SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   Form 10-KSB
(Mark One)
[X]   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
         1934

                    For the fiscal year ended December 31, 2002

[ ]   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
         OF 1934

                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.  $4,835,000

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, 2002. 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

The matters discussed in this report contain certain forward-looking statements,
including, without limitation, statements regarding future financial performance
and the effect of government  regulations.  The discussions of the  Registrant's
business  and  results  of  operations,   including  forward-looking  statements
pertaining to such matters,  do not take into account the effects of any changes
to the  Registrant's  business  and results of  operations.  Actual  results may
differ  materially  from those described in the  forward-looking  statements and
will  be  affected  by  a  variety  of  risks  and  factors  including,  without
limitation:  national and local economic  conditions;  the terms of governmental
regulations that affect the Registrant and interpretations of those regulations;
the competitive  environment in which the Registrant operates;  financing risks,
including the risk that cash flows from  operations may be  insufficient to meet
required  payments of  principal  and  interest;  real estate  risks,  including
variations  of real  estate  values and the  general  economic  climate in local
markets and competition for tenants in such markets; and possible  environmental
liabilities.   Readers  should  carefully  review  the  Registrant's   financial
statements and the notes thereto,  as well as the risk factors  described in the
documents  the  Registrant  files  from  time to time  with the  Securities  and
Exchange Commission.

                                     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.

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  provides such
property management services.

Risk Factors

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.

Laws benefiting  disabled persons may result in the Partnership's  incurrence of
unanticipated  expenses.  Under the Americans with  Disabilities Act of 1990, or
ADA,  all places  intended to be used by the public are required to meet certain
Federal  requirements  related to access and use by disabled persons.  Likewise,
the Fair Housing Amendments Act of 1988, or FHAA, requires apartment  properties
first occupied after March 13, 1990 to be accessible to the  handicapped.  These
and other  Federal,  state  and  local  laws may  require  modifications  to the
Partnership's   properties,   or  restrict   renovations   of  the   properties.
Noncompliance  with  these laws could  result in the  imposition  of fines or an
award of  damages  to private  litigants  and also  could  result in an order to
correct any  non-complying  feature,  which could result in substantial  capital
expenditures.   Although  the  Managing   General  Partner   believes  that  the
Partnership's   properties  are   substantially   in  compliance   with  present
requirements,  the Partnership may incur  unanticipated  expenses to comply with
the ADA and the FHAA.

Both the income and expenses of operating the investment 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.

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.

Insurance  coverage is becoming  more  expensive  and  difficult to obtain.  The
current  insurance market is  characterized by rising premium rates,  increasing
deductibles,  and more restrictive  coverage language.  Recent developments have
resulted in  significant  increases in insurance  premiums and have made it more
difficult to obtain  certain types of insurance.  As an example,  many insurance
carriers are excluding  mold-related  risks from their policy coverages,  or are
adding  significant  restrictions to such coverage.  Continued  deterioration in
insurance   market  place   conditions  may  have  a  negative   effect  on  the
Partnership's operating results.

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

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   Depreciable    Method of      Federal
Property                     Value    Depreciation      Life     Depreciation    Tax Basis
                                (in thousands)                                 (in thousands)

<S>                         <C>         <C>           <C>                         <C>
Northsprings Apartments     $ 5,354     $ 3,205       5-30 yrs        S/L         $ 3,074
Lakeside Apartments           7,346       4,179       5-30 yrs        S/L           4,125
Bexley House Apartments       4,181       2,453       5-30 yrs        S/L           2,330
Covington Pointe
 Apartments                  10,454       5,383       5-30 yrs        S/L           6,081
                            $27,335     $15,220                                   $15,610
</TABLE>

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

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             2002         Rate     Amortized    Date     Maturity (2)
                       (in thousands)                                  (in thousands)

Northsprings
<S>                       <C>           <C>       <C>        <C>   <C>     <C>
  1st mortgage            $ 1,731       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              2,315       7.32%     20 years   01/01/21           --
Covington Pointe
  1st mortgage              4,240       7.83%     28.67 yrs  10/15/03        4,169
  2nd mortgage                150       7.83%        (1)     10/15/03          150

Total                      12,597                                          $10,181
Less unamortized
  Discounts                   (17)

Total                     $12,580
</TABLE>

(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 prepay these loans and other specific details about the loans.

During the year ended December 31, 2001,  the  Partnership  incurred  additional
loan costs of  approximately  $14,000 related to the refinancing of the mortgage
encumbering Bexley House Apartments in 2000.

Schedule of Rental Rates and Occupancy

Average  annual  rental rates and  occupancy for 2002 and 2001 for each property
were:

                                      Average Annual                Average
                                       Rental Rates                Occupancy
                                        (per Unit)
 Property                            2002         2001         2002        2001
 Northsprings Apartments           $11,102      $10,872        89%          91%
 Lakeside Apartments                 6,609        7,304        91%          91%
 Bexley House Apartments            12,643       12,798        99%          93%
 Covington Pointe Apartments         9,832       10,185        90%          90%

The  Managing  General  Partner  attributes  the increase in occupancy at Bexley
House  Apartments to  successful  resident  retention  and  increased  marketing
efforts.

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

Schedule of Real Estate Taxes and Rates

Real estate taxes and rates in 2002 for each property were:

                                            2002               2002
                                          Billings             Rates
                                       (in thousands)
       Northsprings Apartments              $ 83               3.63%
       Lakeside Apartments                     86              1.45%
       Bexley House Apartments                 97              8.95%
       Covington Pointe Apartments            188              2.80%

Capital Improvements

Northsprings Apartments

During the year ended December 31, 2002, the Partnership completed approximately
$150,000  of  capital  improvements  at  Northsprings   Apartments,   consisting
primarily of plumbing improvements, parking area resurfacing, wall covering, and
appliance and floor covering  replacements.  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
and currently expects to budget approximately $36,000.  Additional  improvements
may be considered  during 2003 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, 2002, the Partnership completed approximately
$134,000 of capital improvements at Lakeside Apartments, consisting primarily of
floor covering and appliance replacements,  office computers, plumbing upgrades,
water  submetering,  and wall  coverings.  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
and currently expects to budget approximately $65,000.  Additional  improvements
may be considered  during 2003 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, 2002, the Partnership completed approximately
$37,000 of capital improvements at Bexley House Apartments, consisting primarily
of heating equipment,  and floor covering replacements.  These improvements were
funded from operating cash flow and  replacement  reserves.  The  Partnership is
currently  evaluating  the capital  improvement  needs of the  property  for the
upcoming year and currently expects to budget approximately $19,000.  Additional
improvements  may be  considered  during  2003 and will  depend on the  physical
condition of the property as well as replacement  reserves and anticipated  cash
flow generated by the property.

Covington Pointe Apartments

During the year ended December 31, 2002, the Partnership completed approximately
$79,000 of capital  improvements  at  Covington  Pointe  Apartments,  consisting
primarily  of  appliance  and  floor  covering  replacements,  air  conditioning
upgrades and structural  improvements.  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
and currently expects to budget approximately $68,000.  Additional  improvements
may be considered  during 2003 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  oppose the motion.  On April 29,  2002,  the Court held a hearing on
plaintiffs' motion for class  certification and took the matter under submission
after further  briefing,  as ordered by the court, was submitted by the parties.
On July 10, 2002,  the Court entered an order vacating the current trial date of
January 13, 2003 (as well as the  pre-trial  and  discovery  cut-off  dates) and
stayed the case in its  entirety  through  November  7, 2002 so that the parties
could have an opportunity to discuss settlement.  On October 30, 2002, the court
entered an order extending the stay in effect through January 10, 2003.

On January 8, 2003,  the parties filed a  Stipulation  of Settlement in proposed
settlement of the Nuanes action and the Heller action described below. The Court
has  scheduled  the hearing on  preliminary  approval  for April 4, 2003 and the
hearing on final approval for June 2, 2003.

In general  terms,  the  proposed  settlement  provides  for  certification  for
settlement  purposes of a settlement class consisting of all limited partners in
this  Partnership and others (the  "Partnerships")  as of December 20, 2002, the
dismissal  with  prejudice  and  release  of claims  in the  Nuanes  and  Heller
litigation,  payment by AIMCO of $9.9  million  (which shall be  distributed  to
settlement  class  members  after  deduction of attorney fees and costs of class
counsel and certain costs of  settlement)  and up to $ 1 million toward the cost
of independent  appraisals of the Partnerships'  properties by a Court appointed
appraiser.  An affiliate of the Managing General Partner has also agreed to make
a tender offer to purchase all of the partnership  interests in the Partnerships
within one year of final  approval,  if it is granted,  and to provide  partners
with the  independent  appraisals  at the time of these  tenders.  The  proposed
settlement  also provides for the  limitation  of the allowable  costs which the
Managing  General  Partner or its  affiliates  will charge the  Partnerships  in
connection with this litigation and imposes limits on the class counsel fees and
costs in this  litigation.  If the  Court  grants  preliminary  approval  of the
proposed settlement in April, a notice will be distributed to partners providing
detail on the terms of the proposed settlement.

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.
On March 27, 2002,  the plaintiffs  filed a notice  appealing the order striking
the  complaint.  Before  completing  briefing on the appeal,  the parties stayed
further proceedings in the appeal pending the Court's review of the terms of the
proposed settlement described above.

The  Managing  General  Partner  does  not  anticipate  that  any  costs  to the
Partnership, 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, 2002, no matters were submitted to a vote
of unit holders through the solicitation of proxies or otherwise.

                                     PART II

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

The  Partnership,  a publicly  held  limited  partnership,  sold 26,776  limited
partnership  units (the  "Units")  aggregating  $26,776,000  during its offering
period.  As of December 31, 2002,  there are 1,606  holders of record  owning an
aggregate of 26,776  units.  Affiliates  of the Managing  General  Partner owned
11,916.50  Units or 44.50% as of December 31, 2002. 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, 2001 and 2002 (see "Item 6. Management's Discussion and
Analysis or Plan of Operation" for further details):

                                              Distributions
                                                           Per Limited
                                       Aggregate         Partnership Unit
                                    (in thousands)

      01/01/01 - 12/31/01             $   521 (1)             $18.86
      01/01/02 - 12/31/02               1,328 (2)              48.11

(1)   Distribution was made from cash from operations of approximately  $454,000
      and remaining  proceeds from the  refinancing of the mortgage  encumbering
      Bexley House Apartments of approximately $67,000.

(2)   Distribution   was  from   operations   of   approximately   $620,000  and
      distributions received as a result of the refinancing of the joint venture
      property of approximately $708,000.

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 2003 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, 2002 was approximately $96,000.

In addition to its indirect  ownership of the general  partner  interests in the
Partnership,  AIMCO and its affiliates owned 11,916.50 limited partnership units
(the "Units") in the Partnership representing 44.50% of the outstanding Units at
December  31,  2002.  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 acquire additional units of limited partnership  interest in the
Partnership  in  exchange  for cash or a  combination  of cash and  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
44.50% of the outstanding  Units, AIMCO is in a position to influence all voting
decisions with respect to the Registrant.  Although the Managing General Partner
owes fiduciary duties to the limited  partners of the Partnership,  the Managing
General Partner also owes fiduciary duties to AIMCO as its sole stockholder.  As
a result,  the duties of the  Managing  General  Partner,  as  managing  general
partner, to the Partnership and its limited partners may come into conflict with
the duties of the Managing General Partner to AIMCO, as its sole stockholder.

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

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 a net loss of approximately $185,000 for the year ended
December  31, 2002 as compared to the net income of $174,000  for the year ended
December  31, 2001.  The  decrease in income is  primarily  due to a decrease in
equity in income of the joint  venture,  a  decrease  in total  revenues  and an
increase in total expenses. Total revenues decreased due to a decrease in rental
income partially offset by an increase in other income.  Rental income decreased
due to a  decrease  in  average  rental  rates  at  three  of the  Partnership's
properties  and an  increase  in bad debt at  Covington  Pointe  Apartments  and
Northsprings  Apartments  partially offset by an increase in occupancy at Bexley
House  Apartments.  Other  income  increased  due to an  increase  in  utilities
reimbursements at all the Partnership's  properties and lease  cancellation fees
at Northsprings Apartments and Covington Pointe Apartments partially offset by a
decrease  in  interest  income  as a  result  of  lower  average  cash  balances
maintained in interest  bearing  accounts by the  Partnership and its investment
properties.

The increase in total expenses is due to an increase in operating, depreciation,
and  property  tax  expense  partially  offset  by a  decrease  in  general  and
administrative  and interest  expense.  Operating  expenses  increased due to an
increase in insurance and maintenance  expense partially offset by a decrease in
advertising  expenses and property expenses.  Insurance expense increased due to
an increase in insurance  premiums at Covington  Pointe  Apartments  offset by a
slight  decrease  in  premiums  at  Lakeside  Apartments.   Maintenance  expense
increased  due to an increase  in contract  work and  building  improvements  at
Northsprings Apartments partially offset by a decrease in maintenance expense at
all other properties. Also contributing to the decrease in maintenace expense is
an increase in the capitalization of certain direct and indirect projects costs,
principally  payroll  related  costs,  at all of the  properties  (see  "Item 7.
Financial Statements - Note A"). Advertising expense decreased due to a decrease
in periodical expense at all of the Partnership's  properties.  Property expense
decreased due to a decrease utility bills and employee  salaries at Northsprings
Apartments  and  Lakeside  Apartments.  Depreciation  expense  increased  due to
capital  improvements  placed into service  during the past twelve  months being
depreciated.  Property tax expense  increased  due to an increase in tax rate at
Covington  Pointe  Apartments  and an increase in the  assessed  value of Bexley
House Apartments.

General  and  administrative  expense  for the  year  ended  December  31,  2002
decreased  due  to a  decrease  in  professional  and  administrative  expenses.
Included in general and administrative expenses are cost of services included in
the management  reimbursements  to the Managing General Partner as allowed under
the Partnership Agreement.  Also included in general and administrative expenses
are costs associated with the quarterly and annual communications with investors
and  regulatory  agencies  and the  annual  audit  required  by the  Partnership
Agreement.  Interest  expense  decreased  due to  payments of  principal  on the
mortgages encumbering Northsprings, Bexley House and Covington Pointe.

For the year ended December 31, 2002 the Partnership  recognized  equity in loss
of the joint venture property of approximately  $21,000 as compared to equity in
income of the joint  venture  property of  approximately  $108,000  for the year
ended  December 31,  2001.  The  Partnership  owns a 17.5%  general  partnership
interest in Sterling Crest Joint Venture (the "Joint Venture"). Equity in income
from the joint venture decreased due primarily to a loss on early extinguishment
of debt  related to the  refinancing  of the joint  venture  property in January
2002. The Partnership's  equity in this loss on early extinguishment of debt was
approximately  $54,000.  At December  31,  2002,  the  Partnership  had received
distributions  in  excess  of its  general  partnership  investment  and  has an
investment deficiency of approximately $799,000.

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,  2002,  the  Partnership  had  cash and  cash  equivalents  of
approximately  $576,000 compared to approximately $594,000 at December 31, 2001.
The net decrease in cash and cash  equivalents  for the year ended  December 31,
2002 was due to  approximately  $1,443,000 of cash used in financing  activities
which was  partially  offset  by  approximately  $921,000  of cash  provided  by
operating activities and $504,000 of cash provided by investing activities. Cash
used in financing activities consisted of distributions to the partners and to a
lesser extent, principal payments on the mortgages encumbering the Partnership's
investment  properties  partially offset by net advances from  affiliates.  Cash
provided by investing  activities  consisted  primarily of net withdrawals  from
escrow  accounts  maintained by the mortgage lender and  distributions  received
from  the  joint  venture   partially   offset  by  property   improvements  and
replacements.  The Partnership  invests its working capital reserves in interest
bearing accounts.

The Partnership received  distributions of approximately $817,000 from the joint
venture  consisting  of  approximately  $785,000  for its  portion of the excess
proceeds  received  from  the  refinancing  of the  joint  venture's  investment
property in January 2002 and approximately  $32,000 from operations at the joint
venture.

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 investment  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  Managing
General  Partner  monitors  developments  in the  area of legal  and  regulatory
compliance and is studying new federal laws, including the Sarbanes-Oxley Act of
2002. The Sarbanes-Oxley Act of 2002 mandates or suggests additional  compliance
measures with regard to governance,  disclosure, audit and other areas. In light
of these changes,  the  Partnership  expects that it will incur higher  expenses
related to compliance, including increased legal and audit fees. The Partnership
is currently  evaluating the capital improvement needs of each of its properties
for the year  2003 and  currently  expects  to  budget  approximately  $188,000.
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  2003 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.

The  Partnership's  assets are thought to be sufficient for any near-term  needs
(exclusive  of  capital   improvements)   of  the   Partnership.   The  mortgage
indebtedness of approximately  $12,580,000,  net of discounts, is amortized over
varying periods with approximately $6,081,000 due at maturity in October of 2003
for Northsprings and Covington Pointe  Apartments and  approximately  $4,100,000
due in November of 2003 for Lakeside  Apartments.  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.

The  Partnership  distributed  the  following  amounts  during  the years  ended
December 31, 2002 and 2001 (in thousands except per unit data):

<TABLE>
<CAPTION>

                                          Per                               Per
                      Year Ended        Limited         Year Ended        Limited
                     December 31,     Partnership      December 31,     Partnership
                         2002             Unit             2001             Unit

<S>                    <C>              <C>              <C>               <C>
Operations             $  620           $22.45           $  454            $16.43
Refinancing (1)           708            25.66               67              2.43
                       $1,328           $48.11           $  521            $18.86
</TABLE>

(1)   From the  refinance  of the  joint  venture  property  for the year  ended
      December 31, 2002 and Bexley House  Apartments for the year ended December
      31, 2001.

The  Partnership's  cash  available  for  distribution  is reviewed on a monthly
basis. 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.  There can be no  assurance,
however,  that the Partnership  will generate  sufficient  funds from operations
after  required  capital  improvements  to permit further  distributions  to its
partners during 2003 or subsequent  periods.  Distributions may be restricted by
the requirement to deposit net operating  income into a reserve account until it
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, 2002 was
approximately $96,000.

In addition to its indirect  ownership of the general  partner  interests in the
Partnership,  AIMCO and its affiliates owned 11,916.50 limited partnership units
(the "Units") in the Partnership representing 44.50% of the outstanding Units at
December  31,  2002.  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 acquire additional units of limited partnership  interest in the
Partnership  in  exchange  for cash or a  combination  of cash and  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
44.50% of the outstanding  Units, AIMCO is in a position to influence all voting
decisions with respect to the Registrant.  Although the Managing General Partner
owes fiduciary duties to the limited  partners of the Partnership,  the Managing
General Partner also owes fiduciary duties to AIMCO as its sole stockholder.  As
a result,  the duties of the  Managing  General  Partner,  as  managing  general
partner, to the Partnership and its limited partners may come into conflict with
the duties of the Managing General Partner to AIMCO, as its sole stockholder.

Critical Accounting Policies and Estimates

A summary of the Partnership's  significant  accounting  policies is included in
"Note A - Organization and Summary of Significant  Accounting Policies" which is
included  in  the  consolidated  financial  statements  in  "Item  7.  Financial
Statements".   The  Managing   General  Partner  believes  that  the  consistent
application of these policies  enables the Partnership to provide readers of the
financial   statements   with  useful  and   reliable   information   about  the
Partnership's  operating  results and financial  condition.  The  preparation of
consolidated  financial  statements in  conformity  with  accounting  principles
generally  accepted  in the  United  States  requires  the  Partnership  to make
estimates and assumptions.  These estimates and assumptions  affect the reported
amounts of assets and  liabilities  at the date of the  financial  statements as
well as reported  amounts of revenues and expenses during the reporting  period.
Actual results could differ from these  estimates.  Judgments and assessments of
uncertainties are required in applying the Partnership's  accounting policies in
many  areas.  The  Partnership  believes  that  of  its  significant  accounting
policies, the following may involve a higher degree of judgment and complexity.

Impairment of Long-Lived Assets

Investment  properties  are  recorded at cost,  less  accumulated  depreciation,
unless  considered  impaired.  If  events  or  circumstances  indicate  that the
carrying  amount of a property may be  impaired,  the  Partnership  will make an
assessment of its  recoverability  by estimating  the  undiscounted  future cash
flows,  excluding  interest  charges,  of the property.  If the carrying  amount
exceeds the aggregate  future cash flows,  the  Partnership  would  recognize an
impairment  loss to the extent the carrying amount exceeds the fair value of the
property.

Real  property  investments  are  subject  to varying  degrees of risk.  Several
factors  may  adversely  affect  the  economic  performance  and  value  of  the
Partnership's  investment  properties.  These  factors  include  changes  in the
national,  regional and local economic  climate;  local  conditions,  such as an
oversupply  of  multifamily   properties;   competition   from  other  available
multifamily  property  owners and changes in market  rental  rates.  Any adverse
changes in these factors could cause an impairment in the Partnership's assets.

Revenue Recognition

The Partnership generally leases apartment units for twelve-month terms or less.
Rental income  attributable to leases is recognized  monthly as it is earned and
the Partnership  fully reserves all balances  outstanding  over thirty days. The
Partnership will offer rental concessions during  particularly slow months or in
response  to  heavy  competition  from  other  similar  complexes  in the  area.
Concessions are charged to income as incurred.

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, 2002

      Consolidated Statements of Operations - Years ended December 31, 2002 and
        2001

      Consolidated  Statements of Changes in Partners' (Deficit) Capital - Years
      ended December 31, 2002 and 2001

      Consolidated  Statements of Cash Flows - Years ended December 31, 2002 and
        2001

      Notes to Consolidated Financial Statements

                 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,  2002,  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, 2002. 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, 2002,  and the  consolidated  results of its
operations  and its cash  flows  for each of the two years in the  period  ended
December 31, 2002, in conformity with accounting  principles  generally accepted
in the United States.


                                                           /s/ERNST & YOUNG LLP



Greenville, South Carolina
February 14, 2003

                        DAVIDSON INCOME REAL ESTATE, L.P.

                           CONSOLIDATED BALANCE SHEET
                        (in thousands, except unit data)

                                December 31, 2002

<TABLE>
<CAPTION>


Assets
<S>                                                                          <C>
   Cash and cash equivalents                                                 $ 576
   Receivables and deposits                                                      119
   Restricted escrows                                                            183
   Other assets                                                                  188
   Investment properties (Notes C and F):
      Land                                                    $ 4,120
      Buildings and related personal property                   23,215
                                                                27,335
      Less accumulated depreciation                            (15,220)       12,115

                                                                            $ 13,181
Liabilities and Partners' Deficit
Liabilities
      Accounts payable                                                        $ 60
      Tenant security deposit liabilities                                         89
      Accrued property taxes                                                     302
      Other liabilities                                                          118
      Due to affiliates (Note E)                                                  71
      Mortgage notes payable (Note C)                                         12,580
      Deficit in joint venture (Note B)                                          799

Partners' Deficit
   General partners                                            $ (797)
   Limited partners (26,776 units issued and
      outstanding)                                                 (41)         (838)
                                                                            $ 13,181

            See Accompanying Notes to Consolidated Financial Statements
</TABLE>

                        DAVIDSON INCOME REAL ESTATE, L.P.

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

<TABLE>
<CAPTION>


                                                           Years Ended December 31,
                                                              2002         2001
Revenues:
<S>                                                          <C>          <C>
   Rental income                                             $ 4,499      $ 4,723
   Other income                                                  336          276
      Total revenues                                           4,835        4,999

Expenses:
   Operating                                                   2,187        2,123
   General and administrative                                    215          236
   Depreciation                                                1,100        1,073
   Interest                                                    1,026        1,039
   Property taxes                                                471          462
      Total expenses                                           4,999        4,933

(Loss) income before equity in (loss) income of
   joint venture                                                (164)          66
Equity in (loss) income of joint venture                         (21)         108

Net (loss) income (Note D)                                   $ (185)       $ 174

Net (loss) income allocated to general partners (3%)          $ (6)         $ 5

Net (loss) income allocated to limited partners (97%)          (179)          169

                                                             $ (185)       $ 174

Net (loss) income per limited partnership unit               $ (6.69)     $ 6.31

Distributions per limited partnership unit                   $ 48.11      $ 18.86

            See Accompanying Notes to Consolidated Financial Statements
</TABLE>

                        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, 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

Distributions to partners                     --          (40)     (1,288)    (1,328)

Net loss for the year ended
  December 31, 2002                           --           (6)       (179)      (185)

Partners' deficit at
  December 31, 2002                       26,776       $ (797)     $ (41)     $ (838)

            See Accompanying Notes to Consolidated Financial Statements
</TABLE>

                        DAVIDSON INCOME REAL ESTATE, L.P.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
<TABLE>
<CAPTION>

                                                              Years Ended December 31,
                                                                  2002        2001
Cash flows from operating activities:
<S>                                                              <C>          <C>
  Net (loss) income                                              $ (185)      $ 174
  Adjustments to reconcile net (loss) income to net
   cash provided by operating activities:
     Depreciation                                                 1,100        1,073
     Amortization of discounts and loan costs                        64           65
     Equity in loss (income) of joint venture                        21         (108)
     Change in accounts:
      Receivables and deposits                                       79            1
      Other assets                                                  (38)         (22)
      Accounts payable                                              (44)         (16)
      Tenant security deposit liabilities                            31          (14)
      Accrued property taxes                                        (75)         105
      Other liabilities                                             (32)         (60)
          Net cash provided by operating activities                 921        1,198

Cash flows from investing activities:
  Property improvements and replacements                           (400)        (659)
  Net withdrawals from restricted escrows                            87            6
  Distributions from joint venture                                  817          178
          Net cash provided by (used in) investing
            Activities                                              504         (475)

Cash flows from financing activities:
  Payments on mortgage notes payable                               (185)        (167)
  Distributions to partners                                      (1,328)        (521)
  Advances from affiliates                                           79           --
  Payments on advances from affiliates                               (9)          --
  Loan costs paid                                                    --          (14)
          Net cash used in financing activities                  (1,443)        (702)

Net (decrease) increase in cash and cash equivalents                (18)          21
Cash and cash equivalents at beginning of year                      594          573
Cash and cash equivalents at end of year                         $ 576        $ 594

Supplemental disclosure of cash flow information:
  Cash paid for interest                                         $ 987        $ 961

            See Accompanying Notes to Consolidated Financial Statements
</TABLE>

                        DAVIDSON INCOME REAL ESTATE, L.P.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 2002


Note A - Organization and Summary of 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 director 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 accounting principles
generally  accepted in the United States  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,  2002,  approximately  $31,000  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, 2002, this reserve
      account contains approximately $56,000.

      Reserve  Account - A general  reserve  account  was  established  with the
      refinancing  and  financing   proceeds  of  Northsprings   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, 2002 was  approximately
      $96,000.

Investment Properties

Investment properties,  which consist of four apartment complexes, are stated at
cost. Acquisition fees are capitalized as a cost of real estate. Expenditures in
excess of $250 that  maintain an existing  asset which has a useful life of more
than  one  year  are  capitalized  as  capital   replacement   expenditures  and
depreciated  over the  estimated  useful  life of the  asset.  Expenditures  for
ordinary  repairs,  maintenance  and  apartment  turnover  costs are expensed as
incurred.  In  accordance  with  Statement  of  Financial  Accounting  Standards
("SFAS")  No. 144,  "Accounting  for the  Impairment  or Disposal of  Long-Lived
Assets",  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, 2002 and 2001.

During 2001, AIMCO, an affiliate of the Managing General Partner, commissioned a
project to study process improvement ideas to reduce operating costs. The result
of  the  study  led to a  re-engineering  of  business  processes  and  eventual
redeployment of personnel and related capital  spending.  The  implementation of
these plans  during  2002,  accounted  for as a change in  accounting  estimate,
resulted in a refinement of the Partnership's  process for capitalizing  certain
direct and  indirect  project  costs  (principally  payroll  related  costs) and
increased capitalization of such costs by approximately $77,000 in 2002 compared
to 2001.

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

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  $481,000 at  December  31, 2002 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  cash  and  cash  equivalents  and
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  $520,000,   less  accumulated   amortization  of
approximately  $381,000, are included in other assets and are being amortized by
the  straight-line  method over the life of the respective  loans.  Amortization
expense  of  approximately  $47,000  for the year  ended  December  31,  2002 is
included  in  interest   expense.   Amortization   expense  is  expected  to  be
approximately  $42,000 for the year ended 2003 and approximately $3,000 for each
of the years 2004 through 2007.

Leases

The Partnership generally leases apartment units for twelve-month terms or less.
The Partnership  recognizes income as earned on its residential leases and fully
reserves all balances  outstanding  over thirty days. 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.  SFAS No. 131 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.

Advertising

The  Partnership  expenses the costs of  advertising  as  incurred.  Advertising
expense,  included in operating expenses, was approximately $85,000 and $136,000
for the years ended December 31, 2002 and 2001, 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,
including the mortgages encumbering Northsprings Apartments, Lakeside Apartments
and Covington Pointe Apartments due to their maturity in 2003 approximates their
fair value due to the short term maturity of these  instruments.  The fair value
of the Partnership's  long term debt at December 31, 2002, after discounting the
scheduled  loan  payments to  maturity  based on the  Partnership's  incremental
borrowing  rate,  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
provides  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 Partnership  adopted SFAS No. 144 effective January
1, 2002. The adoption did not have a material  effect on the financial  position
or results of operations of the Partnership.

In April 2002,  the Financial  Accounting  Standards  Board issued SFAS No. 145,
"Rescission of FASB  Statements  No. 4, 44 and 64". SFAS No. 4 "Reporting  Gains
and Losses from Extinguishment of Debt," required that all gains and losses from
extinguishment  of  debt  be  aggregated  and,  if  material,  classified  as an
extraordinary item. SFAS No. 145 rescinds SFAS No. 4, and accordingly, gains and
losses from extinguishment of debt should only be classified as extraordinary if
they are  unusual in nature and occur  infrequently.  Neither of these  criteria
applies to the Partnership  SFAS No. 145 is effective for fiscal years beginning
after May 15, 2002 with early adoption an option.  The Partnership  adopted SFAS
No. 145 effective  April 1, 2002. The adoption did not have a material effect on
the financial position or results of operations of the Partnership.

Note B - Deficit in Joint Venture

The Partnership owns a 17.5% general partnership  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 a loss of  approximately  $21,000 and
income of approximately $108,000 for the years ended December 31, 2002 and 2001,
respectively.  In 2002 and  2001,  the  Partnership  received  distributions  of
approximately  $817,000 and $178,000,  respectively,  from the joint venture. At
December 31, 2002, the Partnership had received  distributions  in excess of its
general partnership investment and has an investment deficiency of approximately
$799,000.

The following table  represents  Sterling Crest's net liabilities and net (loss)
income for the years ended December 31, 2002 and 2001 (in thousands):

                                             December 31, 2002

Total assets                                    $  6,919
Total liabilities                                (11,484)

Net liabilities                                 $ (4,565)

                                                      Years Ended December 31,
                                                      2002                2001

Total revenues                                      $ 2,545            $ 2,723
Total expenses                                       (2,665)            (2,106)

Net (loss) income                                   $  (120)           $   617

Note C - Mortgage Notes Payable

The terms of mortgage notes payable are as follows:

<TABLE>
<CAPTION>

                        Principal      Monthly                           Principal
                        Balance At     Payment     Stated                 Balance
                       December 31,   Including   Interest  Maturity       Due At
      Property             2002       Interest      Rate      Date        Maturity
                            (in thousands)                             (in thousands)
Northsprings
<S>                      <C>            <C>        <C>      <C>   <C>     <C>
  1st mortgage           $ 1,731        $ 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               2,315           19      7.32%    01/01/21           --

Covington Pointe
  1st mortgage             4,240           35      7.83%    10/15/03        4,169
  2nd mortgage               150            1      7.83%    10/15/03          150
                          12,597        $ 94                              $10,181
Less unamortized
  Discounts                  (17)

Total                    $12,580
</TABLE>

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

The mortgage  notes  payable are  non-recourse  and are secured by pledge of the
respective  investment  properties and by pledge of revenues from the respective
investment  properties.  Certain of the notes  require  prepayment  penalties if
repaid  prior to  maturity  and  prohibit  resale of the  properties  subject to
existing indebtedness. Management believes that it will be able to refinance the
mortgages  maturing  in 2003 but  there  can be no  assurance  that they will be
successful.

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.
Amortization  of the loan  discounts  is  included  in  interest  expense in the
accompanying consolidated statements of operations.

Scheduled  principal  payments  of the  mortgage  notes  payable  subsequent  to
December 31, 2002 are as follows (in thousands):

                               2003             $10,346
                               2004                  69
                               2005                  74
                               2006                  79
                               2007                  86
                            Thereafter            1,943
                                                $12,597

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 (loss)  income and Federal
taxable (loss) income (in thousands, except per unit data):

                                         2002          2001

Net (loss) income as reported        $  (185)        $  174
Add (deduct)
  Depreciation differences                 8            (21)
  Equity in joint venture                  6             (8)
  Prepaid rents                           (2)             7
  Other                                   47           (122)

Federal taxable (loss) income        $  (126)       $    30

Federal taxable (loss) income
  per limited partnership unit       $ (4.57)       $  1.08

The following is a reconciliation between the Partnership's reported amounts and
Federal tax basis of net assets as of December 31, 2002 (in thousands):

Net liabilities as reported                  $  (838)
Land and buildings                             3,187
Accumulated depreciation                         308
Syndication                                    3,809
Other                                            851

Net assets - Federal tax basis               $ 7,317

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 (i) payments to
affiliates  for  property  management  services  and (ii) for  reimbursement  of
certain expenses incurred by affiliates on behalf of the Partnership.

During the years ended  December 31, 2002 and 2001,  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  $249,000 and
$254,000 for the years ended  December  31, 2002 and 2001,  which is included in
operating expenses.

An  affiliate  of  the  Managing  General  Partner  received  reimbursements  of
accountable  administrative  expenses  amounting to  approximately  $161,000 and
$336,000 for the years ended December 31, 2002 and 2001, respectively,  which is
included in general  and  administrative  expenses  and  investment  properties.
Included in these amounts are fees related to construction  management  services
provided  by an  affiliate  of the  Managing  General  Partner of  approximately
$15,000  and  $194,000  for the years  ended  2002 and 2001,  respectively.  The
construction  management  service fees are  calculated  based on a percentage of
current year additions to investment properties.

During the year ended  December 31, 2002,  an affiliate of the Managing  General
Partner  advanced  the  Partnership  approximately  $79,000  to cover  operating
obligations at Northsprings Apartments.  There were no such advances made during
the  year  ended  December  31,  2001.  The   Partnership   was  able  to  repay
approximately  $9,000 of such advances  during the year ended December 31, 2002.
There were no such repayments during the year ended December 31, 2001.  Interest
is being  charged  at prime  rate plus 2%, or 6.25% at  December  31,  2002,  in
accordance  with the Partnership  Agreement.  During the year ended December 31,
2002,  the  Partnership  recognized  interest  expense of  approximately  $1,000
relative to obligations to affiliates. No interest expense was recognized during
the year ended December 31, 2001.

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 years ended December 31, 2002
and 2001, the Partnership was charged by AIMCO and its affiliates  approximately
$80,000 and $33,000,  respectively,  for insurance  coverage and fees associated
with policy claims administration.

In addition to its indirect  ownership of the general  partner  interests in the
Partnership,  AIMCO and its affiliates owned 11,916.50 limited partnership units
(the "Units") in the Partnership representing 44.50% of the outstanding Units at
December  31,  2002.  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 acquire additional units of limited partnership  interest in the
Partnership  in  exchange  for cash or a  combination  of cash and  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
44.50% of the outstanding  Units, AIMCO is in a position to influence all voting
decisions with respect to the Registrant.  Although the Managing General Partner
owes fiduciary duties to the limited  partners of the Partnership,  the Managing
General Partner also owes fiduciary duties to AIMCO as its sole stockholder.  As
a result,  the duties of the  Managing  General  Partner,  as  managing  general
partner, to the Partnership and its limited partners may come into conflict with
the duties of the Managing General Partner to AIMCO, as its sole stockholder.

Note F - Investment Properties and Accumulated Depreciation


                                                   Initial Cost
                                                  To Partnership
                                                  (in thousands)

<TABLE>
<CAPTION>

                                                           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         $ 1,792        $ 736        $ 4,196         $ 422
Lakeside Apartments               4,100         1,259         5,791            296
Bexley House Apartments           2,315           647         3,067            467
Covington Pointe
 Apartments                       4,390         1,935         7,041          1,478

Totals                          $12,597       $ 4,577       $20,095        $ 2,663
</TABLE>


                     Gross Amount At Which
                            Carried
                     At December 31, 2002
                        (in thousands)
<TABLE>
<CAPTION>

                           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    $ 4,757   $ 5,354    $ 3,205         1969       11/85      5-30
Lakeside            1,046     6,300     7,346      4,179         1980       05/86      5-30
Bexley House          542     3,639     4,181      2,453         1972       09/86      5-30
Covington Pointe    1,935     8,519    10,454      5,383         1982       03/87      5-30

Totals            $ 4,120   $23,215   $27,335    $15,220
</TABLE>


Reconciliation of "investment properties and accumulated depreciation"

                                              Years Ended December 31,
                                                 2002          2001
                                                   (in thousands)
Investment Properties
Balance at beginning of year                    $26,935       $26,276
  Property improvements and replacements            400           659
Balance at end of year                          $27,335       $26,935

Accumulated Depreciation
Balance at beginning of year                    $14,120       $13,047
  Additions charged to expense                    1,100         1,073
Balance at end of year                          $15,220       $14,120

The  aggregate  cost of the real  estate  for  Federal  income tax  purposes  at
December  31,  2002 and 2001,  is  approximately  $30,522,000  and  $30,121,000,
respectively. The accumulated depreciation taken for Federal income tax purposes
at December 31, 2002 and 2001, is  approximately  $14,912,000  and  $13,820,000,
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, 2002 and 2001.

Note H - 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  oppose the motion.  On April 29,  2002,  the Court held a hearing on
plaintiffs' motion for class  certification and took the matter under submission
after further  briefing,  as ordered by the court, was submitted by the parties.
On July 10, 2002,  the Court entered an order vacating the current trial date of
January 13, 2003 (as well as the  pre-trial  and  discovery  cut-off  dates) and
stayed the case in its  entirety  through  November  7, 2002 so that the parties
could have an opportunity to discuss settlement.  On October 30, 2002, the court
entered an order extending the stay in effect through January 10, 2003.

On January 8, 2003,  the parties filed a  Stipulation  of Settlement in proposed
settlement of the Nuanes action and the Heller action described below. The Court
has  scheduled  the hearing on  preliminary  approval  for April 4, 2003 and the
hearing on final approval for June 2, 2003.

In general  terms,  the  proposed  settlement  provides  for  certification  for
settlement  purposes of a settlement class consisting of all limited partners in
this  Partnership and others (the  "Partnerships")  as of December 20, 2002, the
dismissal  with  prejudice  and  release  of claims  in the  Nuanes  and  Heller
litigation,  payment by AIMCO of $9.9  million  (which shall be  distributed  to
settlement  class  members  after  deduction of attorney fees and costs of class
counsel and certain costs of  settlement)  and up to $ 1 million toward the cost
of independent  appraisals of the Partnerships'  properties by a Court appointed
appraiser.  An affiliate of the Managing General Partner has also agreed to make
a tender offer to purchase all of the partnership  interests in the Partnerships
within one year of final  approval,  if it is granted,  and to provide  partners
with the  independent  appraisals  at the time of these  tenders.  The  proposed
settlement  also provides for the  limitation  of the allowable  costs which the
Managing  General  Partner or its  affiliates  will charge the  Partnerships  in
connection with this litigation and imposes limits on the class counsel fees and
costs in this  litigation.  If the  Court  grants  preliminary  approval  of the
proposed settlement in April, a notice will be distributed to partners providing
detail on the terms of the proposed settlement.

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.
On March 27, 2002,  the plaintiffs  filed a notice  appealing the order striking
the  complaint.  Before  completing  briefing on the appeal,  the parties stayed
further proceedings in the appeal pending the Court's review of the terms of the
proposed settlement described above.

The  Managing  General  Partner  does  not  anticipate  that  any  costs  to the
Partnership, 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 8.  Changes  in  and  Disagreements  with  Accountants  on  Accounting  and
     Financial Disclosures

            None.

                                    PART III

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

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

Name                        Age    Position

Patrick J. Foye              45    Executive Vice President and Director

Paul J. McAuliffe            46    Executive Vice President and Chief
                                     Financial Officer

Thomas C. Novosel            44    Senior Vice President and Chief Accounting
                                     Officer

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,  where he is  responsible  for  continuous
improvement,  acquisitions of partnership securities,  consolidation of minority
interests,  and corporate and other  acquisitions.  Prior to joining AIMCO,  Mr.
Foye was a Merger and  Acquisitions  Partner in the law firm of  Skadden,  Arps,
Slate, Meagher & Flom LLP from 1989 to 1998.

Paul J. McAuliffe has been Executive Vice President and Chief Financial  Officer
of the Managing General Partner since April 1, 2002. Mr. McAuliffe has served as
Executive  Vice  President  of AIMCO  since  February  1999 and Chief  Financial
Officer of AIMCO since  October 1999.  From May 1996 until he joined AIMCO,  Mr.
McAuliffe was Senior Managing Director of Secured Capital Corp.

Thomas C. Novosel has been Senior Vice President and Chief Accounting Officer of
the Managing  General  Partner  since April 1, 2002.  Mr.  Novosel has served as
Senior Vice  President and Chief  Accounting  Officer of AIMCO since April 2000.
From October 1993 until he joined  AIMCO,  Mr.  Novosel was a partner at Ernst &
Young LLP, where he served as the director of real estate advisory  services for
the  southern  Ohio  Valley  area  offices  but did not work on any  assignments
related to AIMCO or the Partnership.

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

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

The executive  officers and director of the Managing  General  Partner  reviewed
with the independent auditors,  who are responsible for expressing an opinion on
the conformity of those audited financial statements with 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,  2002 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 2003. Fees for
2002 were  audit  services  of  approximately  $39,000  and  non-audit  services
(principally tax-related) of approximately $17,000.

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, 2002.

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, 2002.

                                                             Percentage
                 Entity                   Number of Units     of Total

Insignia Properties, LP (1)                       570           2.13%
  (an affiliate of AIMCO)
AIMCO Properties, LP (2)                     7,516.50          28.07%
  (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  Stanford  Place 3, 4582 S.  Ulster St.  Parkway,  Suite  1100,  Denver,
     Colorado 80237.

As of December 31, 2002, 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 (i) payments to
affiliates  for  property  management  services  and (ii) for  reimbursement  of
certain expenses incurred by affiliates on behalf of the Partnership.

During the years ended  December 31, 2002 and 2001,  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  $249,000 and
$254,000 for the years ended  December  31, 2002 and 2001,  which is included in
operating expenses.

An  affiliate  of  the  Managing  General  Partner  received  reimbursements  of
accountable  administrative  expenses  amounting to  approximately  $161,000 and
$336,000 for the years ended December 31, 2002 and 2001, respectively,  which is
included in general  and  administrative  expenses  and  investment  properties.
Included in these amounts are fees related to construction  management  services
provided  by an  affiliate  of the  Managing  General  Partner of  approximately
$15,000  and  $194,000  for the years  ended  2002 and 2001,  respectively.  The
construction  management  service fees are  calculated  based on a percentage of
current year additions to investment properties.

During the year ended  December 31, 2002,  an affiliate of the Managing  General
Partner  advanced  the  Partnership  approximately  $79,000  to cover  operating
obligations at Northsprings Apartments.  There were no such advances made during
the  year  ended  December  31,  2001.  The   Partnership   was  able  to  repay
approximately  $9,000 of such advances  during the year ended December 31, 2002.
There were no such repayments during the year ended December 31, 2001.  Interest
is being  charged  at prime  rate plus 2%, or 6.25% at  December  31,  2002,  in
accordance  with the Partnership  Agreement.  During the year ended December 31,
2002,  the  Partnership  recognized  interest  expense of  approximately  $1,000
relative to obligations to affiliates. No interest expense was recognized during
the year ended December 31, 2001.

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 years ended December 31, 2002
and 2001, the Partnership was charged by AIMCO and its affiliates  approximately
$80,000 and $33,000,  respectively,  for insurance  coverage and fees associated
with policy claims administration.

In addition to its indirect  ownership of the general  partner  interests in the
Partnership,  AIMCO and its affiliates owned 11,916.50 limited partnership units
(the "Units") in the Partnership representing 44.50% of the outstanding Units at
December  31,  2002.  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 acquire additional units of limited partnership  interest in the
Partnership  in  exchange  for cash or a  combination  of cash and  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
44.50% of the outstanding  Units, AIMCO is in a position to influence all voting
decisions with respect to the Registrant.  Although the Managing General Partner
owes fiduciary duties to the limited  partners of the Partnership,  the Managing
General Partner also owes fiduciary duties to AIMCO as its sole stockholder.  As
a result,  the duties of the  Managing  General  Partner,  as  managing  general
partner, to the Partnership and its limited partners may come into conflict with
the duties of the Managing General Partner to AIMCO, as it sole stockholder.

Item 13.    Exhibits and Reports on Form 8-K

      (a)   Exhibits:

            See Exhibit Index Attached.

      (b) Reports on Form 8-K filed in the fourth quarter of calendar year 2002:

            None.

Item 14.    Controls and Procedures

The principal  executive officer and principal financial officer of the Managing
General Partner, who are the equivalent of the Partnership's principal executive
officer and principal financial officer,  respectively,  have, within 90 days of
the filing  date of this  annual  report,  evaluated  the  effectiveness  of the
Partnership's  disclosure  controls and  procedures  (as defined in Exchange Act
Rules 13a-14(c) and 15d-14(c)) and have determined that such disclosure controls
and  procedures  are  adequate.  There have been no  significant  changes in the
Partnership's  internal  controls or in other  factors that could  significantly
affect the  Partnership's  internal  controls since the date of evaluation.  The
Partnership does not believe any significant deficiencies or material weaknesses
exist in the Partnership's internal controls. Accordingly, no corrective actions
have been taken.

                                   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/Thomas C. Novosel
                                          Thomas C. Novosel
                                          Senior Vice President and
                                          Chief Accounting Officer

                                    Date: March 28, 2003


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 28, 2003
Patrick J. Foye         and Director

/s/Thomas C. Novosel    Senior Vice President         Date:  March 28, 2003
Thomas C. Novosel       and Chief Accounting Officer




                                  CERTIFICATION


I, Patrick J. Foye, certify that:


1. I have  reviewed  this annual  report on Form 10-KSB of Davidson  Income Real
Estate, L.P.;


2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;


3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;


4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:


      a)  Designed  such  disclosure  controls  and  procedures  to ensure  that
      material   information   relating  to  the   registrant,   including   its
      consolidated  subsidiaries,  is made  known to us by others  within  those
      entities,  particularly  during the period in which this annual  report is
      being prepared;


      b) Evaluated the effectiveness of the registrant's disclosure controls and
      procedures  as of a date  within 90 days prior to the filing  date of this
      annual report (the "Evaluation Date"); and


      c) Presented in this annual report our conclusions about the effectiveness
      of the disclosure  controls and  procedures  based on our evaluation as of
      the Evaluation Date;


5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's   board  of  directors  (or  persons   performing   the  equivalent
functions):


      a) All  significant  deficiencies  in the design or  operation of internal
      controls which could adversely affect the registrant's  ability to record,
      process,  summarize and report  financial data and have identified for the
      registrant's auditors any material weaknesses in internal controls; and


      b) Any fraud,  whether or not material,  that involves management or other
      employees  who  have  a  significant  role  in the  registrant's  internal
      controls; and


6. The  registrant's  other  certifying  officers  and I have  indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.


Date: March 28, 2003

                                /s/Patrick J. Foye
                                Patrick J. Foye
                                Executive    Vice    President    of    Davidson
                                Diversified Properties,  Inc., equivalent of the
                                chief executive officer of the Partnership

                                  CERTIFICATION


I, Paul J. McAuliffe, certify that:


1. I have  reviewed  this annual  report on Form 10-KSB of Davidson  Income Real
Estate, L.P.;


2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;


3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;


4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:


      a)  Designed  such  disclosure  controls  and  procedures  to ensure  that
      material   information   relating  to  the   registrant,   including   its
      consolidated  subsidiaries,  is made  known to us by others  within  those
      entities,  particularly  during the period in which this annual  report is
      being prepared;


      b) Evaluated the effectiveness of the registrant's disclosure controls and
      procedures  as of a date  within 90 days prior to the filing  date of this
      annual report (the "Evaluation Date"); and


      c) Presented in this annual report our conclusions about the effectiveness
      of the disclosure  controls and  procedures  based on our evaluation as of
      the Evaluation Date;


5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's   board  of  directors  (or  persons   performing   the  equivalent
functions):


      a) All  significant  deficiencies  in the design or  operation of internal
      controls which could adversely affect the registrant's  ability to record,
      process,  summarize and report  financial data and have identified for the
      registrant's auditors any material weaknesses in internal controls; and


      b) Any fraud,  whether or not material,  that involves management or other
      employees  who  have  a  significant  role  in the  registrant's  internal
      controls; and


6. The  registrant's  other  certifying  officers  and I have  indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.


Date: March 28, 2003

                                /s/Paul J. McAuliffe
                                Paul J. McAuliffe
                                Executive  Vice  President  and Chief  Financial
                                Officer of Davidson Diversified Properties,
                                Inc.,  equivalent of the chief financial officer
                                of the Partnership

                         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.

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.

1000                    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.

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.

99D  Certification of Chief Executive Officer and Chief Financial Officer.


Exhibit 99 D


                          Certification of CEO and CFO
                       Pursuant to 18 U.S.C. Section 1350,
                             As Adopted Pursuant to
                   Section 906 of the Sarbanes-Oxley Act of 2002



In  connection  with the Annual  Report on Form 10-KSB of  Davidson  Income Real
Estate, L.P. (the "Partnership"),  for the year ended December 31, 2002 as filed
with the Securities and Exchange  Commission on the date hereof (the  "Report"),
Patrick  J.  Foye,  as the  equivalent  of the chief  executive  officer  of the
Partnership,  and Paul J.  McAuliffe,  as the equivalent of the chief  financial
officer of the Partnership, each hereby certifies, pursuant to 18 U.S.C. Section
1350,  as adopted  pursuant  to Section 906 of the  Sarbanes-Oxley  Act of 2002,
that, to the best of his knowledge:

      (1)   The Report fully complies with the  requirements of Section 13(a) or
            15(d) of the Securities Exchange Act of 1934; and

      (2)   The  information  contained in the Report  fairly  presents,  in all
            material respects, the financial condition and results of operations
            of the Partnership.


                                           /s/Patrick J. Foye
                                    Name:  Patrick J. Foye
                                    Date:  March 28, 2003


                                           /s/Paul J. McAuliffe
                                    Name:  Paul J. McAuliffe
                                    Date:  March 28, 2003


This  certification  accompanies  the  Report  pursuant  to  Section  906 of the
Sarbanes-Oxley  Act of 2002 and shall not,  except to the extent required by the
Sarbanes-Oxley  Act of 2002, be deemed filed by the  Partnership for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.