 dated December 29, 1987.

10EE Tri-Party Agreement dated May 22, 1987 among North Carolina Federal Savings
     & Loan Association, Sterling Crest Development Partners, Ltd. and Tennessee
     Trust Company  relating to Sterling Crest  Apartments,  is  incorporated by
     reference  to  Exhibit  10(b) to the  Registrant's  Report  on Form 8 dated
     December 29, 1987.

10FF Assignment of Contract for Purchase of Real Estate and Tri-Party  Agreement
     dated November 4, 1987 between  Tennessee  Trust Company and Sterling Crest
     Joint Venture  relating to Sterling Crest  Apartments,  is  incorporated by
     reference  to  Exhibit  10(c) to the  Registrant's  Report  on Form 8 dated
     December 29, 1987.

10GG Amended and Restated  Sterling Crest Joint Venture Joint Venture  Agreement
     dated June 29, 1987 among the Registrant,  Freeman Georgia Ventures,  Inc.,
     and Freeman  Growth Plus,  L.P.,  is  incorporated  by reference to Exhibit
     10(d) to the Registrant's Report on Form 8 dated December 29, 1987.

10HH Memorandum of Understanding among SEC Realty Corp.,  Tennessee  Properties,
     L.P.,  Freeman  Mortgage  Corporation,  J.  Richard  Freeman,  W.  Criswell
     Freeman, and Jacques-Miller  Properties,  Inc. is incorporated by reference
     to  Exhibit  10MM to the  Registrant's  Annual  Report of Form 10-K for the
     fiscal year ended December 31, 1988.

10II Partnership   Administration  and  Consultation   Agreement  among  Freeman
     Properties,  Inc., Freeman Diversified Properties,  Inc., residual Equities
     Limited, and Jacques-Miller  Properties,  Inc. is incorporated by reference
     to  Exhibit  10NN to the  Registrant's  Annual  Report of Form 10-K for the
     fiscal year ended December 31, 1988.

10JJ Termination Agreement, dated December 31, 1991 among Jacques-Miller,  Inc.,
     Jacques-Miller Property Management,  Davidson Diversified Properites, Inc.,
     and Supar, Inc.

10KK Assignment of Limited  Partnership  Interest of Freeman Equities,  Limited,
     dated December 31, 1991 between Davidson Diversified  Properties,  Inc. and
     Insignia Jacques-Miller, L.P.

10LL Assignment of General Partner Interests of Freeman Equities, Limited, dated
     December 31, 1991 between Davidson Diversified Properties,  Inc. and MAE GP
     Corporation.

10MM Stock  certificate,  dated  December  31, 1991  showing  ownership of 1,000
     shares of Davidson Diversified Properties, Inc. by MAE GP Corporation.

10NN Contracts related to refinancing of debt:

                  (a)   First  Deeds  of Trust  and  Security  Agreements  dated
                        October 28, 1992 between  Bexley  House,  L.P. and First
                        Commonwealth  Realty  Credit  Corporation,   a  Virginia
                        Corporation,  securing  Bexley House is  incorporated by
                        reference to Exhibit 10NN (a) to the Registrant's Annual
                        Report on Form 10-KSB for the fiscal year ended December
                        31, 1992.

                  (b)   Second  Deeds of Trust  and  Security  Agreements  dated
                        October 28, 1992 between  Bexley  House,  L.P. and First
                        Commonwealth  Realty  Credit  Corporation,   a  Virginia
                        Corporation,  securing  Bexley House is  incorporated by
                        reference to Exhibit 10NN (b) to the Registrant's Annual
                        Report on Form 10-KSB for the fiscal year ended December
                        31, 1992.

                  (c)   First  Assignments of Leases and Rents dated October 28,
                        1992 between Bexley House,  L.P. and First  Commonwealth
                        Realty  Credit  Corporation,   a  Virginia  Corporation,
                        securing  Bexley House is  incorporated  by reference to
                        Exhibit 10NN (c) to the  Partnership's  Annual Report on
                        Form 10-KSB for the fiscal year ended December 31, 1992.

                  (d)   Second Assignments of Leases and Rents dated October 28,
                        1992 between Bexley House,  L.P. and First  Commonwealth
                        Realty  Credit  Corporation,   a  Virginia  Corporation,
                        securing  Bexley House is  incorporated  by reference to
                        Exhibit 10NN (d) to the  Partnership's  Annual Report on
                        Form 10-KSB for the fiscal year ended December 31, 1992.

                  (e)   First  Deeds of  Trust  Notes  dated  October  28,  1992
                        between Bexley House, L.P. and First Commonwealth Realty
                        Credit   Corporation   relating   to  Bexley   House  is
                        incorporated  by  reference  to Exhibit  10NN (e) to the
                        Partnership's  Annual  Report  on  Form  10-KSB  for the
                        fiscal year ended December 31, 1992.

                  (f)   Second  Deeds of Trust  Notes  dated  October  28,  1992
                        between Bexley House, L.P. and First Commonwealth Realty
                        Credit   Corporation   relating   to  Bexley   House  is
                        incorporated  by  reference  to Exhibit  10NN (f) to the
                        Partnership's  Annual  Report  on  Form  10-KSB  for the
                        fiscal year ended December 31, 1992.

10OO Contracts related to refinancing of debt:

                  (a)   First  Deeds  of Trust  and  Security  Agreements  dated
                        September 30, 1993 between Davidson IRE Associates, L.P.
                        and Lexington Mortgage Company, a Virginia  Corporation,
                        securing  Northsprings  Apartments  is  incorporated  by
                        reference  to  Exhibit  10OO  (a)  to  the  Registrant's
                        Quarterly  Report on Form 10-QSB for the  quarter  ended
                        September 30, 1993.

                  (b)   Second  Deeds of Trust  and  Security  Agreements  dated
                        September 30, 1993 between Davidson IRE Associates, L.P.
                        and Lexington Mortgage Company, a Virginia  Corporation,
                        securing  Northsprings  Apartments  is  incorporated  by
                        reference  to  Exhibit  10OO  (b)  to  the  Registrant's
                        Quarterly  Report on Form 10-QSB for the  quarter  ended
                        September 30, 1993.

                  (c)   First  Assignments  of Leases and Rents dated  September
                        30, 1993  between  Davidson  IRE  Associates,  L.P.  and
                        Lexington  Mortgage  Company,  a  Virginia  Corporation,
                        securing  Northsprings  Apartments  is  incorporated  by
                        reference  to  Exhibit  10OO  (c)  to  the  Registrant's
                        Quarterly  Report on Form 10-QSB for the  quarter  ended
                        September 30, 1993.

                  (d)   Second  Assignments of Leases and Rents dated  September
                        30, 1993  between  Davidson  IRE  Associates,  L.P.  and
                        Lexington  Mortgage  Company,  a  Virginia  Corporation,
                        securing  Northsprings  Apartments  is  incorporated  by
                        reference  to  Exhibit  10OO  (d)  to  the  Registrant's
                        Quarterly  Report on Form 10-QSB for the  quarter  ended
                        September 30, 1993.

                  (e)   First  Deeds of Trust  Notes  dated  September  30, 1993
                        between  Davidson IRE  Associates,  L.P.  and  Lexington
                        Mortgage Company, relating to Northsprings Apartments is
                        incorporated  by  reference  to Exhibit  10OO (e) to the
                        Registrant's  Quarterly  Report on Form  10-QSB  for the
                        quarter ended September 30, 1993.

                  (f)   Second  Deeds of Trust  Notes dated  September  30, 1993
                        between  Davidson IRE  Associates,  L.P.  and  Lexington
                        Mortgage Company, relating to Northsprings Apartments is
                        incorporated  by  reference  to Exhibit  10OO (f) to the
                        Registrant's  Quarterly  Report on Form  10-QSB  for the
                        quarter ended September 30, 1993.

10PP Contracts related to refinancing of debt:

                  (a)   First  Deeds  of Trust  and  Security  Agreements  dated
                        September 30, 1993 between Davidson IRE Associates, L.P.
                        and Lexington Mortgage Company, a Virginia  Corporation,
                        securing  Covington Pointe Apartments is incorporated by
                        reference  to  Exhibit  10PP  (a)  to  the  Registrant's
                        Quarterly  Report on Form 10-QSB for the  quarter  ended
                        September 30, 1993.

                  (b)   Second  Deeds of Trust  and  Security  Agreements  dated
                        September 30, 1993 between Davidson IRE Associates, L.P.
                        and Lexington Mortgage Company, a Virginia  Corporation,
                        securing  Covington Pointe Apartments is incorporated by
                        reference  to  Exhibit  10PP  (b)  to  the  Registrant's
                        Quarterly  Report on Form 10-QSB for the  quarter  ended
                        September 30, 1993.

                  (c)   First  Assignments  of Leases and Rents dated  September
                        30, 1993  between  Davidson  IRE  Associates,  L.P.  and
                        Lexington  Mortgage  Company,  a  Virginia  Corporation,
                        securing  Covington Pointe Apartments is incorporated by
                        reference  to  Exhibit  10PP  (c)  to  the  Registrant's
                        Quarterly  Report on Form 10-QSB for the  quarter  ended
                        September 30, 1993.

                  (d)   Second  Assignments of Leases and Rents dated  September
                        30, 1993  between  Davidson  IRE  Associates,  L.P.  and
                        Lexington  Mortgage  Company,  a  Virginia  Corporation,
                        securing  Covington Pointe Apartments is incorporated by
                        reference  to  Exhibit  10PP  (d)  to  the  Registrant's
                        Quarterly  Report on Form 10-QSB for the  quarter  ended
                        September 30, 1993.

                  (e)   First  Deeds of Trust  Notes  dated  September  30, 1993
                        between  Davidson IRE  Associates,  L.P.  and  Lexington
                        Mortgage   Company,   relating   to   Covington   Pointe
                        Apartments is  incorporated by reference to Exhibit 10PP
                        (e) to the Registrant's  Quarterly Report on Form 10-QSB
                        for the quarter ended September 30, 1993.

                  (f)   Second  Deeds of Trust  Notes dated  September  30, 1993
                        between  Davidson IRE  Associates,  L.P.  and  Lexington
                        Mortgage   Company,   relating   to   Covington   Pointe
                        Apartments is  incorporated by reference to Exhibit 10PP
                        (f) to the Registrant's  Quarterly Report on Form 10-QSB
                        for the quarter ended September 30, 1993.

                  (g)   Multifamily Note dated November 1,1996, between Davidson
                        Income Real Estate, L.P. and Lehman Brothers Holdings,
                        Inc. d/b/a Lehman Capital, a Division of Lehman Brothers
                        Holdings, Inc.

10QQ Contracts related to refinancing of debt:

                  (a)   Multifamily Note dated July 1, 1996,  between  Davidson
                        Income Real Estate, L.P., a Delaware limited partnership
                        and Lehman Brothers Holdings,Inc. d/b/a Lehman Capital,
                        a  Division of Lehman Brothers Holdings, Inc.

                  (b)   Rider to Multifamily Note dated  July 1,  1996,  between
                        Davidson Income Real Estate, L.P.,  a  Delaware  limited
                        partnership and Lehman Brothers Holdings,  Inc. d/b/a
                        Lehman Capital, A Division of Lehman Brothers Holdings,
                        Inc.

10RR Multifamily  Note dated  December 15, 2000,  between  Davidson  Income Real
     Estate,  L.P., a Delaware  limited  partnership  and Reilly Mortgage Group,
     Inc.,  a  District  of  Columbia  corporation,   related  to  Bexley  House
     Apartments.

16   Letter from the Registrant's  former independent  accountant  regarding its
     concurrence  with the statements  made by the Registrant is incorporated by
     reference to the exhibit filed with Form 8-K dated September 30, 1992.

99A  Agreement of Limited  Partnership  for Davidson IRE GP Limited  Partnership
     between  Davidson  Diversified  Properties,  Inc. and Davidson  Income Real
     Estate,  L.P.  entered  into  on  September  15,  1993 is  incorporated  by
     reference  to  Exhibit  99A to the  Registrant's  Quarterly  Report on Form
     10-QSB for the quarter ended September 30, 1993.

99B  Agreement of Limited Partnership for Davidson IRE Associates,  L.P. between
     Davidson IRE GP Limited  Partnership and Davidson Income Real Estate,  L.P.
     is incorporated by reference to Exhibit 99B to the  Registrant's  Quarterly
     Report on Form 10-QSB for the quarter ended September 30, 1993.

99C  Agreement of Limited  Partnership  for Bexley House L.P.  between  Davidson
     Income GP Limited Partnership and Davidson Income Real Estate, L.P. entered
     into on October 13, 1993 is incorporated by reference to Exhibit 99C to the
     Registrant's  Annual  Report  on Form  10-KSB  for the  fiscal  year  ended
     December 31, 1992.

<PAGE>
                                                                    Exhibit 10RR

                                                        FHLMC Loan No. 002733463
                                                       (Bexley House Apartments)

                                MULTIFAMILY NOTE
                      (MULTISTATE - REVISION DATE 11-01-2000)


US $2,425,000.00                                       As of December 15, 2000


      FOR VALUE RECEIVED, the undersigned ("Borrower") jointly and severally (if
more than one) promises to pay to the order of REILLY  MORTGAGE  GROUP,  INC., a
District of Columbia corporation,  the principal sum of Two Million Four Hundred
Twenty Five Thousand and no/100 Dollars (US $2,425,000.00), with interest on the
unpaid  principal  balance at the annual rate of Seven and Thirty-Two  Hundreths
percent (7.32%).

1. Defined  Terms.  As used in this Note, (i) the term "Lender" means the holder
of this Note, and (ii) the term "Indebtedness"  means the principal of, interest
on,  and any other  amounts  due at any time  under,  this  Note,  the  Security
Instrument  or any other Loan  Document,  including  prepayment  premiums,  late
charges,  default interest, and advances to protect the security of the Security
Instrument under Section 12 of the Security  Instrument.  "Event of Default" and
other  capitalized  terms  used but not  defined  in this  Note  shall  have the
meanings given to such terms in the Security Instrument.

2.  Address for  Payment.  All  payments due under this Note shall be payable at
2000 Corporate Ridge, Suite 925, McLean,  Virginia 22102, or such other place as
may be designated by written notice to Borrower from or on behalf of Lender.

3. Payment of Principal  and Interest.  Principal and interest  shall be paid as
follows:

(a) Unless  disbursement of principal is made by Lender to Borrower on the first
day of the month,  interest for the period beginning on the date of disbursement
and ending on and including the last day of the month in which such disbursement
is made  shall be  payable  simultaneously  with  the  execution  of this  Note.
Interest  under  this Note  shall be  computed  on the  basis of a 360-day  year
consisting of twelve 30-day months.

(b)  Consecutive  monthly  installments  of principal and interest,  each in the
amount of  Nineteen  Thousand  Two  Hundred  Sixty Nine and 60/100  Dollars  (US
$19,269.60),  shall be  payable  on the first  day of each  month  beginning  on
February 1, 2001,  until the entire unpaid principal  balance  evidenced by this
Note is fully paid.

(c) Any accrued interest remaining past due for 30 days or more may, at Lender's
discretion,  be added to and become  part of the unpaid  principal  balance  and
shall  bear  interest  at the  rate or rates  specified  in this  Note,  and any
reference below to "accrued  interest" shall refer to accrued interest which has
not become part of the unpaid  principal  balance.  Any remaining  principal and
interest  shall be due and payable on January 1, 2021 or on any earlier  date on
which the unpaid  principal  balance of this Note  becomes due and  payable,  by
acceleration or otherwise (the "Maturity  Date").  The unpaid principal  balance
shall  continue to bear interest after the Maturity Date at the Default Rate set
forth in this Note until and including the date on which it is paid in full.

(d) Any regularly  scheduled monthly  installment of principal and interest that
is  received  by Lender  before  the date it is due shall be deemed to have been
received on the due date solely for the purpose of calculating interest due.

4.  Application of Payments.  If at any time Lender  receives,  from Borrower or
otherwise,  any amount  applicable  to the  Indebtedness  which is less than all
amounts due and payable at such time,  Lender may apply that  payment to amounts
then due and  payable in any manner and in any order  determined  by Lender,  in
Lender's  discretion.  Borrower  agrees that neither  Lender's  acceptance  of a
payment  from  Borrower in an amount that is less than all amounts  then due and
payable nor Lender's  application of such payment shall  constitute or be deemed
to  constitute  either  a  waiver  of  the  unpaid  amounts  or  an  accord  and
satisfaction.

5. Security.  The Indebtedness is secured,  among other things, by a multifamily
mortgage, deed to secure debt or deed of trust dated as of the date of this Note
(the "Security  Instrument"),  and reference is made to the Security  Instrument
for other rights of Lender as to collateral for the Indebtedness.

6.  Acceleration.  If an Event of Default has  occurred and is  continuing,  the
entire unpaid principal  balance,  any accrued interest,  the prepayment premium
payable under  Paragraph  10, if any, and all other  amounts  payable under this
Note and any other Loan  Document  shall at once become due and payable,  at the
option of Lender,  without  any prior  notice to  Borrower  (except if notice is
required by applicable  law,  then after such notice).  Lender may exercise this
option to accelerate regardless of any prior forbearance.

7. Late  Charge.  If any  monthly  amount  payable  under this Note or under the
Security  Instrument or any other Loan Document is not received by Lender within
ten (10) days after the amount is due (unless  applicable  law requires a longer
period of time before a late  charge may be imposed,  in which event such longer
period shall be  substituted),  Borrower  shall pay to Lender,  immediately  and
without  demand by Lender,  a late  charge  equal to five  percent  (5%) of such
amount  (unless  applicable  law requires a lesser  amount be charged,  in which
event such lesser amount shall be substituted).  Borrower  acknowledges that its
failure to make timely payments will cause Lender to incur  additional  expenses
in servicing and processing  the loan  evidenced by this Note (the "Loan"),  and
that it is extremely  difficult and  impractical to determine  those  additional
expenses.  Borrower  agrees  that  the  late  charge  payable  pursuant  to this
Paragraph  represents a fair and  reasonable  estimate,  taking into account all
circumstances  existing  on the date of this Note,  of the  additional  expenses
Lender will incur by reason of such late payment.  The late charge is payable in
addition  to,  and not in lieu of, any  interest  payable  at the  Default  Rate
pursuant to Paragraph 8.

8. Default Rate. So long as (a) any monthly  installment under this Note remains
past due for thirty  (30) days or more,  or (b) any other  Event of Default  has
occurred and is continuing,  interest under this Note shall accrue on the unpaid
principal  balance from the earlier of the due date of the first unpaid  monthly
installment or the occurrence of such other Event of Default, as applicable,  at
a rate (the "Default  Rate") equal to the lesser of four (4)  percentage  points
above  the rate  stated  in the first  paragraph  of this  Note and the  maximum
interest rate which may be collected from Borrower under  applicable law. If the
unpaid  principal  balance and all accrued  interest are not paid in full on the
Maturity Date, the unpaid principal  balance and all accrued interest shall bear
interest from the Maturity Date at the Default Rate.  Borrower also acknowledges
that its failure to make timely  payments will cause Lender to incur  additional
expenses in servicing and  processing the Loan,  that,  during the time that any
monthly  installment  under this Note is  delinquent  for more than  thirty (30)
days,  Lender will incur  additional costs and expenses arising from its loss of
the use of the money due and from the adverse impact on Lender's ability to meet
its other  obligations and to take advantage of other investment  opportunities,
and that it is extremely difficult and impractical to determine those additional
costs and expenses.  Borrower also  acknowledges  that, during the time that any
monthly installment under this Note is delinquent for more than thirty (30) days
or any other Event of Default has occurred and is  continuing,  Lender's risk of
nonpayment of this Note will be  materially  increased and Lender is entitled to
be compensated for such increased risk. Borrower agrees that the increase in the
rate of interest  payable under this Note to the Default Rate  represents a fair
and reasonable estimate,  taking into account all circumstances  existing on the
date of this Note,  of the  additional  costs and expenses  Lender will incur by
reason of the  Borrower's  delinquent  payment and the  additional  compensation
Lender is entitled to receive for the increased  risks of nonpayment  associated
with a delinquent loan.

9.    Limits on Personal Liability.

(a) Except as otherwise  provided in this  Paragraph 9,  Borrower  shall have no
personal  liability  under this Note, the Security  Instrument or any other Loan
Document for the repayment of the  Indebtedness  or for the  performance  of any
other  obligations  of Borrower  under the Loan  Documents,  and  Lender's  only
recourse for the  satisfaction of the  Indebtedness  and the performance of such
obligations  shall be Lender's  exercise of its rights and remedies with respect
to the Mortgaged  Property and any other  collateral  held by Lender as security
for the Indebtedness. This limitation on Borrower's liability shall not limit or
impair  Lender's  enforcement  of  its  rights  against  any  guarantor  of  the
Indebtedness or any guarantor of any obligations of Borrower.

(b) Borrower shall be personally liable to Lender for the repayment of a portion
of the Indebtedness equal to zero percent (0%) of the original principal balance
of this Note,  plus any other amounts for which Borrower has personal  liability
under this Paragraph 9.

(c) In addition to Borrower's  personal liability under Paragraph 9(b), Borrower
shall be personally  liable to Lender for the repayment of a further  portion of
the  Indebtedness  equal to any loss or damage suffered by Lender as a result of
(1) failure of  Borrower to pay to Lender upon demand  after an Event of Default
all  Rents to which  Lender  is  entitled  under  Section  3(a) of the  Security
Instrument  and the amount of all security  deposits  collected by Borrower from
tenants  then in  residence;  (2)  failure of  Borrower  to apply all  insurance
proceeds and condemnation  proceeds as required by the Security  Instrument;  or
(3)  failure of Borrower to comply  with  Section  14(d) or (e) of the  Security
Instrument relating to the delivery of books and records, statements,  schedules
and reports.

(d) For purposes of determining  Borrower's  personal  liability under Paragraph
9(b) and Paragraph  9(c), all payments made by Borrower or any guarantor of this
Note with respect to the  Indebtedness  and all amounts  received by Lender from
the  enforcement  of its rights under the Security  Instrument  shall be applied
first to the  portion of the  Indebtedness  for which  Borrower  has no personal
liability.

(e) Borrower shall become  personally  liable to Lender for the repayment of all
of the  Indebtedness  upon the  occurrence  of any of the  following  Events  of
Default: (1) Borrower's acquisition of any property or operation of any business
not  permitted  by  Section  33 of  the  Security  Instrument;  (2)  a  Transfer
(including,  but not  limited  to,  a lien or  encumbrance)  that is an Event of
Default  under  Section  21 of the  Security  Instrument,  other than a Transfer
consisting  solely of the  involuntary  removal or  involuntary  withdrawal of a
general  partner in a limited  partnership  or a manager in a limited  liability
company; or (3) fraud or written material  misrepresentation  by Borrower or any
officer,  director,  partner,  member or employee of Borrower in connection with
the  application  for or  creation  of the  Indebtedness  or any request for any
action or consent by Lender.

(f) In addition to any personal  liability for the Indebtedness,  Borrower shall
be  personally  liable to Lender for (1) the  performance  of all of  Borrower's
obligations   under  Section  18  of  the  Security   Instrument   (relating  to
environmental  matters);  (2) the costs of any audit under  Section 14(d) of the
Security  Instrument;  and (3) any  costs  and  expenses  incurred  by Lender in
connection  with the  collection of any amount for which  Borrower is personally
liable under this  Paragraph  9,  including  fees and out of pocket  expenses of
attorneys and expert witnesses and the costs of conducting any independent audit
of Borrower's  books and records to determine the amount for which  Borrower has
personal liability.

(g) To the extent that Borrower has personal  liability  under this Paragraph 9,
Lender may exercise its rights  against  Borrower  personally  without regard to
whether  Lender has exercised any rights  against the Mortgaged  Property or any
other  security,  or pursued any rights  against any  guarantor,  or pursued any
other rights available to Lender under this Note, the Security  Instrument,  any
other Loan  Document or  applicable  law. For purposes of this  Paragraph 9, the
term "Mortgaged Property" shall not include any funds that (1) have been applied
by Borrower as required or  permitted by the  Security  Instrument  prior to the
occurrence  of an  Event of  Default  or (2)  Borrower  was  unable  to apply as
required  or  permitted  by the  Security  Instrument  because of a  bankruptcy,
receivership, or similar judicial proceeding. To the fullest extent permitted by
applicable  law, in any action to enforce  Borrower's  personal  liability under
this  Paragraph  9,  Borrower  waives  any  right  to set off the  value  of the
Mortgaged Property against such personal liability.

10.   Voluntary and Involuntary Prepayments.

(a) A prepayment premium shall be payable in connection with any prepayment (any
receipt by Lender of  principal,  other than  principal  required  to be paid in
monthly installments pursuant to Paragraph 3(b), prior to the scheduled Maturity
Date set forth in Paragraph 3(c)) under this Note as provided below:

(1) Borrower may voluntarily  prepay all of the unpaid principal balance of this
Note on a Business Day  designated as the date for such  prepayment in a written
notice from  Borrower to Lender given at least 30 days prior to the date of such
prepayment.  Such prepayment shall be made by paying (A) the amount of principal
being prepaid,  (B) all accrued  interest,  (C) all other sums due Lender at the
time of such prepayment,  and (D) the prepayment premium calculated  pursuant to
Paragraph  10(c).  For all  purposes  including  the  accrual of  interest,  any
prepayment received by Lender on any day other than the last calendar day of the
month  shall be deemed to have been  received on the last  calendar  day of such
month.  For purposes of this Note,  a "Business  Day" means any day other than a
Saturday,  Sunday  or any other  day on which  Lender is not open for  business.
Unless expressly provided for in the Loan Documents, Borrower shall not have the
option to  voluntarily  prepay  less than all of the unpaid  principal  balance.
However,  if a partial  prepayment  is provided for in the Loan  Documents or is
accepted by Lender in  Lender's  discretion,  a  prepayment  premium  calculated
pursuant to Paragraph 10(c) shall be due and payable by Borrower.

(2) Upon  Lender's  exercise  of any  right of  acceleration  under  this  Note,
Borrower shall pay to Lender, in addition to the entire unpaid principal balance
of this  Note  outstanding  at the  time of the  acceleration,  (A) all  accrued
interest  and  all  other  sums  due  Lender,  and (B)  the  prepayment  premium
calculated pursuant to Paragraph 10(c).

(3) Any  application  by  Lender  of any  collateral  or other  security  to the
repayment of any portion of the unpaid  principal  balance of this Note prior to
the  Maturity  Date and in the absence of  acceleration  shall be deemed to be a
partial prepayment by Borrower, requiring the payment to Lender by Borrower of a
prepayment premium.

(b)  Notwithstanding  the provisions of Paragraph  10(a), no prepayment  premium
shall be payable with respect to (A) any prepayment  made during the period from
one  hundred  eighty  (180)  days  before  the  scheduled  Maturity  Date to the
scheduled  Maturity  Date,  or (B) any  prepayment  occurring as a result of the
application of any insurance  proceeds or condemnation  award under the Security
Instrument.

(c) Any prepayment premium payable under this Note shall be computed as follows:

            (1) If the  prepayment is made between the date of this Note and the
date  that is 180  months  after  the  first  day of the  first  calendar  month
following the date of this Note (the "Yield Maintenance Period"), the prepayment
premium shall be whichever is the greater of subparagraphs (i) and (ii) below:

            (i)   1.0% of the unpaid principal balance of this Note; or

            (ii)  the product obtained by multiplying:

                  (A)   the amount of principal being prepaid,

                  by

                  (B)   the excess (if any) of the Monthly  Note  Rate  over the
                        Assumed Reinvestment Rate,

                  by

                  (C)   the Present Value Factor.

            For purposes of subparagraph  (ii), the following  definitions shall
            apply:

            Monthly Note Rate: one-twelfth (1/12) of the annual interest rate of
            this Note, expressed as a decimal calculated to five digits.

            Prepayment Date: in the case of a voluntary prepayment,  the date on
            which the  prepayment  is made;  in the case of the  application  by
            Lender of  collateral  or  security  to a portion  of the  principal
            balance,  the date of such  application;  and in any other case, the
            date on which Lender  accelerates  the unpaid  principal  balance of
            this Note.

            Assumed  Reinvestment Rate:  one-twelfth (1/12) of the yield rate as
            of the date 5 Business Days before the Prepayment Date, on the 9.25%
            U.S. Treasury Security due February 1, 2016, as reported in The Wall
            Street Journal, expressed as a decimal calculated to five digits. In
            the event that no yield is published on the applicable  date for the
            Treasury Security used to determine the Assumed  Reinvestment  Rate,
            Lender,  in its discretion,  shall select the non-callable  Treasury
            Security  maturing  in  the  same  year  as  the  Treasury  Security
            specified  above with the lowest yield  published in The Wall Street
            Journal as of the applicable  date. If the publication of such yield
            rates in The Wall  Street  Journal is  discontinued  for any reason,
            Lender  shall select a security  with a comparable  rate and term to
            the Treasury  Security  used to determine  the Assumed  Reinvestment
            Rate.  The  selection  of an  alternate  security  pursuant  to this
            Paragraph shall be made in Lender's discretion.

            Present Value Factor: the factor that discounts to present value the
            costs  resulting  to Lender from the  difference  in interest  rates
            during the months remaining in the Yield Maintenance  Period,  using
            the Assumed  Reinvestment  Rate as the discount  rate,  with monthly
            compounding, expressed numerically as follows:

                                     [OBJECT OMITTED]

            n = number of months remaining in Yield Maintenance Period

            ARR = Assumed Reinvestment Rate

            (2) If the  prepayment  is made  after the  expiration  of the Yield
Maintenance  Period but before the period set forth in Paragraph 10(b)(A) above,
the  prepayment  premium shall be 1.0% of the unpaid  principal  balance of this
Note.

(d) Any  permitted  or  required  prepayment  of less than the unpaid  principal
balance of this Note shall not extend or postpone the due date of any subsequent
monthly  installments or change the amount of such  installments,  unless Lender
agrees otherwise in writing.

(e) Borrower  recognizes that any prepayment of the unpaid principal  balance of
this Note,  whether  voluntary or  involuntary  or  resulting  from a default by
Borrower,  will result in Lender's incurring loss, including  reinvestment loss,
additional expense and frustration or impairment of Lender's ability to meet its
commitments  to third  parties.  Borrower  agrees to pay to Lender  upon  demand
damages  for the  detriment  caused by any  prepayment,  and  agrees  that it is
extremely  difficult  and  impractical  to ascertain the extent of such damages.
Borrower  therefore  acknowledges  and agrees that the  formula for  calculating
prepayment  premiums set forth in this Note represents a reasonable  estimate of
the damages Lender will incur because of a prepayment.

(f) Borrower further acknowledges that the prepayment premium provisions of this
Note are a material part of the  consideration  for the Loan,  and  acknowledges
that the terms of this Note are in other  respects more favorable to Borrower as
a  result  of the  Borrower's  voluntary  agreement  to the  prepayment  premium
provisions.

11.  Costs and  Expenses.  To the  fullest  extent  allowed by  applicable  law,
Borrower  shall pay all expenses  and costs,  including  fees and  out-of-pocket
expenses  of  attorneys  (including  Lender's  in-house  attorneys)  and  expert
witnesses  and  costs of  investigation,  incurred  by Lender as a result of any
default under this Note or in connection  with efforts to collect any amount due
under  this  Note,  or to  enforce  the  provisions  of any of  the  other  Loan
Documents,  including those incurred in post-judgment  collection efforts and in
any  bankruptcy  proceeding  (including any action for relief from the automatic
stay of any  bankruptcy  proceeding)  or  judicial or  non-judicial  foreclosure
proceeding.

12.  Forbearance.  Any  forbearance  by Lender in exercising any right or remedy
under  this  Note,  the  Security  Instrument,  or any other  Loan  Document  or
otherwise  afforded by applicable  law, shall not be a waiver of or preclude the
exercise of that or any other right or remedy.  The  acceptance by Lender of any
payment after the due date of such  payment,  or in an amount which is less than
the required payment,  shall not be a waiver of Lender's right to require prompt
payment  when due of all other  payments or to exercise any right or remedy with
respect to any  failure to make  prompt  payment.  Enforcement  by Lender of any
security for  Borrower's  obligations  under this Note shall not  constitute  an
election by Lender of remedies so as to preclude the exercise of any other right
or remedy available to Lender.

13.  Waivers.  Presentment,  demand,  notice  of  dishonor,  protest,  notice of
acceleration,  notice of intent to demand or  accelerate  payment  or  maturity,
presentment  for  payment,  notice  of  nonpayment,   grace,  and  diligence  in
collecting  the  Indebtedness  are  waived by  Borrower  and all  endorsers  and
guarantors of this Note and all other third party obligors.

14. Loan Charges. Neither this Note nor any of the other Loan Documents shall be
construed  to create a contract for the use,  forbearance  or detention of money
requiring  payment of interest at a rate greater than the maximum  interest rate
permitted to be charged under applicable law. If any applicable law limiting the
amount of interest or other charges  permitted to be collected  from Borrower in
connection  with the Loan is  interpreted  so that any  interest or other charge
provided for in any Loan  Document,  whether  considered  separately or together
with other charges  provided for in any other Loan Document,  violates that law,
and Borrower is entitled to the benefit of that law,  that interest or charge is
hereby reduced to the extent necessary to eliminate that violation. The amounts,
if any,  previously  paid to Lender in excess of the permitted  amounts shall be
applied by Lender to reduce the unpaid  principal  balance of this Note. For the
purpose  of  determining  whether  any  applicable  law  limiting  the amount of
interest or other  charges  permitted  to be  collected  from  Borrower has been
violated,  all  Indebtedness  that  constitutes  interest,  as well as all other
charges made in connection with the Indebtedness that constitute interest, shall
be deemed to be allocated  and spread  ratably over the stated term of the Note.
Unless otherwise required by applicable law, such allocation and spreading shall
be  effected  in such a manner  that the rate of interest so computed is uniform
throughout the stated term of the Note.

15.  Commercial  Purpose.  Borrower  represents  that the  Indebtedness is being
incurred  by  Borrower  solely for the  purpose  of  carrying  on a business  or
commercial enterprise,  and not for personal,  family, household or agricultural
purposes.

16.  Counting  of  Days.  Except  where  otherwise  specifically  provided,  any
reference in this Note to a period of "days" means  calendar  days, not Business
Days.

17. Governing Law. This Note shall be governed by the law of the jurisdiction in
which the Land is located.

18.  Captions.  The captions of the paragraphs of this Note are for  convenience
only and shall be disregarded in construing this Note.

19.   Notices;   Written   Modifications.   All   notices,   demands  and  other
communications  required or permitted to be given by Lender to Borrower pursuant
to this  Note  shall be given in  accordance  with  Section  31 of the  Security
Instrument.  Any  modification  or amendment  to this Note shall be  ineffective
unless  in  writing  signed  by  the  party  sought  to  be  charged  with  such
modification or amendment;  provided,  however,  that in the event of a Transfer
under  the  terms  of  the  Security  Instrument,  any  or  some  or  all of the
Modification  to Multifamily  Note may be modified or rendered void by Lender at
Lender's option by notice to Borrower/transferee.

20. Consent to  Jurisdiction  and Venue.  Borrower  agrees that any  controversy
arising under or in relation to this Note shall be litigated  exclusively in the
jurisdiction  in which the Land is located (the  "Property  Jurisdiction").  The
state and federal  courts and  authorities  with  jurisdiction  in the  Property
Jurisdiction  shall have exclusive  jurisdiction  over all  controversies  which
shall arise under or in relation to this Note. Borrower  irrevocably consents to
service,  jurisdiction,  and venue of such  courts for any such  litigation  and
waives  any other  venue to which it might be  entitled  by virtue of  domicile,
habitual residence or otherwise.

21. WAIVER OF TRIAL BY JURY.  BORROWER AND LENDER EACH (A) AGREES NOT TO ELECT A
TRIAL  BY JURY  WITH  RESPECT  TO ANY  ISSUE  ARISING  OUT OF  THIS  NOTE OR THE
RELATIONSHIP BETWEEN THE PARTIES AS LENDER AND BORROWER THAT IS TRIABLE OF RIGHT
BY A JURY AND (B) WAIVES  ANY RIGHT TO TRIAL BY JURY WITH  RESPECT TO SUCH ISSUE
TO THE EXTENT THAT ANY SUCH RIGHT  EXISTS NOW OR IN THE  FUTURE.  THIS WAIVER OF
RIGHT  TO  TRIAL  BY JURY IS  SEPARATELY  GIVEN  BY EACH  PARTY,  KNOWINGLY  AND
VOLUNTARILY WITH THE BENEFIT OF COMPETENT LEGAL COUNSEL.

      ATTACHED EXHIBIT.  The following Exhibit is attached to this Note:

            -----
              X       Exhibit A     Modifications to Multifamily Note
            -----

      IN WITNESS WHEREOF, Borrower has signed and delivered this Note under seal
or has  caused  this  Note to be signed  and  delivered  under  seal by its duly
authorized representative. Borrower intends that this Note shall be deemed to be
signed and delivered as a sealed instrument.



<PAGE>


                                  BEXLEY HOUSE, L.P., a Delaware limited
                                  partnership

                                  By:  Bexley House GP, L.L.C., a South Carolina
                                       limited liability company, its General
                                       Partner

                                  By: Davidson Income Real Estate, L.P., a
                                      Delaware limited partnership, its Sole
                                      Member

                                  By: Davidson Diversified Properties,
                                      Inc., a Tennessee corporation, its
                                      General Partner

                                  By:  _______________________
                                       Patti K. Fielding
                                       Senior Vice President

                                   57-0984772
                                   Borrower's Social Security/Employer ID Number

<PAGE>


PAY TO THE ORDER OF FEDERAL HOME LOAN MORTGAGE  CORPORATION,  WITHOUT  RECOURSE,
THIS THE ___ DAY OF DECEMBER, 2000.

REILLY MORTGAGE GROUP, INC., a District
   of Columbia corporation



By:_________________________________
   Brenda R. Dutrow
   Assistant Vice President


<PAGE>



                                    EXHIBIT A

                        MODIFICATIONS TO MULTIFAMILY NOTE

1.    The first sentence of Paragraph 8 of the Note  ("Default  Rate") is hereby
      deleted and replaced with the following:

            So long as (a) any monthly  installment under this Note remains past
            due for more than thirty (30) days or (b) any other event of Default
            has  occurred  and is  continuing,  interest  under  this Note shall
            accrue on the unpaid  principal  balance from the earlier of the due
            date of the first unpaid  monthly  installment  or the occurrence of
            such other Event of Default, as applicable,  at a rate (the "Default
            Rate")  equal to the lesser of (1) the maximum  interest  rate which
            may be  collected  from  Borrower  under  applicable  law or (2) the
            greater of (i) three  percent (3%) above the  Interest  Rate or (ii)
            four percent  (4.0%) above the  then-prevailing  Prime Rate. As used
            herein,  the term  "Prime  Rate"  shall  mean  the rate of  interest
            announced by The Wall Street Journal from time to time as the "Prime
            Rate".

2.  Paragraph 9(c) of the Note is amended to add the following subparagraph (4):

(4)            failure  by  Borrower  to pay the  amount  of the water and sewer
               charges, taxes, fire, hazard or other insurance premiums,  ground
               rents,  assessments or other charges in accordance with the terms
               of the Security Instrument.

3.    Paragraph 19 is modified by deleting:  "; provided,  however,  that in the
      event of a Transfer  under the terms of the  Security  Instrument,  any or
      some or all of the  Modifications  to Multifamily  Note may be modified or
      rendered   void   by   Lender   at   Lender's    option   by   notice   to
      Borrower/transferee" in the last sentence of the Paragraph;  and by adding
      the following new sentence:

            The  Modifications  to Multifamily  Note set forth in this Exhibit A
            shall be null and void  unless  title to the  Mortgaged  Property is
            vested in an entity whose  Controlling  Interest(s)  are directly or
            indirectly  held by AIMCO  REIT or AIMCO OP. The  capitalized  terms
            used in this paragraph are defined in the Security Instrument.