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, 2001

[ ]   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.  $4,999,000

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, 2001. 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"),  a publicly
traded real estate investment trust. 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.

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

<S>                               <C>   <C>
Northsprings Apartments           11/13/85   Fee ownership subject to   Apartment
  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.



<PAGE>


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 Apartments     $ 5,202     $ 2,978     5-25 yrs    S/L      $  3,183
Lakeside Apartments           7,212       3,871     5-25 yrs    S/L         4,321
Bexley House Apartments       4,146       2,280     5-25 yrs    S/L         2,474
Covington Pointe
 Apartments                  10,375       4,991     5-25 yrs    S/L         6,323
                            $26,935     $14,120                          $ 16,301
</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             2001         Rate     Amortized    Date     Maturity (2)
                       (in thousands)                                  (in thousands)

Northsprings
<S>                       <C>           <C>       <C>        <C>   <C>     <C>
  1st mortgage            $ 1,767       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              2,374       7.32%     20 years   01/01/21           --
Covington Pointe
  1st mortgage              4,330       7.83%     28.67 yrs  10/15/03        4,169
  2nd mortgage                150       7.83%        (1)     10/15/03          150

Total                      12,782                                          $10,181
Less unamortized
  discounts                   (34)

Total                     $12,748

</TABLE>

<PAGE>


(1)   Payments consist of interest only.

(2)   See  "Note  C" 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%.  The new
mortgage  matures on January 1, 2021, at which time it will be fully  amortized.
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 for the year ended  December 31, 2000.
During the year ended December 31, 2001,  the  Partnership  incurred  additional
loan costs of approximately  $14,000.  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 2001 and 2000 for each property:

                                      Average Annual                Average
                                       Rental Rates                Occupancy
                                        (per Unit)
 Property                            2001         2000         2001         2000
 Northsprings Apartments           $10,854      $10,648        91%          94%
 Lakeside Apartments                 7,299        7,124        91%          92%
 Bexley House Apartments            12,774       12,633        93%          95%
 Covington Pointe Apartments        10,180        9,884        90%          91%

The  Managing   General   Partner   attributes  the  decrease  in  occupancy  at
Northsprings  Apartments  to  tenants  purchasing  new  homes as a  result  of a
decrease in interest rates and increased  competition  among  competitors in the
Atlanta 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.


<PAGE>



Schedule of Real Estate Taxes and Rates

Real estate taxes and rates in 2001 for each property were:

                                            2001               2001
                                           Billing             Rate
                                       (in thousands)
       Northsprings Apartments              $ 86               3.73%
       Lakeside Apartments                     86              1.45%
       Bexley House Apartments                 96              9.27%
       Covington Pointe Apartments            183              2.73%

Capital Improvements

Northsprings Apartments

During the year ended December 31, 2001, the Partnership completed approximately
$161,000  of  capital  improvements  at  Northsprings   Apartments,   consisting
primarily  of cabinet  replacements,  plumbing  fixture  upgrades,  parking area
resurfacing,  and appliance and floor covering replacements.  These improvements
were funded from replacement  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 $300 per unit or $36,000.  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

During the year ended December 31, 2001, the Partnership completed approximately
$230,000 of capital improvements at Lakeside Apartments, consisting primarily of
floor  covering  and  appliance  replacements,  air  conditioning  replacements,
cabinet replacements, major landscaping,  plumbing fixture upgrades, submetering
equipment,  and structural  improvements.  These  improvements  were funded from
replacement  reserves and  operating  cash flow.  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 $300 per unit or $64,800.
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

During the year ended December 31, 2001, the Partnership completed approximately
$151,000  of  capital  improvements  at  Bexley  House  Apartments,   consisting
primarily of heating equipment,  structural  improvements,  elevator repairs and
improvements,  and floor covering  replacements.  These improvements were funded
from operating cash flow.  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 $300 per unit or $19,200.  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.


<PAGE>





Covington Pointe Apartments

During the year ended December 31, 2001, the Partnership completed approximately
$117,000 of capital  improvements  at Covington  Pointe  Apartments,  consisting
primarily  of  appliance   and  floor   covering   replacements,   parking  area
improvements, interior decoration and HVAC replacements. These improvements were
funded  primarily  from  replacement  reserves  and  operating  cash  flow.  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 $300 per unit or $54,000.  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.

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. (the "Nuanes action") 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  Managing  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 series of  transactions  which  closed on
October 1, 1998 and February 26, 1999 whereby  Insignia and Insignia  Properties
Trust,  respectively,  were merged  into AIMCO.  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.  On May 14, 2001,  the Court heard the
demurrer to the third amended  complaint.  On July 10, 2001, the Court issued an
order  sustaining  defendants'  demurrer on certain  grounds.  On July 20, 2001,
Plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order
granting in part and denying in part defendants' demurrer. On September 7, 2001,
Plaintiffs  filed a fourth amended class and  derivative  action  complaint.  On
September 12, 2001, the Court denied Plaintiffs' motion for reconsideration.  On
October 5, 2001, the Managing General Partner and affiliated  defendants filed a
demurrer to the fourth amended complaint,  which was heard on December 11, 2001.
On February 2, 2002,  the Court served its order  granting in part the demurrer.
The  Court has  dismissed  without  leave to amend  certain  of the  plaintiffs'
claims.  On February 11, 2002,  plaintiffs  filed a motion  seeking to certify a
putative  class  comprised of all  non-affiliated  persons who own or have owned
units  in  the  partnerships.   The  Managing  General  Partner  and  affiliated
defendants  intend  to  oppose  the  motion  and are  scheduled  to  file  their
opposition  brief on March 26, 2002. A hearing on the motion has been  scheduled
for April 29, 2002. The Court has set the matter for trial in January 2003.

During the third  quarter of 2001, a complaint  (the "Heller  action") was filed
against  the same  defendants  that are named in the  Nuanes  action,  captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended  complaint.  The first amended complaint in the Heller action is
brought as a purported  derivative  action,  and asserts  claims for among other
things  breach  of  fiduciary  duty;  unfair  competition;   conversion,  unjust
enrichment;  and judicial  dissolution.  Plaintiffs in the Nuanes action filed a
motion to  consolidate  the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed  without  leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the Managing  General  Partner and affiliated
defendants  moved to strike the first  amended  complaint  in its  entirety  for
violating  the Court's July 10, 2001 order  granting in part and denying in part
defendants'  demurrer in the Nuanes action, or alternatively,  to strike certain
portions of the complaint based on the statute of limitations.  Other defendants
in the action  demurred to the fourth  amended  complaint,  and,  alternatively,
moved to strike the complaint. On December 11, 2001, the court heard argument on
the motions  and took the matters  under  submission.  On February 4, 2002,  the
Court  served  notice of its order  granting  defendants'  motion to strike  the
Heller complaint as a violation of its July 10, 2001 order in the Nuanes action.

The Managing  General Partner does not anticipate that any costs,  whether legal
or  settlement  costs,  associated  with  these  cases 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, 2001, no matters were submitted to a vote
of Unit holders through the solicitation of proxies or otherwise.


<PAGE>


                                     PART II

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

As of December 31, 2001,  there are 1,680  holders of record owning an aggregate
of 26,776 units.  Affiliates of the Managing  General Partner owned 11,561 Units
or 43.18% as of December 31, 2001.  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, 2000 and 2001 (see "Item 6. Management's Discussion and
Analysis or Plan of Operation" for further details):

                                              Distributions
                                                           Per Limited
                                       Aggregate         Partnership Unit
                                    (in thousands)

      01/01/00 - 12/31/00             $ 2,448 (1)             $88.70
      01/01/01 - 12/31/01                 521 (2)              18.86

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

(2)   Distribution was made from cash from operations of approximately  $454,000
      and remaining  proceeds from refinancing the mortgage  encumbering  Bexley
      House Apartments 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  cash
available  for  distribution  is  reviewed on a monthly  basis.  There can be no
assurance,  however,  that the Partnership  will generate  sufficient funds from
operations  after required capital  expenditures to permit  distributions to its
partners in 2002 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, 2001 was approximately $122,000.

In addition to its  indirect  ownership of the general  partner  interest in the
Partnership,  AIMCO and its affiliates owned 11,561 limited partnership units in
the Partnership  representing  43.18% of the  outstanding  units at December 31,
2001. 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 either through  private  purchases or tender offers.  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 voting on certain amendments to the Partnership  Agreement and voting to
remove the Managing General  Partner.  As a result of its ownership of 43.18% of
the  outstanding  units,  AIMCO is in a position  to  influence  all such voting
decisions with respect to the Registrant. 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 its  affiliation  with the Managing
General Partner.


<PAGE>



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 realized net income of approximately $174,000 for the year ended
December  31, 2001 as compared to net income of  approximately  $369,000 for the
year ended  December  31,  2000.  The  decrease in net income is due to a slight
decrease in total revenues and an increase in total expenses partially offset by
an increase  in the equity  income in the joint  venture.  During the year ended
December 31, 2000, the Partnership recognized an extraordinary loss on the early
extinguishment  of the debt encumbering  Bexley House Apartments (see discussion
below). The Partnership recognized income before the extraordinary loss on early
extinguishment of debt of approximately $174,000 for the year ended December 31,
2001 as compared to approximately $452,000 for the year ended December 31, 2000.
The decrease in total  revenues is due to a decrease in rental income  partially
offset  by an  increase  in other  income.  Rental  income  decreased  due to an
increase in special  promotions and concessions at several of the  Partnership's
properties  in an attempt to increase  occupancy  and a decrease in occupancy at
Northsprings  Apartments.  The decrease in rental income was partially offset by
an  increase in average  rental  rates at all of the  Partnership's  properties.
Other income  increased due to an increase in utility  reimbursements  and lease
cancellation fees at several of the Partnership's properties partially offset by
a decrease in average cash balances  maintained in interest  bearing accounts at
the Partnership and its properties.

The increase in total expenses is due to an increase in operating  expense,  tax
expense,  interest  expense  and  depreciation  expense  partially  offset  by a
decrease in general and administrative expense.  Operating expense increased due
to an increase in property  expense and insurance  expense which were  partially
offset by a decrease in maintenance  expense.  Property  expense  increased as a
result of an increase in employee  salaries and related benefits at Northsprings
Apartments and Lakeside  Apartments  due to the hiring of additional  personnel.
Property  expense also increased due to an increase in utility expenses at three
of the  Partnership's  investment  properties as a result of vacant  apartments.
Insurance  expense  increased  due to an increase in  insurance  premiums at the
Partnership's four investment properties. Maintenance expense decreased due to a
reduction in the use of contract labor used for regular  maintenance  procedures
at Covington Pointe Apartments. Property tax expense increased due to the timing
of the receipt of the tax bills for Bexley House Apartments and Covington Pointe
Apartments  which  affected  the  accruals at December  31,  2000.  Depreciation
expense  increased  due to new assets  being  placed in service  during the past
twelve months. Interest expense increased due to the refinancing of the mortgage
encumbering  Bexley House  Apartments  during  December 2000 which increased the
debt balance.

General   and   administrative   expenses   decreased   due  to  a  decrease  in
administrative  expenses,  legal and professional  fees and the cost of services
included in the management  reimbursements  to the Managing  General  Partner as
allowed under the Partnership Agreement. 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.

For the year ended December 31, 2001,  there was an increase in equity in income
of the joint venture property. The Partnership owns a 17.5% interest in Sterling
Crest  Joint  Venture  (the  "Joint  Venture").  Equity in income from the joint
venture  increased  primarily  due to  increased  rental  revenue  at the  Joint
Venture's  investment  property,  Brighton  Crest  Apartments.  Rental  revenues
increased due to increased average rental rates.

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,  2001,  the  Partnership  had  cash and  cash  equivalents  of
approximately  $594,000 compared to approximately $573,000 at December 31, 2000.
The net increase in cash and cash  equivalents  for the year ended  December 31,
2000  was  due  to  approximately  $1,198,000  of  cash  provided  by  operating
activities which was partially offset by approximately  $702,000 of cash used in
financing  activities  and  approximately  $475,000  of cash  used in  investing
activities.  Cash used in financing activities consisted of distributions to the
partners,  principal  payments on the mortgages  encumbering  the  Partnership's
properties  and  additional  loan costs paid in relation to the  refinancing  of
Bexley House Apartments.  Cash used in investing  activities consisted primarily
of property  improvements and  replacements  partially offset by net withdrawals
from  escrow  accounts  maintained  by the  mortgage  lender  and  distributions
received from the joint venture.  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 $300 per unit or $174,000.  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 2002 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.


<PAGE>



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%.  The new
mortgage  matures on January 1, 2021, at which time it will be fully  amortized.
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 for the year ended  December 31, 2000.
During the year ended December 31, 2001,  the  Partnership  incurred  additional
loan costs of approximately  $14,000.  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  $12,748,000,  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.

Pursuant to the Partnership Agreement,  the term of the Partnership is scheduled
to expire on December 31, 2010. Accordingly,  prior to such date the Partnership
will need to either  sell its  investment  properties  or extend the term of the
Partnership.  If the Partnership is unable to extend its term, the ultimate sale
price of the investment properties may be adversely affected.

During the year ended December 31, 2001, the Partnership paid cash distributions
of approximately  $521,000 of which  approximately  $505,000 ($18.86 per limited
partnership  unit)  was  paid  to  the  limited  partners.  These  distributions
consisted  of cash from  operations  of  approximately  $454,000  (approximately
$440,000 to the limited partners or $16.43 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). During the year ended December
31,  2000,  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  Apartments.  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
cash available for distribution is reviewed on a monthly 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 2002 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,  2001 was  approximately
$122,000.

In addition to its  indirect  ownership of the general  partner  interest in the
Partnership,  AIMCO and its affiliates  currently own 11,561 limited partnership
units  in the  Partnership  representing  43.18%  of the  outstanding  units  at
December  31,  2001.  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  voting on certain  amendments  to the
Partnership  Agreement and voting to remove the Managing General  Partner.  As a
result  of its  ownership  of  43.18% of the  outstanding  units,  AIMCO is in a
position to influence all such 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
its affiliation with the Managing General Partner.

Recent Accounting Pronouncements

In August 2001, the Financial  Accounting  Standards  Board issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived  Assets".  SFAS No. 144
provide s accounting  guidance for  financial  accounting  and reporting for the
impairment or disposal of long-lived  assets.  SFAS No. 144 supersedes  SFAS No.
121,  "Accounting  for the  Impairment of Long-Lived  Assets and for  Long-Lived
Assets to be Disposed Of". SFAS No. 144 is effective for fiscal years  beginning
after December 15, 2001. The Managing  General  Partner does not anticipate that
its adoption will have a material effect on the financial position or results of
operations of the Partnership.


<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, 2001

      Consolidated Statements of Operations - Years ended December 31, 2001 and
      2000

      Consolidated  Statements of Changes in Partners' (Deficit) Capital - Years
      ended December 31, 2001 and 2000

      Consolidated Statements of Cash Flows - Years ended December 31, 2001 and
      2000

      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,  2001,  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, 2001. 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, 2001,  and the  consolidated  results of its
operations  and its cash  flows  for each of the two years in the  period  ended
December 31, 2001, in conformity with accounting  principles  generally accepted
in the United States.


                                                            /s/ERNST & YOUNG LLP



Greenville, South Carolina
February 15, 2002


<PAGE>





                         DAVIDSON INCOME REAL ESTATE, L.P.

                           CONSOLIDATED BALANCE SHEET
                          (in thousands, except unit data)

                                December 31, 2001
<TABLE>
<CAPTION>



Assets
<S>                                                           <C>            <C>
   Cash and cash equivalents                                                 $   594
   Receivables and deposits                                                      198
   Restricted escrows                                                            270
   Other assets                                                                  197
   Investment properties (Notes C and F):
      Land                                                    $  4,120
      Buildings and related personal property                   22,815
                                                                26,935
      Less accumulated depreciation                            (14,120)       12,815

   Investment in joint venture (Note B)                                           39
                                                                            $ 14,113
Liabilities and Partners' (Deficit) Capital
Liabilities
      Accounts payable                                                       $ 104
      Tenant security deposit liabilities                                         58
      Accrued property taxes                                                     377
      Other liabilities                                                          151
      Mortgage notes payable (Note C)                                         12,748

Partners' (Deficit) Capital
   General partners                                            $ (751)
   Limited partners (26,776 units issued and
      outstanding)                                               1,426           675
                                                                            $ 14,113


            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,
                                                              2001         2000
Revenues:
<S>                                                          <C>          <C>
   Rental income                                             $ 4,723      $ 4,759
   Other income                                                  276          249
      Total revenues                                           4,999        5,008

Expenses:
   Operating                                                   2,123        2,004
   General and administrative                                    236          251
   Depreciation                                                1,073        1,024
   Interest                                                    1,039          983
   Property taxes                                                462          389
      Total expenses                                           4,933        4,651

Income before equity in income of joint venture and
   extraordinary item                                             66          357
Equity in income of joint venture                                108           95

Income before extraordinary item                                 174          452
Extraordinary loss on early extinguishment of debt
   (Note C)                                                       --          (83)
Net income (Note D)                                           $ 174        $ 369

Net income allocated to general partners (3%)                  $ 5         $ 11

Net income allocated to limited partners (97%)                   169          358

                                                              $ 174        $ 369
Per limited partnership unit:
   Income before extraordinary item                          $ 6.31       $ 16.36
   Extraordinary item                                             --        (2.99)
Net income                                                   $ 6.31       $ 13.37

Distributions per limited partnership unit                   $ 18.86      $ 88.70


            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, 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

Distributions to partners                     --          (16)       (505)      (521)

Net income for the year ended
  December 31, 2001                           --            5         169        174

Partners' (deficit) capital at
  December 31, 2001                       26,776       $ (751)    $ 1,426     $ 675


            See Accompanying Notes to Consolidated Financial Statements
</TABLE>

<PAGE>


                         DAVIDSON INCOME REAL ESTATE, L.P.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (in thousands)

<TABLE>
<CAPTION>

                                                              Years Ended December 31,
                                                                  2001        2000
Cash flows from operating activities:
<S>                                                              <C>          <C>
  Net income                                                     $ 174        $ 369
  Adjustments to reconcile net income to net
   cash provided by operating activities:
     Depreciation                                                 1,073        1,024
     Amortization of discounts and loan costs                        65           77
     Equity in income of joint venture                             (108)         (95)
     Extraordinary loss on early extinguishment of debt              --           83
     Change in accounts:
      Receivables and deposits                                        1          161
      Other assets                                                  (22)           7
      Accounts payable                                              (16)         (23)
      Tenant security deposit liabilities                           (14)         (12)
      Accrued property taxes                                        105         (129)
      Other liabilities                                             (60)          51
          Net cash provided by operating activities               1,198        1,513

Cash flows from investing activities:
  Property improvements and replacements                           (659)        (751)
  Net withdrawals from (deposits to) restricted escrows               6         (119)
  Distributions from joint venture                                  178           96
          Net cash used in investing activities                    (475)        (774)

Cash flows from financing activities:
  Payments on mortgage notes payable                               (167)        (152)
  Distributions to partners                                        (521)      (2,828)
  Proceeds from mortgage note payable                                --        2,425
  Repayment of mortgage note payable                                 --       (1,205)
  Prepayment penalty                                                 --          (43)
  Loan costs paid                                                   (14)         (38)
          Net cash used in financing activities                    (702)      (1,841)

Net increase (decrease) in cash and cash equivalents                 21       (1,102)
Cash and cash equivalents at beginning of year                      573        1,675
Cash and cash equivalents at end of year                         $ 594        $ 573

Supplemental disclosure of cash flow information:
  Cash paid for interest                                         $ 961        $ 909


            See Accompanying Notes to Consolidated Financial Statements
</TABLE>

<PAGE>


                         DAVIDSON INCOME REAL ESTATE, L.P.

                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 2001


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"),  a publicly  traded real estate
investment  trust.  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,  2001,  approximately  $51,000  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.  As of December 31, 2001, this reserve
      account contains approximately $97,000.

      Reserve  Account - A general  reserve  account  was  established  with the
      refinancing  and financing  proceeds of  Northsprings  Apartments,  Bexley
      House  Apartments,  and  Covington  Pointe  Apartments.  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,
      2001 was approximately $122,000. 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, 2001 and 2000.
See "Recent Accounting Pronouncements" below.

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. 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 and in  banks.  At  certain  times,  the  amount  of cash
deposited  at a bank may  exceed the limit on insured  deposits.  Cash  balances
include  approximately  $514,000 at December 31, 2001 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  $493,000,   less  accumulated   amortization  of
approximately  $333,000, 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 B" 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. See "Recent Accounting Pronouncements" below.

Advertising

The  Partnership  expenses the costs of  advertising  as  incurred.  Advertising
expense, included in operating expenses, was approximately $136,000 and $129,000
for the years ended December 31, 2001 and 2000, 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.

Recent Accounting Pronouncements

In August 2001, the Financial  Accounting  Standards  Board issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived  Assets".  SFAS No. 144
provide s accounting  guidance for  financial  accounting  and reporting for the
impairment or disposal of long-lived  assets.  SFAS No. 144 supersedes  SFAS No.
121,  "Accounting  for the  Impairment of Long-Lived  Assets and for  Long-Lived
Assets to be Disposed Of". SFAS No. 144 is effective for fiscal years  beginning
after December 15, 2001. The Managing  General  Partner does not anticipate that
its adoption will have a material effect on the financial position or results of
operations of the Partnership.

Note B - 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 earnings 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  $108,000 and
$95,000 for the years ended  December 31, 2001 and 2000,  respectively.  In 2001
and 2000, the Partnership received  distributions of approximately  $178,000 and
$96,000, respectively, from the joint venture.

The  following  table  represents  net  assets and net income for the year ended
December 31, 2001:


Total assets                                $ 7,333
Total liabilities                             7,110

Total venture equity                        $   223

                                                      Years Ended December 31,
                                                      2001                2000

Total revenues                                      $ 2,723             $ 2,603
Total expenses                                        2,106               2,060

                                                    $   617             $   543

Note C - Mortgage Notes Payable

<TABLE>
<CAPTION>


                        Principal      Monthly                           Principal
                        Balance At     Payment     Stated                 Balance
                       December 31,   Including   Interest  Maturity       Due At
      Property             2001       Interest      Rate      Date        Maturity
                            (in thousands)                             (in thousands)
Northsprings
<S>                      <C>            <C>        <C>      <C>   <C>     <C>
  1st mortgage           $ 1,767        $ 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               2,374           19      7.32%    01/01/21           --

Covington Pointe
  1st mortgage             4,330           35      7.83%    10/15/03        4,169
  2nd mortgage               150            1      7.83%    10/15/03          150
                          12,782        $ 94                              $10,181
Less unamortized
  discounts                  (34)
</TABLE>

Total                    $12,748

(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%.  The new
mortgage  matures on January 1, 2021, at which time it will be fully  amortized.
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 for the year ended  December 31, 2000.
During the year ended December 31, 2001,  the  Partnership  incurred  additional
loan costs of approximately  $14,000.  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  Apartments  and  Covington  Pointe
Apartments.  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 Apartments and Covington Pointe Apartments.

Scheduled  principal  payments  of the  mortgage  notes  payable  subsequent  to
December 31, 2001 are as follows (in thousands):

                               2002             $   185
                               2003              10,346
                               2004                  69
                               2005                  74
                               2006                  79
                            Thereafter            2,029
                                                $12,782

Note D - 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):

                                    2001          2000

Net income as reported            $  174          $ 369
Add (deduct)
  Depreciation differences           (21)           (41)
  Equity in joint venture             (8)            (5)
  Prepaid rents                        7              8
  Miscellaneous                     (122)            20

Federal taxable income           $    30          $ 351

Federal taxable income per
  limited partnership unit       $  1.08         $12.70

The following is a reconciliation between the Partnership's reported amounts and
Federal  tax basis of net assets and  liabilities  as of  December  31,  2001(in
thousands):

Net assets as reported                       $   675
Land and buildings                             3,187
Accumulated depreciation                         299
Syndication                                    3,809
Other                                            802

Net assets - Federal tax basis               $ 8,772

Note E - 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, 2001 and 2000:

                                                        2001       2000
                                                         (in thousands)
Property management fees (included in
  operating expenses)                                   $ 254      $ 256
Reimbursement for services of affiliates
  (included in general and administrative expense,
  operating expense and investment properties)            336        148

During the years ended  December 31, 2001 and 2000,  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  $254,000 and
$256,000 for the years ended December 31, 2001 and 2000.

An  affiliate  of  the  Managing  General  Partner  received  reimbursements  of
accountable  administrative  expenses  amounting to  approximately  $336,000 and
$148,000 for the years ended December 31, 2001 and 2000, respectively.  Included
in these amounts are fees related to construction  management  services provided
by an affiliate of the Managing  General Partner of  approximately  $194,000 for
the year ended  December  31,  2001.  There were no such fees for the year ended
December 31, 2000. The construction management service fees are calculated based
on a  percentage  of current  and certain  prior year  additions  to  investment
properties and are being depreciated over 15 years.

Beginning in 2001, the  Partnership  began insuring its properties up to certain
limits through coverage provided by AIMCO which is generally  self-insured for a
portion of losses and  liabilities  related  to workers  compensation,  property
casualty and vehicle liability. The Partnership insures its properties above the
AIMCO  limits  through  insurance  policies  obtained  by  AIMCO  from  insurers
unaffiliated with the General Partner.  During the year ended December 31, 2001,
the  Partnership  paid  AIMCO  and  its  affiliates  approximately  $30,000  for
insurance coverage and fees associated with policy claims administration.

In addition to its  indirect  ownership of the general  partner  interest in the
Partnership,  AIMCO and its affiliates owned 11,561 limited partnership units in
the Partnership  representing  43.18% of the  outstanding  units at December 31,
2001. 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 either through  private  purchases or tender offers.  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 voting on certain amendments to the Partnership  Agreement and voting to
remove the Managing General  Partner.  As a result of its ownership of 43.18% of
the  outstanding  units,  AIMCO is in a position  to  influence  all such voting
decisions with respect to the Registrant. 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 its  affiliation  with the Managing
General Partner.



<PAGE>


Note F - Investment Properties and Accumulated Depreciation

<TABLE>
<CAPTION>

                                                   Initial Cost
                                                  To Partnership
                                                  (in thousands)


                                                           Buildings      Net Cost
                                                          and Related    Capitalized
                                                           Personal     Subsequent to
Description                  Encumbrances       Land       Property      Acquisition
                            (in thousands)                             (in thousands)
<S>                             <C>            <C>          <C>             <C>
Northsprings Apartments         $ 1,828        $ 736        $ 4,196         $ 270
Lakeside Apartments               4,100         1,259         5,791            162
Bexley House Apartments           2,374           647         3,067            432
Covington Pointe
 Apartments                       4,480         1,935         7,041          1,399

Totals                          $12,782       $ 4,577       $20,095        $ 2,263
</TABLE>

<TABLE>
<CAPTION>

                     Gross Amount At Which
                            Carried
                     At December 31, 2001
                        (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    $ 4,605   $ 5,202    $ 2,978         1969       11/85      5-25
Lakeside            1,046     6,166     7,212      3,871         1980       05/86      5-25
Bexley House          542     3,604     4,146      2,280         1972       09/86      5-25
Covington Pointe    1,935     8,440    10,375      4,991         1982       03/87      5-25

Totals            $ 4,120   $22,815   $26,935    $14,120
</TABLE>

Reconciliation of "Investment Properties and Accumulated Depreciation"

                                              Years Ended December 31,
                                                 2001          2000
                                                   (in thousands)
Real Estate
Balance at beginning of year                    $26,276       $25,768
  Property Improvements                             659           508
Balance at end of year                          $26,935       $26,276

Accumulated Depreciation
Balance at beginning of year                    $13,047       $12,023
  Additions charged to expense                    1,073         1,024
Balance at end of year                          $14,120       $13,047

The  aggregate  cost of the real  estate  for  Federal  income tax  purposes  at
December  31,  2001 and 2000,  is  approximately  $30,121,000  and  $29,462,000,
respectively. The accumulated depreciation taken for Federal income tax purposes
at December 31, 2001 and 2000, is  approximately  $13,820,000  and  $12,727,000,
respectively.

Note G - 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, 2001 and 2000.

Note H - Distributions

During the year ended December 31, 2001, the Partnership paid cash distributions
of approximately  $521,000 of which  approximately  $505,000 ($18.86 per limited
partnership  unit)  was  paid  to  the  limited  partners.  These  distributions
consisted  of cash from  operations  of  approximately  $454,000  (approximately
$440,000 to the limited partners or $16.43 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). During the year ended December
31,  2000,  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 Apartments.


<PAGE>



Note I - 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. (the "Nuanes action") 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  Managing  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 series of  transactions  which  closed on
October 1, 1998 and February 26, 1999 whereby  Insignia and Insignia  Properties
Trust,  respectively,  were merged  into AIMCO.  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.  On May 14, 2001,  the Court heard the
demurrer to the third amended  complaint.  On July 10, 2001, the Court issued an
order  sustaining  defendants'  demurrer on certain  grounds.  On July 20, 2001,
Plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order
granting in part and denying in part defendants' demurrer. On September 7, 2001,
Plaintiffs  filed a fourth amended class and  derivative  action  complaint.  On
September 12, 2001, the Court denied Plaintiffs' motion for reconsideration.  On
October 5, 2001, the Managing General Partner and affiliated  defendants filed a
demurrer to the fourth amended complaint,  which was heard on December 11, 2001.
On February 2, 2002,  the Court served its order  granting in part the demurrer.
The  Court has  dismissed  without  leave to amend  certain  of the  plaintiffs'
claims.  On February 11, 2002,  plaintiffs  filed a motion  seeking to certify a
putative  class  comprised of all  non-affiliated  persons who own or have owned
units  in  the  partnerships.   The  Managing  General  Partner  and  affiliated
defendants  intend  to  oppose  the  motion  and are  scheduled  to  file  their
opposition  brief on March 26, 2002. A hearing on the motion has been  scheduled
for April 29, 2002. The Court has set the matter for trial in January 2003.

During the third  quarter of 2001, a complaint  (the "Heller  action") was filed
against  the same  defendants  that are named in the  Nuanes  action,  captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended  complaint.  The first amended complaint in the Heller action is
brought as a purported  derivative  action,  and asserts  claims for among other
things  breach  of  fiduciary  duty;  unfair  competition;   conversion,  unjust
enrichment;  and judicial  dissolution.  Plaintiffs in the Nuanes action filed a
motion to  consolidate  the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed  without  leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the Managing  General  Partner and affiliated
defendants  moved to strike the first  amended  complaint  in its  entirety  for
violating  the Court's July 10, 2001 order  granting in part and denying in part
defendants'  demurrer in the Nuanes action, or alternatively,  to strike certain
portions of the complaint based on the statute of limitations.  Other defendants
in the action  demurred to the fourth  amended  complaint,  and,  alternatively,
moved to strike the complaint. On December 11, 2001, the court heard argument on
the motions  and took the matters  under  submission.  On February 4, 2002,  the
Court  served  notice of its order  granting  defendants'  motion to strike  the
Heller complaint as a violation of its July 10, 2001 order in the Nuanes action.

The Managing  General Partner does not anticipate that any costs,  whether legal
or  settlement  costs,  associated  with  these  cases 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.


<PAGE>




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

            None.


<PAGE>


                                    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       44    Executive Vice President and Director

      Martha L. Long        42    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.



<PAGE>


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 accounting  principles
generally accepted in the United States,  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 auditing standards  generally accepted in the United States. 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 have approved
the  inclusion of the audited  financial  statements  in the Form 10-KSB for the
year  ended  December  31,  2001 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 audit services of  approximately
$50,000  and  non-audit  services  (principally  tax-related)  of  approximately
$25,000.

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, 2001.

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, 2001.

                                                             Percentage
                 Entity                   Number of Units     of Total

Insignia Properties, LP (1)                      570            2.13%
  (an affiliate of AIMCO)
AIMCO Properties, LP (2)                       7,161           26.75%
  (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.


<PAGE>


As of December 31, 2001, 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, 2001 and 2000:

                                                        2001       2000
                                                         (in thousands)

Property management fees                                $ 254      $ 256
Reimbursement for services of affiliates                  336        148

During the years ended  December 31, 2001 and 2000,  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  $254,000 and
$256,000 for the years ended December 31, 2001 and 2000.

An  affiliate  of  the  Managing  General  Partner  received  reimbursements  of
accountable  administrative  expenses  amounting to  approximately  $336,000 and
$148,000 for the years ended December 31, 2001 and 2000, respectively.  Included
in these amounts are fees related to construction  management  services provided
by an affiliate of the Managing  General Partner of  approximately  $194,000 for
the year ended  December  31,  2001.  There were no such fees for the year ended
December 31, 2000. The construction management service fees are calculated based
on a  percentage  of current  and certain  prior year  additions  to  investment
properties and are being depreciated over 15 years.

Beginning in 2001, the  Partnership  began insuring its properties up to certain
limits through coverage provided by AIMCO which is generally  self-insured for a
portion of losses and  liabilities  related  to workers  compensation,  property
casualty and vehicle liability. The Partnership insures its properties above the
AIMCO  limits  through  insurance  policies  obtained  by  AIMCO  from  insurers
unaffiliated with the General Partner.  During the year ended December 31, 2001,
the  Partnership  paid  AIMCO  and  its  affiliates  approximately  $30,000  for
insurance coverage and fees associated with policy claims administration.

In addition to its  indirect  ownership of the general  partner  interest in the
Partnership,  AIMCO and its affiliates owned 11,561 limited partnership units in
the Partnership  representing  43.18% of the  outstanding  units at December 31,
2001. 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 either through  private  purchases or tender offers.  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 voting on certain amendments to the Partnership  Agreement and voting to
remove the Managing General  Partner.  As a result of its ownership of 43.18% of
the  outstanding  units,  AIMCO is in a position  to  influence  all such voting
decisions with respect to the Registrant. 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 its  affiliation  with the Managing
General Partner.


<PAGE>


Item 13.    Exhibits and Reports on Form 8-K

      (a) Exhibits:

          None.

      (b) Reports on Form 8-K filed in the fourth quarter of calendar year 2001:

          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: March 26, 2002


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: March 26, 2002
Patrick J. Foye         and Director


/s/Martha L. Long       Senior Vice President         Date: March 26, 2002
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.