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, 2003

[ ]   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.  $4,121,000

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, 2003. 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.  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;  litigation,  including  costs  associated  with  prosecuting  and
defending  claims  and  any  adverse   outcomes,   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 Partnership 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 Partnership 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  three
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 Partnership  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.

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.


<PAGE>





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>
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 mortgage (1)         180 units

Brighton Crest Apartments         Phase I    Partnership 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 mortgage
</TABLE>

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

On April 15, 2003, the Partnership sold North Springs Apartments to an unrelated
third  party  for a gross  sales  price  of  approximately  $6,100,000.  The net
proceeds received by the Partnership were approximately $5,735,000 after payment
of closing costs, including a commission paid to the Managing General Partner as
permitted under the terms of the  Partnership  Agreement.  The Partnership  used
approximately  $1,779,000 of the net proceeds to repay the mortgages encumbering
the  property.  As a result  of the sale,  the  Partnership  realized  a gain of
approximately  $3,524,000  during the year ended December 31, 2003. The increase
in the gain of  approximately  $52,000 from the nine months ended  September 30,
2003 is the  result of  expense  reserves  established  at the time of the sale,
which were determined to be unneeded.


<PAGE>


Schedule of Properties

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

<TABLE>
<CAPTION>

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

<S>                         <C>         <C>           <C>                         <C>
Lakeside Apartments         $ 7,503     $ 4,498       5-30 yrs        S/L         $ 3,943
Bexley House Apartments       5,022       2,133       5-30 yrs        S/L           2,524
Covington Pointe
 Apartments                  10,558       5,776       5-30 yrs        S/L           5,861
                            $23,083     $12,407                                   $12,328
</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             2003         Rate     Amortized    Date     Maturity (1)
                       (in thousands)                                  (in thousands)

Lakeside
<S>                       <C>            <C>      <C>        <C>   <C>     <C>
  1st mortgage            $ 2,867        (2)      30 years   09/01/07      $ 2,606
Bexley House
  1st mortgage              2,251       7.32%     20 years   01/01/21           --
Covington Pointe
  1st mortgage              5,916       3.81%     20 years   07/01/10        4,416

Total                     $11,034                                          $ 7,022
</TABLE>

(1)   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.

(2)   Adjustable  rate  based  on  the  Fannie  Mae  discounted  mortgage-backed
      security  index plus 85 basis  points.  The rate at December  31, 2003 was
      1.92%.

In June 2003, the  Partnership  refinanced the mortgages  encumbering  Covington
Pointe   Apartments.   The  refinancing   replaced   mortgage   indebtedness  of
approximately  $4,343,000  with a new mortgage of  $6,000,000.  The new mortgage
carries a stated  interest rate of 3.81%  compared to the 7.83% interest rate on
the old mortgages.  Payments of principal and interest of approximately  $36,000
are due on the first day of each month commencing in August 2003 until July 2010
at which time a balloon  payment in the amount of  approximately  $4,416,000  is
due.  Capitalized loan costs, which are included in other assets,  incurred with
the refinancing  were  approximately  $95,000,  and are being amortized over the
life of the mortgage note payable.  The Partnership  wrote off unamortized  loan
costs of approximately  $51,000 and mortgage  discounts of approximately  $6,000
resulting in a loss on early extinguishment of debt of approximately $57,000.

On  November  3, 2003,  the  Partnership  refinanced  the  mortgage  encumbering
Lakeside  Apartments.   The  refinancing   replaced  mortgage   indebtedness  of
approximately $4,100,000 with a new mortgage in the amount of $2,875,000.  Total
capitalized loan costs were approximately  $64,000. Due to the shortfall between
the new mortgage  loan and the amount  needed to pay off the existing  mortgage,
the Managing General Partner advanced the Partnership  approximately  $1,350,000
to cover the shortfall and other closing costs.

Initially the November 3, 2003,  refinancing of Lakeside Apartments was under an
interim credit facility  ("Interim Credit Facility") which also provided for the
refinancing of several other  properties.  The Interim Credit  Facility  created
separate  loans for each property  refinanced  thereunder,  which loans were not
cross-collateralized  or cross-defaulted with each other. During the term of the
Interim Credit Facility,  Lakeside Apartments was required to make interest only
payments. The first months interest rate for Lakeside Apartments was 1.9%.

As of December 1, 2003,  the loan on Lakeside  Apartments  was  transferred to a
different lender. The credit facility ("Permanent Credit Facility") with the new
lender matures in September 2007 and has an option for the  Partnership to elect
one five-year  extension.  This Permanent  Credit Facility also created separate
loans  for  each   property   refinanced   thereunder,   which   loans  are  not
cross-collateralized  or  cross-defaulted  with each other. Each note under this
Permanent  Credit  Facility is initially a variable  rate loan,  and after three
years,  the  Partnership  has the option of converting to a fixed rate loan. The
interest  rate on the variable rate loans is 85 basis points over the Fannie Mae
discounted  mortgage-backed security index (1.92% per anum at December 1, 2003),
and the rate resets monthly.  Each loan automatically  renews at the end of each
month. In addition,  monthly principal  payments are required based on a 30-year
amortization schedule,  using the interest rate in effect during the first month
that the property is financed on the Permanent Credit Facility. The loans may be
prepaid without penalty.

Schedule of Rental Rates and Occupancy

Average  annual  rental rates and  occupancy for 2003 and 2002 for each property
were:

                                      Average Annual                Average
                                       Rental Rates                Occupancy
                                        (per Unit)
 Property                            2003         2002         2003         2002
 Lakeside Apartments               $ 5,863      $ 6,609        90%          91%
 Bexley House Apartments (1)        13,323       12,643        50%          99%
 Covington Pointe Apartments         8,834        9,832        90%          90%

(1)   The  Managing  General  Partner  attributes  the  decrease in occupancy at
      Bexley  House  Apartments  to a  fire  in  December  2002  that  destroyed
      approximately half of the apartment units. The reconstruction of the units
      was completed at the end of 2003.

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 2003 for each property were:

                                            2003               2003
                                          Billings             Rates
                                       (in thousands)
       Lakeside Apartments                  $ 89               1.27%
       Bexley House Apartments                100              9.20%
       Covington Pointe Apartments            193              2.88%

Capital Improvements

Lakeside Apartments

During the year ended December 31, 2003, the Partnership completed approximately
$157,000 of capital improvements at Lakeside Apartments, consisting primarily of
floor covering and appliance replacements,  signage upgrades, plumbing upgrades,
water submetering,  and major  landscaping.  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 $119,000.  Additional improvements
may be considered  during 2004 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, 2003, the Partnership completed approximately
$1,719,000  of  capital  improvements  at Bexley  House  Apartments,  consisting
primarily of floor covering replacements, electrical and heating system upgrades
and  reconstruction  of the fire damaged units.  These  improvements were funded
from operating cash flow and insurance  proceeds.  The Partnership has completed
reconstructing  this  property  as a result of the fire  discussed  in "Note D -
Casualty Event" to the  consolidated  financial  statements.  The Partnership is
currently  evaluating  the capital  improvement  needs of the  property  for the
upcoming year and currently expects to budget approximately $35,000.  Additional
improvements  may be  considered  during  2004 and will  depend on the  physical
condition  of the  property as well as  anticipated  cash flow  generated by the
property.

Covington Pointe Apartments

During the year ended December 31, 2003, the Partnership completed approximately
$104,000 of capital  improvements  at Covington  Pointe  Apartments,  consisting
primarily of roof replacements,  appliance and floor covering replacements,  air
conditioning  upgrades and  structural  improvements.  These  improvements  were
funded from  replacement  reserves and operating cash flow.  The  Partnership is
currently  evaluating  the capital  improvement  needs of the  property  for the
upcoming year and currently expects to budget approximately $99,000.  Additional
improvements  may be  considered  during  2004 and will  depend on the  physical
condition of the property as well as replacement  reserves and anticipated  cash
flow generated by the property.

North Springs Apartments

During the year ended December 31, 2003, the Partnership completed approximately
$87,000  of  capital  improvements  at  North  Springs  Apartments,   consisting
primarily  of  plumbing  improvements  and floor  covering  replacements.  These
improvements  were funded from operating cash flow. This property was sold to an
unrelated third party in April 2003.

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
purported  to  assert  claims  on  behalf  of a class of  limited  partners  and
derivatively  on behalf  of a number  of  limited  partnerships  (including  the
Partnership)  that 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 that 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  sought  monetary
damages and equitable relief, including judicial dissolution of the Partnership.
In addition, 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 Heller action was brought as a
purported derivative action, and asserted claims for, among other things, breach
of fiduciary  duty,  unfair  competition,  conversion,  unjust  enrichment,  and
judicial dissolution.

On January 8, 2003,  the parties filed a  Stipulation  of Settlement in proposed
settlement of the Nuanes action and the Heller action.

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
at least one round of tender offers 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 provided 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.  On April  11,  2003,  notice  was
distributed  to  limited   partners   providing  the  details  of  the  proposed
settlement.

On June 13, 2003, the Court granted final approval of the settlement and entered
judgment in both the Nuanes and Heller actions.  On August 12, 2003, an objector
("Objector")  filed an  appeal  seeking  to  vacate  and/or  reverse  the  order
approving the settlement and entering  judgment  thereto.  On November 24, 2003,
the Objector filed an  application  requesting the Court order AIMCO to withdraw
settlement  tender offers it had  commenced,  refrain from making further offers
pending the appeal and auction any units tendered to third  parties,  contending
that the offers did not conform  with the terms of the  Settlement.  Counsel for
the Objector (on behalf of another  investor)  had  alternatively  requested the
Court take certain  action  purportedly  to enforce the terms of the  settlement
agreement.  On December 18, 2003,  the Court heard oral  argument on the motions
and denied them both in their entirety.  On January 28, 2004, Objector filed his
opening brief in his pending appeal.  The Managing  General Partner is currently
scheduled  to file a brief in  support  of the order  approving  settlement  and
entering judgment thereto by April 23, 2004.

On August 8, 2003 AIMCO  Properties  L.P., an affiliate of the Managing  General
Partner,  was served  with a  Complaint  in the United  States  District  Court,
District of Columbia alleging that AIMCO Properties L.P.  willfully violated the
Fair Labor Standards Act (FLSA) by failing to pay maintenance  workers  overtime
for all hours worked in excess of forty per week.  The  Complaint is styled as a
Collective  Action  under  the FLSA and seeks to  certify  state  subclasses  in
California, Maryland, and the District of Columbia. Specifically, the plaintiffs
contend that AIMCO Properties L.P. failed to compensate  maintenance workers for
time  that they were  required  to be  "on-call".  Additionally,  the  Complaint
alleges AIMCO  Properties  L.P.  failed to comply with the FLSA in  compensating
maintenance  workers  for time that they  worked in  responding  to a call while
"on-call".  The  Complaint  also  attempts  to certify a subclass  for  salaried
service  directors who are challenging  their  classification as exempt from the
overtime  provisions of the FLSA.  AIMCO  Properties L.P. has filed an answer to
the  Complaint  denying the  substantive  allegations.  Discovery  is  currently
underway.

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.

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

During the quarter ended  December 31, 2003, no matters were submitted to a vote
of unit holders through the solicitation of proxies or otherwise.


<PAGE>


                                     PART II

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

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, 2003,  there are 1,532  holders of record  owning an
aggregate of 26,776  units.  Affiliates  of the Managing  General  Partner owned
12,272.50  Units or 45.83% as of December 31, 2003. No public trading market has
developed  for the  Units,  and it is not  anticipated  that such a market  will
develop in the future.

The  Partnership  distributed  the  following  amounts  during  the years  ended
December 31, 2003 and 2002 (in thousands except per unit data):

<TABLE>
<CAPTION>

                                          Per                               Per
                      Year Ended        Limited         Year Ended        Limited
                     December 31,     Partnership      December 31,     Partnership
                         2003             Unit             2002             Unit

<S>   <C>              <C>              <C>              <C>               <C>
Sales (1)              $3,724           $134.90          $   --            $   --
Operations                 --                --             620             22.45
Refinancing (2)         1,515             54.90             708             25.66
                       $5,239           $189.80          $1,328            $48.11
</TABLE>

(1)   Proceeds from the sale of North Springs Apartments in April 2003.

(2)   Proceeds  from the refinance of Covington  Pointe  Apartments in June 2003
      and the joint venture property in January 2002.

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  expenditures to permit any distributions to its partners
in 2004 or subsequent periods.

In addition to its indirect  ownership of the general  partner  interests in the
Partnership,  AIMCO and its affiliates owned 12,272.50 limited partnership units
(the "Units") in the Partnership representing 45.83% of the outstanding Units at
December  31,  2003.  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 in exchange for cash or a combination
of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO,
either through private  purchases or tender offers.  Pursuant to the Partnership
Agreement,  unitholders  holding a majority  of the Units are  entitled  to take
action with  respect to a variety of matters that  include,  but are not limited
to,  voting on certain  amendments  to the  Partnership  Agreement and voting to
remove the Managing General  Partner.  As a result of its ownership of 45.83% of
the outstanding  Units,  AIMCO and its affiliates are in a position to influence
all voting  decisions  with  respect to the  Partnership.  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 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 net income of  approximately  $3,707,000 for the year
ended December 31, 2003 compared to a net loss of approximately $185,000 for the
year ended  December 31, 2002.  The decrease in net loss is primarily due to the
gain on sale of discontinued  operations  recognized  during 2003, as well as an
increase in total revenues and a decrease in total expenses.

Effective  January 1, 2002,  the  Partnership  adopted  Statement  of  Financial
Accounting  Standards  ("SFAS")  No.  144,  "Accounting  for the  Impairment  or
Disposal of Long-Lived  Assets",  which  established  standards for the way that
public business  enterprises report information about long-lived assets that are
either  being held for sale or have  already  been  disposed of by sale or other
means.  The standard  requires that results of operations for a long-lived asset
that is being held for sale or has  already  been  disposed  of be  reported  as
discontinued  operations  on the  statement  of  operations.  As a  result,  the
accompanying  consolidated  statements  of  operations  have been restated as of
January 1, 2002 to reflect the  operations of North  Springs  Apartments as loss
from discontinued operations due to its sale in April 2003.

On April 15, 2003, the Partnership sold North Springs Apartments to an unrelated
third  party  for a gross  sales  price  of  approximately  $6,100,000.  The net
proceeds received by the Partnership were approximately $5,735,000 after payment
of closing costs, including a commission paid to the Managing General Partner as
permitted under the terms of the  Partnership  Agreement.  The Partnership  used
approximately  $1,779,000 of the net proceeds to repay the mortgages encumbering
the  property.  As a result  of the sale,  the  Partnership  realized  a gain of
approximately $3,524,000 during the year ended December 31, 2003. The property's
operations,  loss of  approximately  $210,000  and  $138,000 for the years ended
December 31, 2003 and 2002, respectively, are included in loss from discontinued
operations on the accompanying consolidated statements of operations and include
revenues of approximately  $229,000 and $1,063,000,  respectively.  In addition,
the Partnership recorded a loss on early extinguishment of debt of approximately
$16,000 for the year ended December 31, 2003 due to the write off of unamortized
loan  costs  and  mortgage  discounts,  which  is also  included  in  loss  from
discontinued operations.

The Partnership's income from continuing  operations for the year ended December
31,  2003  was  approximately  $393,000  compared  to  a  loss  from  continuing
operations of  approximately  $47,000 for the year ended  December 31, 2002. The
decrease  in loss from  continuing  operations  is due to an  increase  in total
revenues  and  decreases  in total  expenses  and  equity  in loss of the  joint
venture.  Total revenues  increased due to the recognition in 2003 of a casualty
gain partially  offset by a decrease in rental income.  Rental income  decreased
due to  decreases in the average  rental rates at Covington  Pointe and Lakeside
Apartments and a decrease in occupancy at Bexley House Apartments.

In December 2002, Bexley House Apartments  experienced a fire, causing damage to
32 units. As of December 31, 2003, the Partnership estimates property damages to
be  approximately  $1,452,000 and lost rents to be  approximately  $384,000 as a
result of the fire.  Reconstruction of the units has been completed.  During the
year ended  December  31, 2003, a casualty  gain of  approximately  $651,000 was
recorded at Bexley House  Apartments.  The gain was the result of the receipt of
insurance proceeds of approximately $1,051,000 partially offset by the write off
of approximately  $400,000 of undepreciated  fixed assets.  The Managing General
Partner  expects  that the  damages  and lost  rents  will be fully  covered  by
insurance  proceeds received during 2003 and additional  proceeds to be received
in 2004. Subsequent to December 31, 2003, the Partnership received approximately
$327,000 of additional insurance proceeds.

The decrease in total  expenses is due to  decreases  in operating  and interest
expenses  partially  offset  by a loss on  early  extinguishment  of  debt  (see
"Liquidity and Capital  Resources" for further  discussion).  Operating expenses
decreased due to decreases in property management fees, advertising and property
expenses  partially  offset by an  increase  in  maintenance  expense.  Property
management  fees  decreased  due to  decreases  in  rental  revenues  at all the
Partnership's  investment  properties.  Advertising  expense  decreased  due  to
decreases in periodical  advertising at Lakeside and Covington Pointe Apartments
and referral fees at Covington Pointe  Apartments.  Property expenses  decreased
due to a decrease in utilities at Bexley House Apartments.  Maintenance  expense
increased due to an increase in contract labor at Lakeside Apartments.  Interest
expense  decreased  due to decreases in the interest  rates on the  mortgages at
Covington Pointe and Lakeside  Apartments as a result of the refinancings of the
mortgages in June and November 2003.

Included in general and administrative expenses are management reimbursements to
the Managing  General  Partner as allowed  under the  Partnership  Agreement and
costs associated with the quarterly and annual communications with investors and
regulatory agencies and the annual audit required by the Partnership Agreement.

The  Partnership  owns a 17.5%  interest in Sterling  Crest Joint  Venture  (the
"Joint Venture"). The Partnership recognized equity in loss of the joint venture
of  approximately  $6,000 and $21,000 for the years ended  December 31, 2003 and
2002.  Equity in loss of the joint  venture  decreased due a decrease in 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.

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,  the
Managing  General Partner may use rental  concessions and rental rate reductions
to offset softening market conditions,  accordingly,  there is no guarantee that
the Managing General Partner will be able to sustain such a plan.

Liquidity and Capital Resources

The  Partnership  had cash and cash  equivalents  of  approximately  $585,000 at
December 31, 2003 compared to  approximately  $576,000 at December 31, 2002. For
the  year  ended  December  31,  2003,  cash  and  cash  equivalents   increased
approximately  $9,000.  The  increase  in cash  and cash  equivalents  is due to
approximately   $381,000  of  cash   provided  by   operating   activities   and
approximately  $5,310,000  of cash  provided by investing  activities  partially
offset by approximately  $5,682,000 of cash used in financing  activities.  Cash
provided by investing  activities  consisted of proceeds  from the sale of North
Springs  Apartments,  insurance  proceeds  from the  casualty  at  Bexley  House
Apartments,  distributions received from the Partnership's investment in a joint
venture and the refund of restricted  escrows  maintained by the former mortgage
lender partially offset by property improvements and replacements.  Cash used in
financing  activities  consisted of payments of principal  made on the mortgages
encumbering the Partnership's investment properties, repayments of the mortgages
encumbering North Springs, Covington Pointe and Lakeside Apartments,  payment on
advances from an affiliate of the Managing General Partner, distributions to the
partners and new loan costs paid with the  refinancings of Covington  Pointe and
Lakeside Apartments  partially offset by proceeds received from the refinancings
of Covington  Pointe and Lakeside  Apartments  and advances from an affiliate of
the  Managing  General  Partner.  The  Partnership  invests its working  capital
reserves in interest bearing accounts.

The  Partnership  received  distributions  of  approximately  $33,000  from  the
operations of the joint venture during the year ended December 31, 2003.

In June 2003, the  Partnership  refinanced the mortgages  encumbering  Covington
Pointe   Apartments.   The  refinancing   replaced   mortgage   indebtedness  of
approximately  $4,343,000  with a new mortgage of  $6,000,000.  The new mortgage
carries a stated  interest rate of 3.81%  compared to the 7.83% interest rate on
the old mortgages.  Payments of principal and interest of approximately  $36,000
are due on the first day of each month commencing in August 2003 until July 2010
at which time a balloon  payment in the amount of  approximately  $4,416,000  is
due.  Capitalized loan costs, which are included in other assets,  incurred with
the refinancing  were  approximately  $95,000,  and are being amortized over the
life of the mortgage note payable.  The Partnership  wrote off unamortized  loan
costs of approximately  $51,000 and mortgage  discounts of approximately  $6,000
resulting in a loss on early extinguishment of debt of approximately $57,000.

On  November  3, 2003,  the  Partnership  refinanced  the  mortgage  encumbering
Lakeside  Apartments.   The  refinancing   replaced  mortgage   indebtedness  of
approximately $4,100,000 with a new mortgage in the amount of $2,875,000.  Total
capitalized loan costs were approximately  $64,000. Due to the shortfall between
the new mortgage  loan and the amount  needed to pay off the existing  mortgage,
the Managing General Partner advanced the Partnership  approximately  $1,350,000
to cover the shortfall and other closing costs.

Initially the November 3, 2003,  refinancing of Lakeside Apartments was under an
interim credit facility  ("Interim Credit Facility") which also provided for the
refinancing of several other  properties.  The Interim Credit  Facility  created
separate  loans for each property  refinanced  thereunder,  which loans were not
cross-collateralized  or cross-defaulted with each other. During the term of the
Interim Credit Facility,  Lakeside Apartments was required to make interest only
payments. The first month's interest rate for Lakeside Apartments was 1.9%.

As of December 1, 2003,  the loan on Lakeside  Apartments  was  transferred to a
different lender. The credit facility ("Permanent Credit Facility") with the new
lender matures in September 2007 and has an option for the  Partnership to elect
one five-year  extension.  This Permanent  Credit Facility also created separate
loans  for  each   property   refinanced   thereunder,   which   loans  are  not
cross-collateralized  or  cross-defaulted  with each other. Each note under this
Permanent  Credit  Facility is initially a variable  rate loan,  and after three
years,  the  Partnership  has the option of converting to a fixed rate loan. The
interest  rate on the variable rate loans is 85 basis points over the Fannie Mae
discounted  mortgage-backed security index (1.92% per anum at December 1, 2003),
and the rate resets monthly.  Each loan automatically  renews at the end of each
month. In addition,  monthly principal  payments are required based on a 30-year
amortization schedule,  using the interest rate in effect during the first month
that the property is financed on the Permanent Credit Facility. The loans may be
prepaid without penalty.

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  2004 and  currently  expects  to  budget  approximately  $253,000.
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  2004 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    encumbering   the   Partnership's   investment   properties   of
approximately  $11,034,000  is  amortized  over  varying  periods,  with balloon
payments  of  approximately  $4,416,000  due in July 2010 for  Covington  Pointe
Apartments  and  approximately  $2,606,000  due in  September  2007 for Lakeside
Apartments.  The Managing  General Partner  refinanced the mortgage  encumbering
Lakeside  Apartments in November  2003.  The new mortgage was not  sufficient to
repay the existing  debt and  accordingly  an affiliate of the Managing  General
Partner advanced approximately  $1,350,000 to cover the shortfall.  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  may risk losing such  properties  through
foreclosure.

The  Partnership  distributed  the  following  amounts  during  the years  ended
December 31, 2003 and 2002 (in thousands except per unit data):

<TABLE>
<CAPTION>

                                          Per                               Per
                      Year Ended        Limited         Year Ended        Limited
                     December 31,     Partnership      December 31,     Partnership
                         2003             Unit             2002             Unit

<S>   <C>              <C>              <C>              <C>               <C>
Sales (1)              $3,724           $134.90          $   --            $   --
Operations                 --                --             620             22.45
Refinancing (2)         1,515             54.90             708             25.66
                       $5,239           $189.80          $1,328            $48.11
</TABLE>

(1)   Proceeds from the sale of North Springs Apartments in April 2003.

(2)   Proceeds  from the refinance of Covington  Pointe  Apartments in June 2003
      and the joint venture property in January 2002.



<PAGE>


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 any distributions to its partners
during 2004 or subsequent periods.

In addition to its indirect  ownership of the general  partner  interests in the
Partnership,  AIMCO and its affiliates owned 12,272.50 limited partnership units
(the "Units") in the Partnership representing 45.83% of the outstanding Units at
December  31,  2003.  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 in exchange for cash or a combination
of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO,
either through private  purchases or tender offers.  Pursuant to the Partnership
Agreement,  unitholders  holding a majority  of the Units are  entitled  to take
action with  respect to a variety of matters that  include,  but are not limited
to,  voting on certain  amendments  to the  Partnership  Agreement and voting to
remove the Managing General  Partner.  As a result of its ownership of 45.83% of
the outstanding  Units,  AIMCO and its affiliates are in a position to influence
all voting  decisions  with  respect to the  Partnership.  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.

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  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, but are not limited
to,  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 impairment of 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. The
Partnership  evaluates all accounts receivable from residents and establishes an
allowance, after the application of security deposits, for accounts greater than
30 days past due on current tenants and all receivables due from former tenants.
The Partnership will offer rental concessions during particularly slow months or
in response to heavy  competition from other similar  complexes in the area. Any
concessions  given at the inception of the lease are amortized  over the life of
the lease.


<PAGE>


Item 7.     Financial Statements

                       DAVIDSON INCOME REAL ESTATE, L.P.

LIST OF CONSOLIDATED FINANCIAL STATEMENTS

      Report of Ernst & Young LLP, Independent Auditors

      Consolidated Balance Sheet - December 31, 2003

      Consolidated  Statements of  Operations - Years ended  December 31, 2003
      and 2002

      Consolidated  Statements  of Changes in Partners'  Deficit - Years ended
      December 31, 2003 and 2002

      Consolidated Statements of Cash Flows - Years ended December 31, 2003
                                    and 2002

      Notes to Consolidated Financial Statements


<PAGE>









              Report of Ernst & Young LLP, Independent Auditors



The Partners
Davidson Income Real Estate, L.P.


We have audited the accompanying  consolidated  balance sheet of Davidson Income
Real  Estate,  L.P.  as of  December  31,  2003,  and the  related  consolidated
statements of operations,  changes in partners' deficit, and cash flows for each
of the two  years  in the  period  ended  December  31,  2003.  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, 2003,  and the  consolidated  results of its
operations  and its cash  flows  for each of the two years in the  period  ended
December 31, 2003, in conformity with accounting  principles  generally accepted
in the United States.


                                                          /s/ERNST & YOUNG LLP



Greenville, South Carolina
February 27, 2004


<PAGE>





                        DAVIDSON INCOME REAL ESTATE, L.P.

                           CONSOLIDATED BALANCE SHEET
                        (in thousands, except unit data)

                                December 31, 2003
<TABLE>
<CAPTION>


Assets
<S>                                                                          <C>
   Cash and cash equivalents                                                 $ 585
   Receivables and deposits                                                      323
   Restricted escrows                                                             30
   Other assets                                                                  263
   Investment properties (Notes C and H):
      Land                                                    $ 3,523
      Buildings and related personal property                   19,560
                                                                23,083
      Less accumulated depreciation                            (12,407)       10,676

                                                                            $ 11,877
Liabilities and Partners' Deficit
Liabilities
      Accounts payable                                                       $ 519
      Tenant security deposit liabilities                                         71
      Accrued property taxes                                                     303
      Other liabilities                                                          106
      Due to affiliates (Note G)                                               1,376
      Mortgage notes payable (Note C)                                         11,034
      Deficit in joint venture (Note B)                                          838

Partners' Deficit
   General partners                                            $ (843)
   Limited partners (26,776 units issued and
      outstanding)                                              (1,527)       (2,370)
                                                                            $ 11,877


        See Accompanying Notes to Consolidated Financial Statements
</TABLE>


<PAGE>




                        DAVIDSON INCOME REAL ESTATE, L.P.

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

                                December 31, 2003

<TABLE>
<CAPTION>

                                                                Years Ended
                                                                December 31,
                                                          2003              2002
                                                                         (Restated)
Revenues:
<S>                                                     <C>                <C>
  Rental income                                         $ 3,224            $ 3,514
  Other income                                              246                259
  Casualty gain (Note D)                                    651                 --
     Total revenues                                       4,121              3,773

Expenses:
  Operating                                               1,428              1,456
  General and administrative                                223                214
  Depreciation                                              870                874
  Interest                                                  765                868
  Property taxes                                            379                387
  Loss on early extinguishment
    of debt                                                  57                 --
     Total expenses                                       3,722              3,799

Income (loss) before equity in loss of joint
  venture                                                   399                (26)
Equity in loss of joint venture                              (6)               (21)

Income (loss) from continuing operations                    393                (47)
Loss from discontinued operations                          (210)              (138)
Gain on sale of discontinued operations (Note E)          3,524                 --

Net income (loss)                                       $ 3,707            $ (185)

Net income (loss) allocated to
  general partners (3%)                                  $ 111              $ (6)
Net income (loss) allocated to
  limited partners (97%)                                  3,596               (179)

                                                        $ 3,707            $ (185)
Net income (loss) per limited partnership unit:
  Income (loss) from continuing operations              $ 14.24            $ (1.69)
  Loss from discontinued operations                       (7.60)             (5.00)
  Gain on sale of discontinued operations                127.66                 --

                                                        $134.30            $ (6.69)

Distributions per limited partnership unit              $189.80            $ 48.11


        See Accompanying Notes to Consolidated Financial Statements
</TABLE>


<PAGE>


                        DAVIDSON INCOME REAL ESTATE, L.P.

           CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
                        (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' (deficiency) 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)

Distributions to partners                     --         (157)     (5,082)    (5,239)

Net income for the year ended
  December 31, 2003                           --          111       3,596      3,707

Partners' deficit at
  December 31, 2003                       26,776       $ (843)    $(1,527)   $(2,370)


        See Accompanying Notes to Consolidated Financial Statements
</TABLE>


<PAGE>


                        DAVIDSON INCOME REAL ESTATE, L.P.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>

                                                                     Years Ended
                                                                    December 31,
                                                                    2003      2002
Cash flows from operating activities:
<S>                                                             <C>          <C>
  Net income (loss)                                             $ 3,707      $ (185)
  Adjustments to reconcile net income (loss) to net cash
   provided by operating activities:
     Gain on sale of discontinued operations                     (3,524)          --
     Casualty gain                                                 (651)          --
     Loss on early extinguishment of debt                            73           --
     Depreciation                                                   949        1,100
     Amortization of loan costs and discounts                        49           64
     Equity in loss of joint venture                                  6           21
     Change in accounts:
      Receivables and deposits                                     (204)          79
      Other assets                                                  (29)         (38)
      Due to affiliates                                              26           --
      Accounts payable                                                8          (44)
      Tenant security deposit liabilities                           (18)          31
      Accrued property taxes                                          1          (75)
      Other liabilities                                             (12)         (32)
       Net cash provided by operating activities                    381          921

Cash flows from investing activities:
  Net proceeds from sale of discontinued operations               5,735           --
  Property improvements and replacements                         (1,662)        (400)
  Net withdrawals from restricted escrows                           153           87
  Insurance proceeds from casualty                                1,051           --
  Distributions from joint venture                                   33          817
       Net cash provided by investing activities                  5,310          504

Cash flows from financing activities:
  Payments on mortgage notes payable                               (216)        (185)
  Loan costs paid                                                  (159)          --
  Advances from affiliates                                        1,350           79
  Payment on advances from affiliate                                (71)          (9)
  Repayments of mortgage notes payable                          (10,222)          --
  Proceeds from mortgage notes payable                            8,875           --
  Distributions to partners                                      (5,239)      (1,328)
       Net cash used in financing activities                     (5,682)      (1,443)

Net increase (decrease) in cash and cash equivalents                  9          (18)
Cash and cash equivalents at beginning of year                      576          594

Cash and cash equivalents at end of year                         $ 585        $ 576

Supplemental disclosure of cash flow information:
  Cash paid for interest                                         $ 791        $ 987
Supplemental disclosures of non-cash flow information:
  Property improvements and replacements in accounts
   payable                                                       $ 405        $ --


        See Accompanying Notes to Consolidated Financial Statements
</TABLE>


<PAGE>






                        DAVIDSON INCOME REAL ESTATE, L.P.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 2003


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 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 Partnership owns
and operates  three  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 Partnership  Agreement provides that the Partnership is to
terminate on December 31, 2010, unless terminated prior to such date.

Basis of Presentation

Effective  January 1, 2002,  the  Partnership  adopted  Statement  of  Financial
Accounting  Standards  ("SFAS")  No.  144,  "Accounting  for the  Impairment  or
Disposal of Long-Lived  Assets",  which  established  standards for the way that
public business  enterprises report information about long-lived assets that are
either  being held for sale or have  already  been  disposed of by sale or other
means.  The standard  requires that results of operations for a long-lived asset
that is being held for sale or has  already  been  disposed  of be reported as a
discontinued  operation  on  the  statement  of  operations.  As a  result,  the
accompanying  consolidated  statements  of  operations  have been restated as of
January 1, 2002 to reflect the  operations of North  Springs  Apartments as loss
from discontinued  operations due to its sale in April 2003. The gain on sale of
discontinued  operations  recognized during the year ended December 31, 2003 was
approximately  $3,524,000.  The loss  from  discontinued  operations  recognized
during the years ended December 31, 2003 and 2002 was approximately $210,000 and
$138,000, respectively.

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.


<PAGE>




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.

Investment Properties

Investment properties, which consist of three 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, 2003 and 2002.

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  include 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  $510,000 at  December  31, 2003 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  $236,000,   less  accumulated   amortization  of
approximately  $17,000,  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  $43,000  for the year  ended  December  31,  2003 is
included in interest expense and loss from discontinued operations. Amortization
expense  is  expected  to be  approximately  $36,000  for each of the years 2004
through 2006, approximately $32,000 in 2007 and approximately $20,000 in 2008.

Leases

The Partnership generally leases apartment units for twelve-month terms or less.
The  Partnership  recognizes  income as earned on its  residential  leases.  The
Partnership  evaluates all accounts receivable from residents and establishes an
allowance, after the application of security deposits, for accounts greater than
30 days past due on current tenants and all receivables due from former tenants.
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. Any concessions given at the inception
of the lease are amortized over the life of the lease.

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.

Restricted Escrows

A general  replacement reserve account was established at Lakeside and Covington
Pointe  Apartments as a result of their  refinancing  in 2003.  These funds were
established   to  cover   necessary   repairs  and   replacements   of  existing
improvements.  The reserve account balance at December 31, 2003 is approximately
$30,000.

Advertising

The  Partnership  expenses the costs of  advertising  as  incurred.  Advertising
expense,  included in operating expenses and loss from discontinued  operations,
was approximately  $62,000 and $85,000 for the years ended December 31, 2003 and
2002, respectively.

Fair Value of Financial Statements

SFAS No. 107 "Disclosures about Fair Value of Financial Instruments", as amended
by SFAS No. 119,  "Disclosures about Derivative  Financial  Instruments and Fair
Value of Financial  Instruments",  requires disclosure of fair value information
about financial  instruments whether or not recognized in the balance sheet, for
which it is  practicable  to estimate  fair value.  Fair value is defined in the
SFAS as the  amount at which the  instruments  could be  exchanged  in a current
transaction between willing parties, other than in a forced or liquidation sale.
The Partnership believes that the carrying amount of its financial  instruments,
(except for long term debt)  approximates their fair value due to the short term
maturity of these  instruments.  The fair value of the  Partnership's  long term
debt at December 31, 2003,  after  discounting  the  scheduled  loan payments to
maturity, approximates its carrying amount.

Note B - Deficit in Joint Venture Investment

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  $6,000 and
$21,000 for the years ended  December 31, 2003 and 2002,  respectively.  In 2003
and 2002, the Partnership  received  distributions of approximately  $33,000 and
$817,000,  respectively,  from the joint  venture.  At December  31,  2003,  the
Partnership  had  received  distributions  in excess of its general  partnership
investment and has an investment deficiency of approximately $838,000.

The following table  represents  Sterling Crest's net liabilities as of December
31,  2003  and net loss  for the  years  ended  December  31,  2003 and 2002 (in
thousands):

                         December 31, 2003

Total assets                 $  6,551
Total liabilities             (11,339)

Net liabilities              $ (4,788)

                              Years Ended December 31,
                               2003              2002

Total revenues                $ 2,361           $ 2,545
Total expenses                 (2,395)           (2,665)

Net loss                      $   (34)          $  (120)

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             2003       Interest      Rate      Date        Maturity
                            (in thousands)                             (in thousands)

<S>                      <C>             <C>        <C>     <C>   <C>     <C>
Lakeside                 $ 2,867         $ 11       (1)     09/01/07      $ 2,606
Bexley House               2,251           19      7.32%    01/01/21           --
Covington Pointe
  1st mortgage             5,916           36      3.81%    07/01/10      $ 4,416
                         $11,034         $ 66                             $ 7,022
</TABLE>

(1)   Adjustable  rate  based  on  the  Fannie  Mae  discounted  mortgage-backed
      security  index plus 85 basis  points.  The rate at December  31, 2003 was
      1.92%.

In June 2003, the  Partnership  refinanced the mortgages  encumbering  Covington
Pointe   Apartments.   The  refinancing   replaced   mortgage   indebtedness  of
approximately  $4,343,000  with a new mortgage of  $6,000,000.  The new mortgage
carries a stated  interest rate of 3.81%  compared to the 7.83% interest rate on
the old mortgages.  Payments of principal and interest of approximately  $36,000
are due on the first day of each month commencing in August 2003 until July 2010
at which time a balloon  payment in the amount of  approximately  $4,416,000  is
due.  Capitalized loan costs, which are included in other assets,  incurred with
the refinancing  were  approximately  $95,000,  and are being amortized over the
life of the mortgage note payable.  The Partnership  wrote off unamortized  loan
costs of approximately  $51,000 and mortgage  discounts of approximately  $6,000
resulting in a loss on early extinguishment of debt of approximately $57,000.

On  November  3, 2003,  the  Partnership  refinanced  the  mortgage  encumbering
Lakeside  Apartments.   The  refinancing   replaced  mortgage   indebtedness  of
approximately $4,100,000 with a new mortgage in the amount of $2,875,000.  Total
capitalized loan costs were approximately  $64,000. Due to the shortfall between
the new mortgage  loan and the amount  needed to pay off the existing  mortgage,
the Managing General Partner advanced the Partnership  approximately  $1,350,000
to cover the shortfall and other closing costs.

Initially the November 3, 2003,  refinancing of Lakeside Apartments was under an
interim credit facility  ("Interim Credit Facility") which also provided for the
refinancing of several other  properties.  The Interim Credit  Facility  created
separate  loans for each property  refinanced  thereunder,  which loans were not
cross-collateralized  or cross-defaulted with each other. During the term of the
Interim Credit Facility,  Lakeside Apartments was required to make interest only
payments. The first months interest rate for Lakeside Apartments was 1.9%.

As of December 1, 2003,  the loan on Lakeside  Apartments  was  transferred to a
different lender. The credit facility ("Permanent Credit Facility") with the new
lender matures in September 2007 and has an option for the  Partnership to elect
one five-year  extension.  This Permanent  Credit Facility also created separate
loans  for  each   property   refinanced   thereunder,   which   loans  are  not
cross-collateralized  or  cross-defaulted  with each other. Each note under this
Permanent  Credit  Facility is initially a variable  rate loan,  and after three
years,  the  Partnership  has the option of converting to a fixed rate loan. The
interest  rate on the variable rate loans is 85 basis points over the Fannie Mae
discounted  mortgage-backed security index (1.92% per anum at December 1, 2003),
and the rate resets monthly.  Each loan automatically  renews at the end of each
month. In addition,  monthly principal  payments are required based on a 30-year
amortization schedule,  using the interest rate in effect during the first month
that the property is financed on the Permanent Credit Facility. The loans may be
prepaid without penalty.

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.

Scheduled  principal  payments  of the  mortgage  notes  payable  subsequent  to
December 31, 2003 are as follows (in thousands):

                               2004              $ 348
                               2005                 362
                               2006                 378
                               2007               2,966
                               2008                 333
                            Thereafter            6,647
                                                $11,034


<PAGE>
Note D - Casualty Event

In December 2002, Bexley House Apartments  experienced a fire, causing damage to
32 units. As of December 31, 2003 the Partnership estimates the property damages
to be approximately  $1,452,000 and lost rents to be approximately $384,000 as a
result of the fire.  Reconstruction of the units has been completed.  During the
year ended  December  31, 2003, a casualty  gain of  approximately  $651,000 was
recorded at Bexley House  Apartments.  The gain was the result of the receipt of
insurance proceeds of approximately $1,051,000 partially offset by the write off
of approximately  $400,000 of undepreciated  fixed assets.  The Managing General
Partner  expects  that the  damage  and lost  rents  will be  fully  covered  by
insurance  proceeds received during 2003 and additional  proceeds to be received
in 2004. Subsequent to December 31, 2003, the Partnership received approximately
$327,000 of additional insurance proceeds.

Note E - Sale of Investment Property

On April 15, 2003, the Partnership sold North Springs Apartments to an unrelated
third  party  for a gross  sales  price  of  approximately  $6,100,000.  The net
proceeds received by the Partnership were approximately $5,735,000 after payment
of closing costs, including a commission paid to the Managing General Partner as
permitted under the terms of the  Partnership  Agreement.  The Partnership  used
approximately  $1,779,000 of the net proceeds to repay the mortgages encumbering
the  property.  As a result  of the sale,  the  Partnership  realized  a gain of
approximately  $3,524,000  during the year ended December 31, 2003. The increase
in the gain of  approximately  $52,000 from the nine months ended  September 30,
2003 is the  result of  expense  reserves  established  at the time of the sale,
which  were  determined  to be  unneeded.  The  property's  operations,  loss of
approximately  $210,000 and  $138,000 for the years ended  December 31, 2003 and
2002,  respectively,  are included in loss from  discontinued  operations on the
accompanying  consolidated  statements  of  operations  and include  revenues of
approximately   $229,000  and  $1,063,000,   respectively.   In  addition,   the
Partnership  recorded a loss on early  extinguishment  of debt of  approximately
$16,000 for the year ended December 31, 2003 due to the write off of unamortized
loan  costs  and  mortgage  discounts,  which  is also  included  in  loss  from
discontinued operations.

Note F - Income Taxes

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

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

                                         2003          2002

Net income (loss) as reported          $ 3,707       $  (185)
Add (deduct)
  Depreciation differences                   13            8
  Equity in joint venture                   (31)           6
  Prepaid rents                              17           (2)
   Gain on sale                            (971)          --
   Casualty                                (690)          --
  Other                                      95           47

Federal taxable income (loss)           $ 2,140      $  (126)

Federal taxable income (loss)
  per limited partnership unit          $ 77.52      $ (4.57)

The following is a reconciliation between the Partnership's reported amounts and
Federal tax basis of net assets as of December 31, 2003 (in thousands):

Net liabilities as reported                  $ (2,370)
Land and buildings                              1,461
Accumulated depreciation                          191
Syndication                                     3,809
Other                                           1,127

Net assets - Federal tax basis               $  4,218

Note G - 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.

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  $164,000 and  $249,000 for the years ended  December 31, 2003 and
2002,  respectively,  which is  included  in  operating  expenses  and loss from
discontinued operations.

An  affiliate  of  the  Managing  General  Partner  received  reimbursements  of
accountable  administrative  expenses  amounting to  approximately  $318,000 and
$161,000 for the years ended December 31, 2003 and 2002, 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
$176,000  and  $15,000  for  the  years  ended   December  31,  2003  and  2002,
respectively. The construction management service fees are calculated based on a
percentage of current year  additions to investment  properties.  As of December
31, 2003, the  Partnership  owed  approximately  $26,000 of accrued  accountable
administrative  expenses to an affiliate of the Managing General  Partner.  Such
amount is included in due to affiliates on the consolidated balance sheet.

During the years ended  December 31, 2003 and 2002, an affiliate of the Managing
General Partner advanced the Partnership  approximately  $1,350,000 and $79,000,
respectively,  to fund the  repayment of the mortgage at Lakeside  Apartments in
2003 and operating  obligations at North Springs  Apartments in 2002. During the
years ended  December  31, 2003 and 2002,  the  Partnership  repaid  advances of
approximately $71,000 and $9,000, respectively. At December 31, 2003, the amount
of the outstanding loans and accrued interest was  approximately  $1,350,000 and
are shown as Due to affiliates on the accompanying  consolidated  balance sheet.
Interest  on the  advances  was  charged  at the prime rate plus 1%, or 5.00% at
December 31, 2003, in accordance with the Partnership Agreement. The Partnership
paid approximately $2,000 and $1,000 in interest during the years ended December
31, 2003 and 2002, respectively.

For acting as real estate  broker in  connection  with the sale of North Springs
Apartments,  the Managing  General Partner was paid a real estate  commission of
approximately  $183,000  during  the year  ended  December  31,  2003.  When the
Partnership  terminates,  the Managing  General Partner will have to return this
commission  if the  limited  partners  do not receive  their  original  invested
capital plus a 12% per annum cumulative non-compounded return.

The  Partnership  insures 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
Managing General Partner. During the years ended December 31, 2003 and 2002, the
Partnership  was charged by AIMCO and its affiliates  approximately  $66,000 and
$80,000,  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 12,272.50 limited partnership units
(the "Units") in the Partnership representing 45.83% of the outstanding Units at
December  31,  2003.  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 in exchange for cash or a combination
of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO,
either through private  purchases or tender offers.  Pursuant to the Partnership
Agreement,  unitholders  holding a majority  of the Units are  entitled  to take
action with  respect to a variety of matters that  include,  but are not limited
to,  voting on certain  amendments  to the  Partnership  Agreement and voting to
remove the Managing General  Partner.  As a result of its ownership of 45.83% of
the outstanding  Units,  AIMCO and its affiliates are in a position to influence
all voting  decisions  with  respect to the  Partnership.  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.

Note H - 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>
Lakeside Apartments             $ 2,867       $ 1,259       $ 5,791         $ 453
Bexley House Apartments           2,251           647         3,067          1,308
Covington Pointe
 Apartments                       5,916         1,935         7,041          1,582

Totals                          $11,034       $ 3,841       $15,899        $ 3,343
</TABLE>


<TABLE>
<CAPTION>

                     Gross Amount At Which
                            Carried
                        At December 31, 2003
                         (in thousands)
                           Buildings
                          And Related
                           Personal            Accumulated     Date of      Date    Depreciable
   Description     Land    Property    Total   Depreciation  Construction Acquired  Life-Years
                                              (in thousands)
<S>               <C>       <C>       <C>        <C>             <C>        <C>        <C>
Lakeside          $ 1,046   $ 6,457   $ 7,503    $ 4,498         1980       05/86      5-30
Bexley House          542     4,480     5,022      2,133         1972       09/86      5-30
Covington Pointe    1,935     8,623    10,558      5,776         1982       03/87      5-30

Totals            $ 3,523   $19,560   $23,083    $12,407
</TABLE>


Reconciliation of "investment properties and accumulated depreciation"

                                              Years Ended December 31,
                                                 2003          2002
                                                   (in thousands)
Investment Properties
Balance at beginning of year                    $27,335       $26,935
  Property improvements and replacements          2,067           400
  Disposals of property                            (878)           --
  Sale of property                               (5,441)           --
Balance at end of year                          $23,083       $27,335

Accumulated Depreciation
Balance at beginning of year                    $15,220       $14,120
  Additions charged to expense                      949         1,100
  Disposals of property                            (478)           --
  Sale of property                               (3,284)           --
Balance at end of year                          $12,407       $15,220

The  aggregate  cost of the real  estate  for  Federal  income tax  purposes  at
December  31,  2003 and 2002,  is  approximately  $24,544,000  and  $30,522,000,
respectively. The accumulated depreciation taken for Federal income tax purposes
at December 31, 2003 and 2002, is  approximately  $12,216,000  and  $14,912,000,
respectively.

Note I - 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, 2003 and 2002.

Note J - Legal Proceedings

In March 1998, several putative unit holders of limited partnership units of the
Partnership  commenced an action  entitled  Rosalie  Nuanes,  et al. v. Insignia
Financial Group, Inc., et al. (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
purported  to  assert  claims  on  behalf  of a class of  limited  partners  and
derivatively  on behalf  of a number  of  limited  partnerships  (including  the
Partnership)  that 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 that 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  sought  monetary
damages and equitable relief, including judicial dissolution of the Partnership.
In addition, 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 Heller action was brought as a
purported derivative action, and asserted claims for, among other things, breach
of fiduciary  duty,  unfair  competition,  conversion,  unjust  enrichment,  and
judicial dissolution.

On January 8, 2003,  the parties filed a  Stipulation  of Settlement in proposed
settlement of the Nuanes action and the Heller action.

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
at least one round of tender offers 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 provided 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.  On April  11,  2003,  notice  was
distributed  to  limited   partners   providing  the  details  of  the  proposed
settlement.

On June 13, 2003, the Court granted final approval of the settlement and entered
judgment in both the Nuanes and Heller actions.  On August 12, 2003, an objector
("Objector")  filed an  appeal  seeking  to  vacate  and/or  reverse  the  order
approving the settlement and entering  judgment  thereto.  On November 24, 2003,
the Objector filed an  application  requesting the Court order AIMCO to withdraw
settlement  tender offers it had  commenced,  refrain from making further offers
pending the appeal and auction any units tendered to third  parties,  contending
that the offers did not conform  with the terms of the  Settlement.  Counsel for
the Objector (on behalf of another  investor)  had  alternatively  requested the
Court take certain  action  purportedly  to enforce the terms of the  settlement
agreement.  On December 18, 2003,  the Court heard oral  argument on the motions
and denied them both in their entirety.  On January 28, 2004, Objector filed his
opening brief in his pending appeal.  The Managing  General Partner is currently
scheduled  to file a brief in  support  of the order  approving  settlement  and
entering judgment thereto by April 23, 2004.


<PAGE>


On August 8, 2003 AIMCO  Properties  L.P., an affiliate of the Managing  General
Partner,  was served  with a  Complaint  in the United  States  District  Court,
District of Columbia alleging that AIMCO Properties L.P.  willfully violated the
Fair Labor Standards Act (FLSA) by failing to pay maintenance  workers  overtime
for all hours worked in excess of forty per week.  The  Complaint is styled as a
Collective  Action  under  the FLSA and seeks to  certify  state  subclasses  in
California, Maryland, and the District of Columbia. Specifically, the plaintiffs
contend that AIMCO Properties L.P. failed to compensate  maintenance workers for
time  that they were  required  to be  "on-call".  Additionally,  the  Complaint
alleges AIMCO  Properties  L.P.  failed to comply with the FLSA in  compensating
maintenance  workers  for time that they  worked in  responding  to a call while
"on-call".  The  Complaint  also  attempts  to certify a subclass  for  salaried
service  directors who are challenging  their  classification as exempt from the
overtime  provisions of the FLSA.  AIMCO  Properties L.P. has filed an answer to
the  Complaint  denying the  substantive  allegations.  Discovery  is  currently
underway.

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
matters  involving  it or its  investment  properties  that are not of a routine
nature arising in the ordinary course of business.


<PAGE>





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

            None.

Item 8a.    Controls and Procedures

(a) Disclosure Controls and Procedures.  The Partnership's management,  with the
participation of 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,  has
evaluated  the  effectiveness  of  the  Partnership's  disclosure  controls  and
procedures (as such term is defined in Rules  13a-15(e) and 15d-15(e)  under the
Securities  Exchange Act of 1934, as amended (the "Exchange Act")) as of the end
of the period covered by this report.  Based on such  evaluation,  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 concluded that, as of the
end of such period,  the  Partnership's  disclosure  controls and procedures are
effective.

(b) Internal Control Over Financial  Reporting.  There have not been any changes
in the Partnership's  internal control over financial reporting (as such term is
defined in Rules  13a-15(f)  and  15d-15(f)  under the Exchange  Act) during the
fourth quarter of 2003 that have materially  affected,  or are reasonably likely
to  materially  affect,  the  Partnership's   internal  control  over  financial
reporting.

                                    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
directors and 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
directors and officers.

Peter K. Kompaniez               59   Director
Martha L. Long                   44   Director and Senior Vice President
Harry G. Alcock                  41   Executive Vice President
Miles Cortez                     60   Executive Vice President, General Counsel
                                      and Secretary
Patti K. Fielding                40   Executive Vice President
Paul J. McAuliffe                47   Executive Vice President and Chief
                                      Financial Officer
Thomas M. Herzog                 41   Senior Vice President and Chief Accounting
                                      Officer

Peter K.  Kompaniez  has been Director of the Managing  General  Partner since
February  2004.  Mr.  Kompaniez  has  been  Vice  Chairman  of  the  Board  of
Directors of AIMCO since July 1994 and was  appointed  President in July 1997.
Mr.  Kompaniez has also served as Chief Operating  Officer of NHP Incorporated
after it was  acquired by AIMCO in  December  1997.  Effective  April 1, 2004,
Mr.  Kompaniez  resigned as President of AIMCO. Mr. Kompaniez will continue in
his role as  Director of the  Managing  General  Partner and Vice  Chairman of
AIMCO's  Board  and will  serve  AIMCO on a variety  of  special  and  ongoing
projects in an operating role.

Martha L. Long has been a Director  and Senior Vice  President of the Managing
General  Partner  since  February  2004.  Ms.  Long has been with AIMCO  since
October  1998 and has served in  various  capacities.  From 1998 to 2001,  Ms.
Long served as Senior Vice  President and Controller of AIMCO and the Managing
General  Partner.  During  2002 and 2003,  Ms.  Long  served  as  Senior  Vice
President of Continuous Improvement for AIMCO.

Harry G. Alcock was appointed  Executive Vice President of the Managing  General
Partner  in  February  2004 and has been  Executive  Vice  President  and  Chief
Investment Officer of AIMCO since October 1999. Prior to October 1999 Mr. Alcock
served as a Vice President of AIMCO from July 1996 to October 1997,  when he was
promoted to Senior Vice  President-Acquisitions  where he served  until  October
1999. Mr. Alcock has had responsibility for acquisition and financing activities
of AIMCO since July 1994.

Miles  Cortez was  appointed  Executive  Vice  President,  General  Counsel  and
Secretary  of the  Managing  General  Partner in  February  2004 and of AIMCO in
August 2001. Prior to joining AIMCO, Mr. Cortez was the senior partner of Cortez
Macaulay Bernhardt & Schuetze LLC, a Denver law firm, from December 1997 through
September 2001.

Patti K. Fielding was appointed  Executive  Vice President - Securities and Debt
of the Managing  General Partner in February 2004 and of AIMCO in February 2003.
Ms. Fielding previously served as Senior Vice President - Securities and Debt of
AIMCO from  January  2000 to February  2003.  Ms.  Fielding is  responsible  for
securities and debt financing and the treasury  department.  Ms. Fielding joined
AIMCO in February 1997 and served as Vice  President - Tenders,  Securities  and
Debt until January 2000.

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

Thomas M.  Herzog was  appointed  Senior  Vice  President  and Chief  Accounting
Officer of the Managing General Partner in February 2004 and of AIMCO in January
2004.  Prior to joining AIMCO in January 2004, Mr. Herzog was at GE Real Estate,
serving  as Chief  Accounting  Officer & Global  Controller  from  April 2002 to
January 2004 and as Chief Technical Advisor from March 2000 to April 2002. Prior
to joining GE Real  Estate,  Mr.  Herzog was at  Deloitte & Touche LLP from 1990
until 2000, including a two-year assignment in the real estate national office.

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 board of directors of the Managing  General Partner does not have a separate
audit committee. As such, the board of directors of the Managing General Partner
fulfills  the  functions  of an audit  committee.  The  board of  directors  has
determined  that  Martha L. Long meets the  requirement  of an "audit  committee
financial expert".

The directors and officers of the Managing  General  Partner with authority over
the Partnership are all employees of subsidiaries of AIMCO.  AIMCO has adopted a
code of ethics that applies to such  directors  and  officers  that is posted on
AIMCO's  website  (www.AIMCO.com).   AIMCO's  website  is  not  incorporated  by
reference to this filing.

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, 2003.

Item 11.    Security Ownership of Certain Beneficial Owners and Management

Except as noted below,  no person or entity was known by the  Partnership  to be
the beneficial  owners of more than 5% of the Limited  Partnership  Units of the
Partnership as of December 31, 2003.

                                                              Percentage
                 Entity                   Number of Units     of Total

AIMCO IPLP, L.P. (formerly known as               570           2.13%
  Insignia Properties, L.P.) (1)
  (an affiliate of AIMCO)
AIMCO Properties, L.P. (2)                   7,872.50          29.40%
  (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 4582 S. Ulster St. Parkway, Suite 1100, Denver, Colorado 80237.

As of December 31, 2003, 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
Partnership's  Units.  No such  director  or  officer  had any right to  acquire
beneficial ownership of additional Units of the Partnership.

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.

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  $164,000 and  $249,000 for the years ended  December 31, 2003 and
2002,  respectively,  which is  included  in  operating  expenses  and loss from
discontinued operations.

An  affiliate  of  the  Managing  General  Partner  received  reimbursements  of
accountable  administrative  expenses  amounting to  approximately  $318,000 and
$161,000 for the years ended December 31, 2003 and 2002, 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
$176,000  and  $15,000  for  the  years  ended   December  31,  2003  and  2002,
respectively. The construction management service fees are calculated based on a
percentage of current year  additions to investment  properties.  As of December
31, 2003, the  Partnership  owed  approximately  $26,000 of accrued  accountable
administrative  expenses to an affiliate of the Managing General  Partner.  Such
amount is included in due to affiliates on the consolidated balance sheet.

During the years ended  December 31, 2003 and 2002, an affiliate of the Managing
General Partner advanced the Partnership  approximately  $1,350,000 and $79,000,
respectively,  to fund the  repayment of the mortgage at Lakeside  Apartments in
2003 and operating  obligations at North Springs  Apartments in 2002. During the
years ended  December  31, 2003 and 2002,  the  Partnership  repaid  advances of
approximately $71,000 and $9,000, respectively. At December 31, 2003, the amount
of the outstanding loans and accrued interest was  approximately  $1,350,000 and
are shown as Due to affiliates on the accompanying  consolidated  balance sheet.
Interest  on the  advances  was  charged  at the prime rate plus 1%, or 5.00% at
December 31, 2003, in accordance with the Partnership Agreement. The Partnership
paid approximately $2,000 and $1,000 in interest during the years ended December
31, 2003 and 2002, respectively.

For acting as real estate  broker in  connection  with the sale of North Springs
Apartments,  the Managing  General Partner was paid a real estate  commission of
approximately  $183,000  during  the year  ended  December  31,  2003.  When the
Partnership  terminates,  the Managing  General Partner will have to return this
commission  if the  limited  partners  do not receive  their  original  invested
capital plus a 12% per annum cumulative non-compounded return.

The  Partnership  insures 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
Managing General Partner. During the years ended December 31, 2003 and 2002, the
Partnership  was charged by AIMCO and its affiliates  approximately  $66,000 and
$80,000,  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 12,272.50 limited partnership units
(the "Units") in the Partnership representing 45.83% of the outstanding Units at
December  31,  2003.  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 in exchange for cash or a combination
of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO,
either through private  purchases or tender offers.  Pursuant to the Partnership
Agreement,  unitholders  holding a majority  of the Units are  entitled  to take
action with  respect to a variety of matters that  include,  but are not limited
to,  voting on certain  amendments  to the  Partnership  Agreement and voting to
remove the Managing General  Partner.  As a result of its ownership of 45.83% of
the outstanding  Units,  AIMCO and its affiliates are in a position to influence
all voting  decisions  with  respect to the  Partnership.  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:

            None filed during the quarter ended December 31, 2003.

Item 14.    Principal Accountant Fees and Services

The Managing  General Partner has  reappointed  Ernst & Young LLP as independent
auditors to audit the financial statements of the Partnership for 2004.

Audit  Fees.  The  Partnership   paid  to  Ernst  &  Young  LLP  audit  fees  of
approximately $50,000 and $42,000 for 2003 and 2002, respectively.

Tax Fees.  The  Partnership  paid to Ernst & Young LLP fees for tax services for
2003 and 2002 of approximately $19,000 and $14,000, respectively.


<PAGE>


                                   SIGNATURES



In accordance with the  requirements of the Exchange Act, the Registrant  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/Martha L. Long
                                          Martha L. Long
                                          Senior Vice President

                                    By:   /s/Thomas M. Herzog
                                          Thomas M. Herzog
                                          Senior Vice President and
                                          Chief Accounting Officer

                                    Date: March 29, 2004


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/Peter K. Kompaniez         Director                      Date: March 29, 2004
Peter K. Kompaniez

/s/Martha L. Long             Director and                  Date: March 29, 2004
Martha L. Long                Senior Vice President

/s/Thomas M. Herzog           Senior Vice President         Date: March 29, 2004
Thomas M. Herzog              and Chief Accounting Officer


<PAGE>


                         DAVIDSON INCOME REAL ESTATE, LP
                                  EXHIBIT INDEX


Exhibit

 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.

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.

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.

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.


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.

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.

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.

10SS Contracts related to the sale of North Springs Apartments:

                 (a)    Purchase  and  Sale   Contract   between   Davidson  IRE
                        Associates,  L.P., as Seller and Capital City  Holdings,
                        L.L.C., as Purchaser, effective February 11, 2003.

                  (b)   First  Amendment of Purchase and Sale  Contract  between
                        Davidson  IRE  Associates,  L.P.,  as Seller and Capital
                        City Holdings, L.L.C., as Purchaser, effective March 13,
                        2003.

                 (c)    Reinstatement  and Second Amendment of Purchase and Sale
                        Contract  between  Davidson  IRE  Associates,  L.P.,  as
                        Seller and Capital City Holdings,  L.L.C., as Purchaser,
                        effective March 26, 2003.

                  (d)   Assignment and  Assumption of Sales  Contract  effective
                        April 15, 2003 between Capital City Holdings, L.L.C., as
                        assignor and Wingservice Holdings, L.L.C., as assignee.

10TT              Contracts  related to refinancing of debt of Covington  Pointe
                  Apartments:

                  (a)   Multifamily  Note  dated  June 26,  2003  between  AIMCO
                        Covington Pointe,  L.P., a Delaware limited partnership,
                        and Keycorp Real Estate Capital  Markets,  Inc., an Ohio
                        corporation.

                  (b)   Multifamily Deed of Trust, Assignment of Rents, Security
                        Agreement and Fixture Filing dated June 26, 2003 between
                        AIMCO  Covington   Pointe,   L.P.,  a  Delaware  limited
                        partnership,  and Keycorp Real Estate  Capital  Markets,
                        Inc., an Ohio corporation.

                  (c)   Replacement  Reserve and Security  Agreement  dated June
                        26,  2003  between  AIMCO  Covington  Pointe,   L.P.,  a
                        Delaware  limited  partnership,  and Keycorp Real Estate
                        Capital Markets, Inc., an Ohio corporation.

10UU              Contracts   related  to   refinancing   of  debt  of  Lakeside
                  Apartments:

                  (a)   Multifamily Note dated November 3, 2003 between Davidson
                        Income   Real   Estate,   L.P.,   a   Delaware   limited
                        partnership, and GMAC Commercial Mortgage Corporation, a
                        California corporation.

                  b)    Guaranty  dated  November  3, 2003 by AIMCO  Properties,
                        L.P., a Delaware limited partnership, for the benefit of
                        GMAC  Commercial  Mortgage  Corporation,   a  California
                        corporation.

                  c)    Multifamily  Deed of  Trust,  Assignment  of  Rents  and
                        Security   Agreement  dated  November  3,  2003  between
                        Davidson Income Real Estates,  L.P., a Delaware  limited
                        partnership, and GMAC Commercial Mortgage Corporation, a
                        California corporation.

                  d)    Replacement   Reserve  and  Security   Agreement   dated
                        November 3, 2003 between  Davidson  Income Real Estates,
                        L.P.,   a  Delaware   limited   partnership,   and  GMAC
                        Commercial    Mortgage    Corporation,    a   California
                        corporation.

31.1              Certification  of  equivalent  of  Chief  Executive  Officer
                  pursuant     to     Securities     Exchange     Act    Rules
                  13a-14(a)/15d-14(a),  as Adopted  Pursuant to Section 302 of
                  the Sarbanes-Oxley Act of 2002.

31.2              Certification  of  equivalent  of  Chief  Financial  Officer
                  pursuant     to     Securities     Exchange     Act    Rules
                  13a-14(a)/15d-14(a),  as Adopted  Pursuant to Section 302 of
                  the Sarbanes-Oxley Act of 2002.

32.1              Certification   Pursuant  to  18  U.S.C.  Section  1350,  as
                  Adopted  Pursuant to Section 906 of the  Sarbanes-Oxley  Act
                  of 2002.

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

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

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



<PAGE>


Exhibit 31.1
                                  CERTIFICATION

I, Martha L. Long, 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 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
      report;

3.    Based on my  knowledge,  the  financial  statements,  and other  financial
      information  included  in this  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 report;

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

(a)   Designed  such  disclosure   controls  and  procedures,   or  caused  such
      disclosure  controls and procedures to be designed under our  supervision,
      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  report is being
      prepared;

      (b)   Evaluated the effectiveness of the registrant's  disclosure controls
            and  procedures and presented in this report our  conclusions  about
            the effectiveness of the disclosure  controls and procedures,  as of
            the  end  of the  period  covered  by  this  report  based  on  such
            evaluation; and

      (c)   Disclosed  in this  report any change in the  registrant's  internal
            control  over   financial   reporting   that  occurred   during  the
            registrant's  most recent fiscal  quarter (the  registrant's  fourth
            fiscal  quarter in the case of an annual report) that has materially
            affected,   or  is  reasonably  likely  to  materially  affect,  the
            registrant's internal control over financial reporting; and

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

      (a)   All significant  deficiencies and material  weaknesses in the design
            or operation of internal control over financial  reporting which are
            reasonably  likely to adversely affect the  registrant's  ability to
            record, process, summarize and report financial information; and

      (b)   Any fraud,  whether or not  material,  that  involves  management or
            other  employees  who have a  significant  role in the  registrant's
            internal control over financial reporting.

Date: March 29, 2004
                                    /s/Martha L. Long
                                    Martha L. Long
                                    Senior Vice President of Davidson
                                    Diversified Properties, Inc., equivalent
                                    of the chief executive officer of the
                                    Partnership


<PAGE>


Exhibit 31.2

                                  CERTIFICATION


I, Thomas M. Herzog, 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 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
      report;

3.    Based on my  knowledge,  the  financial  statements,  and other  financial
      information  included  in this  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 report;

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

(a)   Designed  such  disclosure   controls  and  procedures,   or  caused  such
      disclosure  controls and procedures to be designed under our  supervision,
      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  report is being
      prepared;

      (b)   Evaluated the effectiveness of the registrant's  disclosure controls
            and  procedures and presented in this report our  conclusions  about
            the effectiveness of the disclosure  controls and procedures,  as of
            the  end  of the  period  covered  by  this  report  based  on  such
            evaluation; and

      (c)   Disclosed  in this  report any change in the  registrant's  internal
            control  over   financial   reporting   that  occurred   during  the
            registrant's  most recent fiscal  quarter (the  registrant's  fourth
            fiscal  quarter in the case of an annual report) that has materially
            affected,   or  is  reasonably  likely  to  materially  affect,  the
            registrant's internal control over financial reporting; and

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

      (a)   All significant  deficiencies and material  weaknesses in the design
            or operation of internal control over financial  reporting which are
            reasonably  likely to adversely affect the  registrant's  ability to
            record, process, summarize and report financial information; and

      (b)   Any fraud,  whether or not  material,  that  involves  management or
            other  employees  who have a  significant  role in the  registrant's
            internal control over financial reporting.

Date: March 29, 2004
                                    /s/Thomas M. Herzog
                                    Thomas M. Herzog
                                    Senior Vice President and Chief
                                    Accounting Officer of Davidson
                                    Diversified Properties, Inc., equivalent
                                    of the chief financial officer of the
                                    Partnership


<PAGE>


Exhibit 32.1


                          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, 2003 as filed
with the Securities and Exchange  Commission on the date hereof (the  "Report"),
Martha  L.  Long,  as the  equivalent  of the  chief  executive  officer  of the
Partnership,  and Thomas M. Herzog,  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/Martha L. Long
                                    Name:  Martha L. Long
                                    Date:  March 29, 2004


                                           /s/Thomas M. Herzog
                                    Name:  Thomas M. Herzog
                                    Date:  March 29, 2004


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