FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                        Quarterly or Transitional Report



                      U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   Form 10-QSB

(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

                    For the quarterly period ended June 30, 2001


[ ] TRANSITION REPORT PURSUANT TO 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.
         (Exact name of small business issuer as specified 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)

                                 (864) 239-1000
                           (Issuer's telephone number)


Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act  during the  preceding  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___



<PAGE>



                         PART I - FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

a)

                         DAVIDSON INCOME REAL ESTATE, L.P.

                           CONSOLIDATED BALANCE SHEET
                                   (Unaudited)
                          (in thousands, except unit data)

                                  June 30, 2001

<TABLE>
<CAPTION>


Assets
<S>                                                                          <C>
   Cash and cash equivalents                                                 $  556
   Receivables and deposits                                                     148
   Restricted escrows                                                           239
   Other assets                                                                 227
   Investment in joint venture                                                   36
   Investment properties:
       Land                                                  $ 4,120
       Buildings and related personal property                 22,419
                                                               26,539
       Less accumulated depreciation                          (13,586)       12,953
                                                                           $ 14,159
Liabilities and Partners' (Deficit) Capital
Liabilities
   Accounts payable                                                          $ 95
   Tenant security deposit liabilities                                           69
   Accrued property taxes                                                       245
   Other liabilities                                                            267
   Mortgage notes payable                                                    12,828

Partners' (Deficit) Capital
   General partners                                           $ (751)
   Limited partners (26,776 units issued and
      outstanding)                                              1,406           655
                                                                           $ 14,159


            See Accompanying Notes to Consolidated Financial Statements
</TABLE>


<PAGE>

b)

                         DAVIDSON INCOME REAL ESTATE, L.P.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
                        (in thousands, except per unit data)
<TABLE>
<CAPTION>


                                       Three Months Ended        Six Months Ended
                                            June 30,                 June 30,
                                       2001          2000        2001        2000
Revenues:
<S>                                   <C>          <C>          <C>         <C>
  Rental income                       $ 1,162      $ 1,199      $ 2,330     $ 2,406
  Other income                             61           72          124         125
     Total revenues                     1,223        1,271        2,454       2,531

Expenses:
  Operating                               506          448        1,058         910
  General and administrative               60           67          118         104
  Depreciation                            272          243          539         498
  Interest                                260          246          519         492
  Property taxes                          128           96          244         191
     Total expenses                     1,226        1,100        2,478       2,195

(Loss) income before equity in
  income of joint venture                  (3)         171          (24)        336
Equity in income of joint venture          22           24           51          40

Net income                             $ 19         $ 195        $ 27        $ 376

Net income allocated to
  general partners (3%)                 $ 1          $ 6          $ 1        $ 11
Net income allocated to
  limited partners (97%)                   18          189           26         365
                                       $ 19         $ 195        $ 27        $ 376
Net income per limited
  partnership unit                    $ 0.67        $ 7.06      $ 0.97      $ 13.63

Distributions per limited
  partnership unit                    $ 7.51       $ 40.41      $ 14.27     $ 40.41

            See Accompanying Notes to Consolidated Financial Statements
</TABLE>


<PAGE>


c)

                         DAVIDSON INCOME REAL ESTATE, L.P.

          CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
                                   (Unaudited)
                          (in thousands, except unit data)
<TABLE>
<CAPTION>



                                     Limited
                                   Partnership   General      Limited
                                      Units      Partners    Partners       Total

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

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

Distributions to partners                 --         (12)        (382)        (394)

Net income for the six months
   ended June 30, 2001                    --           1           26           27

Partners' (deficit) capital
   at June 30, 2001                   26,776      $ (751)     $ 1,406       $ 655


            See Accompanying Notes to Consolidated Financial Statements
</TABLE>


<PAGE>

d)

                         DAVIDSON INCOME REAL ESTATE, L.P.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                 (in thousands)

<TABLE>
<CAPTION>

                                                                  Six Months Ended
                                                                        June 30,
                                                                  2001        2000
Cash flows from operating activities:
<S>                                                               <C>         <C>
  Net income                                                      $ 27        $ 376
  Adjustments to reconcile net income to net cash
   provided by operating activities:
   Depreciation                                                     539          498
   Amortization of discounts and loan costs                          32           40
   Equity in income of joint venture                                (51)         (40)
   Change in accounts:
      Receivables and deposits                                       51          160
      Other assets                                                  (34)         (13)
      Accounts payable                                              (25)         (28)
      Tenant security deposit liabilities                            (3)          (3)
      Accrued property taxes                                        (27)        (155)
      Other liabilities                                              56          (19)
       Net cash provided by operating activities                    565          816

Cash flows from investing activities:
  Property improvements and replacements                           (263)        (435)
  Net withdrawals from (deposits to) restricted escrows              37          (78)
  Distributions from joint venture                                  124           83
       Net cash used in investing activities                       (102)        (430)

Cash flows from financing activities:
  Payments on mortgage notes payable                                (80)         (77)
  Distributions to partners                                        (394)      (1,326)
  Loan cost paid                                                     (6)          --
       Net cash used in financing activities                       (480)      (1,403)

Net decrease in cash and cash equivalents                           (17)      (1,017)

Cash and cash equivalents at beginning of period                    573        1,675
Cash and cash equivalents at end of period                       $ 556        $ 658

Supplemental disclosure of cash flow information:
  Cash paid for interest                                         $ 475        $ 451

At December  31,  1999,  approximately  $243,000 of  property  improvements  and
replacements were included in accounts payable.

Distributions to partners of approximately $380,000 were accrued at December 31,
1999 and paid in January 2000.

Distributions  to partners of  approximately  $169,000  were accrued at June 30,
2000 and were paid in July 2000.

            See Accompanying Notes to Consolidated Financial Statements

</TABLE>

<PAGE>

e)
                         DAVIDSON INCOME REAL ESTATE, L.P.

                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


Note A - Basis of Presentation

The accompanying  unaudited consolidated financial statements of Davidson Income
Real Estate,  L.P. (the  "Partnership"  or  "Registrant")  have been prepared in
accordance with generally accepted  accounting  principles for interim financial
information  and  with the  instructions  to Form  10-QSB  and  Item  310(b)  of
Regulation  S-B.  Accordingly,  they do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements.  In the opinion of Davidson Diversified  Properties,  Inc.
(the  "Managing  General  Partner"),   all  adjustments  (consisting  of  normal
recurring  accruals)  considered  necessary  for a fair  presentation  have been
included.  Operating  results for the three and six months  ended June 30, 2001,
are not  necessarily  indicative  of the results  that may be  expected  for the
fiscal year ending  December 31,  2001.  For further  information,  refer to the
consolidated   financial  statements  and  footnotes  thereto  included  in  the
Partnership's  Annual  Report on Form 10-KSB for the fiscal year ended  December
31, 2000. The Managing  General Partner is an affiliate of Apartment  Investment
and  Management  Company  ("AIMCO"),  a publicly  traded real estate  investment
trust.

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.

Note B - 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 services and (ii)  reimbursement of certain expenses  incurred by
affiliates on behalf of the  Partnership.  The following  transactions  with the
Managing  General  Partner  and/or its affiliates  were incurred  during the six
months ended June 30, 2001 and 2000:

                                                                  2001      2000
                                                                  (in thousands)

 Property management fees (included in operating expenses)        $127      $127
 Reimbursement for services of affiliates (included in
   general and administrative expenses, operating expense
   and investment properties)                                       90        50

During the six months ended June 30, 2001 and 2000,  affiliates  of the Managing
General  Partner were  entitled to receive 5% of gross  receipts from all of the
Partnership's  properties  as  compensation  for providing  property  management
services.  The Partnership  paid to such affiliates  approximately  $127,000 for
both the six months ended June 30, 2001 and 2000.

An  affiliate  of  the  Managing  General  Partner  received  reimbursements  of
accountable  administrative  expenses  amounting  to  approximately  $90,000 and
$50,000 for the six months ended June 30, 2001 and 2000, respectively.

In addition to its  indirect  ownership of the general  partner  interest in the
Partnership,  AIMCO and its affiliates owned 11,538 limited partnership units in
the Partnership representing 43.09% of the outstanding units at June 30, 2001. A
number of these units were  acquired  pursuant to tender offers made by AIMCO or
its  affiliates.  It is possible that AIMCO or its  affiliates  will make one or
more additional offers to acquire  additional limited  partnership  interests in
the Partnership  for cash or in exchange for units in the operating  partnership
of  AIMCO  either  through  private  purchases  or  tender  offers.   Under  the
Partnership Agreement,  unitholders holding a majority of the Units are entitled
to take action with respect to a variety of matters, which would include without
limitation, voting on certain amendments to the Partnership Agreement and voting
to remove the Managing General  Partner.  As a result of its ownership of 43.09%
of the outstanding units, AIMCO is in a position to significantly  influence all
voting decisions with respect to the Registrant.  When voting on matters,  AIMCO
would in all likelihood vote the Units it acquired in a manner  favorable to the
interest of the Managing  General Partner  because of its  affiliation  with the
Managing General Partner.

Note C - Investment in Joint Venture

The  Partnership  owns a 17.5% interest in the Sterling Crest Joint Venture 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  received  distributions of  approximately  $124,000 and $83,000
from the joint  venture  during  the six months  ended  June 30,  2001 and 2000,
respectively.  For the six months ended June 30, 2001 and 2000, the  Partnership
recognized  equity in the income of the joint venture of  approximately  $51,000
and $40,000, respectively.

Note D - 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 six months ended June 30, 2001 and 2000.

Note E - Distributions

During  the  six  months  ended  June  30,  2001,  the  Partnership   paid  cash
distributions of approximately  $394,000 of which approximately $382,000 ($14.27
per  limited  partnership  unit)  was  paid  to  the  limited  partners.   These
distributions  consisted  of cash  from  operations  of  approximately  $327,000
(approximately   $317,000  to  the  limited   partners  or  $11.84  per  limited
partnership  unit)  and the  remaining  proceeds  from  the  refinancing  of the
mortgage   encumbering   Bexley  House  Apartments  of   approximately   $67,000
(approximately  $65,000 to the limited partners or $2.43 per limited partnership
unit).  Subsequent  to June  30,  2001,  the  Partnership  declared  and  paid a
distribution from operations of approximately $127,000  (approximately  $123,000
to the limited partners or $4.59 per limited partnership unit). In January 2000,
the Partnership paid a cash distribution from operations, which was declared and
accrued at December 31, 1999, of approximately $380,000  (approximately $369,000
to the limited  partners or $13.78 per limited  partnership  unit). In May 2000,
the  Partnership  declared and paid a  distribution  of  approximately  $840,000
(approximately   $815,000  to  the  limited   partners  or  $30.44  per  limited
partnership  unit) from  operations.  In June 2000, the  Partnership  declared a
distribution of approximately  $275,000  (approximately  $267,000 to the limited
partners or $9.97 per limited  partnership unit) from operations.  Approximately
$106,000 of this  distribution  was paid to affiliates  of the Managing  General
Partner. The remaining $169,000 was paid subsequent to June 30, 2000.

Note F - Segment Information

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

Note G - Legal Proceedings

In March 1998, several putative unit holders of limited partnership units of the
Partnership  commenced an action  entitled  Rosalie  Nuanes,  et al. v. Insignia
Financial  Group,  Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs  named as defendants,  among others,
the  Partnership,  its Managing  General Partner and several of their affiliated
partnerships  and corporate  entities.  The action  purports to assert claims on
behalf of a class of limited  partners and derivatively on behalf of a number of
limited  partnerships  (including  the  Partnership)  which are named as nominal
defendants,  challenging,  among other things,  the  acquisition of interests in
certain general partner entities by Insignia Financial Group, Inc.  ("Insignia")
and entities which were, at one time, affiliates of Insignia; past tender offers
by the Insignia affiliates to acquire limited  partnership units;  management of
the  partnerships  by the Insignia  affiliates;  and the series of  transactions
which  closed on October 1, 1998 and  February  26, 1999  whereby  Insignia  and
Insignia Properties Trust, respectively,  were merged into AIMCO. The plaintiffs
seek monetary damages and equitable relief,  including  judicial  dissolution of
the  Partnership.  On June 25, 1998, the Managing General Partner filed a motion
seeking  dismissal  of the action.  In lieu of  responding  to the  motion,  the
plaintiffs  filed an amended  complaint.  The  Managing  General  Partner  filed
demurrers to the amended complaint which were heard February 1999.

Pending the ruling on such  demurrers,  settlement  negotiations  commenced.  On
November 2, 1999,  the parties  executed and filed a Stipulation  of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the  settlement  was obtained on November 3, 1999 from the Court,  at which time
the Court set a final  approval  hearing for  December  10,  1999.  Prior to the
December  10,  1999  hearing,  the  Court  received  various  objections  to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement.  On
December 14, 1999, the Managing  General  Partner and its affiliates  terminated
the  proposed  settlement.  In  February  2000,  counsel  for some of the  named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated  the  settlement.  On June  27,  2000,  the  Court  entered  an order
disqualifying  them  from the case and an  appeal  was  taken  from the order on
October 5, 2000. On December 4, 2000, the Court  appointed the law firm of Lieff
Cabraser  Heimann & Bernstein  LLP as new lead  counsel for  plaintiffs  and the
putative class.  Plaintiffs filed a third amended complaint on January 19, 2001.
On March 2, 2001,  the  Managing  General  Partner  and its  affiliates  filed a
demurrer to the third amended  complaint.  On May 14, 2001,  the Court heard the
demurrer to the third amended  complaint.  On July 10, 2001, the Court issued an
order sustaining defendants' demurrer on certain grounds.  Plaintiffs have until
August 16, 2001 to file a fourth amended complaint. The Managing General Partner
does  not  anticipate  that  any  costs,  whether  legal  or  settlement  costs,
associated  with  this  case  will  be  material  to the  Partnership's  overall
operations.

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



<PAGE>




ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

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

The Partnership's investment properties consist of four apartment complexes. The
following  table sets forth the average  occupancy of the properties for the six
months ended June 30, 2001 and 2000:

                                                   Average Occupancy
      Property                                      2001       2000

      Northsprings Apartments (1)                   89%        96%
         Atlanta, Georgia
      Lakeside Apartments (2)                       88%        92%
         Charlotte, North Carolina
      Bexley House Apartments (3)                   92%        95%
         Columbus, Ohio
      Covington Pointe Apartments                   90%        90%
         Dallas, Texas

(1)   The  Managing  General  Partner  attributes  the  decrease in occupancy at
      Northsprings Apartments to a softening market in the area.

(2)   The  Managing  General  Partner  attributes  the  decrease in occupancy at
      Lakeside  Apartments to an influx of new  apartment  units coming on line,
      low home mortgage interest rates and lay-offs in the area.

(3)   The  Managing  General  Partner  attributes  the  decrease in occupancy at
      Bexley House to a change in demographics in the community.

Results of Operations

The  Partnership's  net  income  for the six months  ended  June 30,  2001,  was
approximately  $27,000 compared to approximately  $376,000 for the corresponding
period in 2000. The Partnership's net income for the three months ended June 30,
2001 was  approximately  $19,000  compared  to  approximately  $195,000  for the
corresponding  period in 2000.  The  decrease  in net  income for the six months
ended June 30, 2001 is primarily  attributable  to a decrease in total  revenues
and an increase in total expenses  partially offset by an increase in the equity
in income of the joint venture.  The decrease in net income for the three months
ending June 30, 2001 is primarily  attributable  to a decrease in total revenues
and the equity in income of the joint venture and an increase in total expenses.
Total  revenues for the three and six months ended June 30, 2001  decreased as a
result of a decrease in rental income. Rental income decreased due to a decrease
in average occupancy at Northsprings Apartments, Lakeside Apartments, and Bexley
House Apartments  partially offset by an increase in average rental rates at all
of the Partnership's properties.

For the three and six months ended June 30, 2001 the increase in total  expenses
is  primarily  attributable  to an increase in operating  expense,  depreciation
expense, interest expense and property tax expense.  Operating expense increased
due to an increase in property expense and advertising expense. Property expense
increased primarily due to an increase in employee related expense at all of the
Partnership's  investment  properties  and to an increase in courtesy  patrol at
Northsprings  Apartments.  Advertising  expense  increased  due  to  efforts  to
increase   occupancy  at  Bexley  House  Apartments  and  Lakeside   Apartments.
Depreciation  expense increased due to new assets being placed in service during
the past twelve months. Interest expense increased due to the refinancing of the
mortgage  encumbering Bexley House Apartments in December of 2000.  Property tax
expense  increased due to an increase in the assessed value at Covington  Pointe
Apartments  and  Northsprings  Apartments  and to an increase in the tax rate at
Bexley House Apartments.

General and administrative  expenses increased for the six months ended June 30,
2001,  primarily  due to an increase  in the cost of services in the  management
reimbursements  to the Managing General Partner as allowed under the Partnership
Agreement.  Also  included  in general  and  administrative  expense  were costs
associated with the quarterly and annual  communications  with the investors and
regulatory agencies and the annual audit required by the Partnership Agreement.

Partially offsetting the decrease in overall net income for the six months ended
June 30,  2001,  was an  increase  in equity  in  income  of the  joint  venture
property.  The Partnership owns a 17.5% interest in Sterling Crest Joint Venture
(the  "Joint  Venture").  Equity in  income  from the  joint  venture  increased
primarily due to increased  rental revenue and decreased  operating  expenses of
the joint venture property.  Rental revenues  increased due to increased average
rental rates and occupancy at Brighton Crest. Operating expense decreased due to
decreased maintenance expense partially offset by increased interest expense.

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

Liquidity and Capital Resources

At June 30, 2001, the Partnership had cash and cash equivalents of approximately
$556,000  compared to  approximately  $658,000 at June 30, 2000. The decrease in
cash and cash  equivalents  for the six  months  ended  June 30,  2001  from the
Partnership's  year ended December 31, 2000,  was  approximately  $17,000.  This
decrease is due to approximately  $480,000 of cash used in financing  activities
and approximately $102,000 of cash used in investing activities partially offset
by approximately $565,000 of cash provided by operating activities. Cash used in
financing  activities consisted primarily of distributions paid to the partners,
payments  of  principal  made on the  mortgages  encumbering  the  Partnership's
investment  properties  and, to a lesser extent,  additional  loan costs paid in
relation  to  the  refinancing  of  the  mortgages   encumbering   Bexley  House
Apartments,  as discussed below. Cash used in investing  activities consisted of
property improvements and replacements  partially offset by net withdrawals from
restricted escrows maintained by the mortgage lenders and distributions received
from the  Partnership's  joint  venture.  The  Partnership  invests  its working
capital reserves in interest bearing accounts.

The sufficiency of existing  liquid assets to meet future  liquidity and capital
expenditure   requirements   is  directly   related  to  the  level  of  capital
expenditures  required at the 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.   Capital
improvements planned for the Partnership's properties are detailed below.

Northsprings Apartments

Approximately  $49,000 is budgeted for capital improvements for the year 2001 at
Northsprings Apartments consisting primarily of floor covering replacement, wall
covering replacement,  and appliance  replacements.  During the six months ended
June 30, 2001, the Partnership  completed  approximately $77,000 of budgeted and
nonbudgeted  capital   improvements  at  Northsprings   Apartments,   consisting
primarily of cabinets, wall coverings,  plumbing fixture upgrades,  parking area
resurfacing,  and appliance and floor covering replacements.  These improvements
were funded from operating cash flow.

Lakeside Apartments

Approximately $116,000 is budgeted for capital improvements for the year 2001 at
Lakeside Apartments  consisting primarily of floor covering  replacement,  major
landscaping,  wall covering  replacement,  air conditioning  unit  replacements,
appliance replacements, and other structural improvements. During the six months
ended  June 30,  2001,  the  Partnership  completed  approximately  $123,000  of
budgeted and nonbudgeted capital improvements at Lakeside Apartments, consisting
primarily  of  floor  covering   replacements,   major  landscaping,   appliance
replacements,  HVAC and structural upgrades. These improvements were funded from
replacement reserves and operating cash flow.

Bexley House Apartments

Approximately  $57,000 is budgeted for capital improvements for the year 2001 at
Bexley House  Apartments  consisting  primarily of floor covering  replacements,
HVAC upgrades and appliance  replacements.  During the six months ended June 30,
2001,  the  Partnership  completed  approximately  $12,000 of  budgeted  capital
improvements  at Bexley House,  consisting  primarily of maintenance  equipment,
HVAC upgrades and floor covering  replacements.  These  improvements were funded
from replacement reserves and operating cash flow.

Covington Pointe Apartments

Approximately  $65,000 is budgeted for capital improvements for the year 2001 at
Covington Pointe Apartments consisting primarily of floor covering replacements,
interior decoration, HVAC replacements,  and appliance replacements.  During the
six months ended June 30, 2001, the Partnership completed  approximately $51,000
of budgeted  capital  improvements at Covington  Pointe  Apartments,  consisting
primarily of swimming pool upgrades,  floor covering replacements,  parking area
improvements,  interior decoration,  and structural upgrades. These improvements
were funded primarily from operating cash flow.

The additional  capital  expenditures will be incurred only if cash is available
from operations or from Partnership  reserves.  To the extent that such budgeted
capital improvements are completed,  the Partnership's  distributable cash flow,
if any, may be adversely affected at least in the short term.

On December 15, 2000, the Partnership refinanced the mortgage encumbering Bexley
House   Apartments.   The   refinancing   replaced   mortgage   indebtedness  of
approximately  $1,205,000  with a new mortgage of  $2,425,000.  The mortgage was
refinanced at a rate of 7.32%,  as compared to the prior rate of 7.60%,  and the
new mortgage  matures on January 1, 2021. The  Partnership  was also required to
establish  a  repair  escrow  of  approximately  $96,000  at  the  date  of  the
refinancing.   Capitalized   loan  costs  incurred  for  the  refinancing   were
approximately  $38,000 as of December 31, 2000. During the six months ended June
30,  2001,  the  Partnership  incurred  additional  loan costs of  approximately
$6,000.

The Partnership's  current assets are thought to be sufficient for any near-term
needs  (exclusive  of capital  improvements)  of the  Partnership.  The mortgage
indebtedness of approximately  $12,828,000,  net of discounts, is amortized over
varying  periods.  The Managing General Partner will attempt to refinance and/or
sell the properties  prior to such maturity dates.  If the properties  cannot be
refinanced or sold for a sufficient amount, the Partnership may risk losing such
properties through foreclosure.

During  the  six  months  ended  June  30,  2001,  the  Partnership   paid  cash
distributions of approximately  $394,000 of which approximately $382,000 ($14.27
per  limited  partnership  unit)  was  paid  to  the  limited  partners.   These
distributions  consisted  of cash  from  operations  of  approximately  $327,000
(approximately   $317,000  to  the  limited   partners  or  $11.84  per  limited
partnership  unit)  and the  remaining  proceeds  from  the  refinancing  of the
mortgage   encumbering   Bexley  House  Apartments  of   approximately   $67,000
(approximately  $65,000 to the limited partners or $2.43 per limited partnership
unit).  Subsequent  to June  30,  2001,  the  Partnership  declared  and  paid a
distribution from operations of approximately $127,000  (approximately  $123,000
to the limited partners or $4.59 per limited partnership unit). In January 2000,
the Partnership paid a cash distribution from operations, which was declared and
accrued at December 31, 1999, of approximately $380,000  (approximately $369,000
to the limited  partners or $13.78 per limited  partnership  unit). In May 2000,
the  Partnership  declared and paid a  distribution  of  approximately  $840,000
(approximately   $815,000  to  the  limited   partners  or  $30.44  per  limited
partnership  unit) from  operations.  In June 2000, the  Partnership  declared a
distribution of approximately  $275,000  (approximately  $267,000 to the limited
partners or $9.97 per limited  partnership unit) from operations.  Approximately
$106,000 of this  distribution  was paid to affiliates  of the Managing  General
Partner.  The  remaining  $169,000 was paid  subsequent  to June 30,  2000.  The
Partnership's  distribution  policy is reviewed on a monthly basis.  Future cash
distributions  will depend on the levels of net cash generated from  operations,
the  availability  of  cash  reserves,   and  the  timing  of  debt  maturities,
refinancings and/or property sales. There can be no assurance, however, that the
Partnership  will  generate  sufficient  funds from  operations  after  required
capital improvements to permit further  distributions to its partners during the
remainder of 2001 or subsequent periods.  Distributions may be restricted by the
requirement to deposit net operating  income into a reserve  account until it is
funded  a  minimum  of  $200  and a  maximum  of  $400  per  apartment  unit  at
Northsprings   Apartments  and  Covington  Pointe  Apartments  for  a  total  of
approximately  $60,000 to $120,000.  At June 30, 2001,  the maximum  balance was
attained.

In addition to its  indirect  ownership of the general  partner  interest in the
Partnership,  AIMCO and its affiliates owned 11,538 limited partnership units in
the Partnership representing 43.09% of the outstanding units at June 30, 2001. A
number of these units were  acquired  pursuant to tender offers made by AIMCO or
its  affiliates.  It is possible that AIMCO or its  affiliates  will make one or
more additional offers to acquire  additional limited  partnership  interests in
the Partnership  for cash or in exchange for units in the operating  partnership
of  AIMCO  either  through  private  purchases  or  tender  offers.   Under  the
Partnership Agreement,  unitholders holding a majority of the Units are entitled
to take action with respect to a variety of matters, which would include without
limitation, voting on certain amendments to the Partnership Agreement and voting
to remove the Managing General  Partner.  As a result of its ownership of 43.09%
of the outstanding units, AIMCO is in a position to significantly  influence all
voting decisions with respect to the Registrant.  When voting on matters,  AIMCO
would in all likelihood vote the Units it acquired in a manner  favorable to the
interest of the Managing  General Partner  because of its  affiliation  with the
Managing General Partner.



<PAGE>


                           PART II - OTHER INFORMATION


ITEM 1.     LEGAL PROCEEDINGS

In March 1998, several putative unit holders of limited partnership units of the
Partnership  commenced an action  entitled  Rosalie  Nuanes,  et al. v. Insignia
Financial  Group,  Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs  named as defendants,  among others,
the  Partnership,  its Managing  General Partner and several of their affiliated
partnerships  and corporate  entities.  The action  purports to assert claims on
behalf of a class of limited  partners and derivatively on behalf of a number of
limited  partnerships  (including  the  Partnership)  which are named as nominal
defendants,  challenging,  among other things,  the  acquisition of interests in
certain general partner entities by Insignia Financial Group, Inc.  ("Insignia")
and entities which were, at one time, affiliates of Insignia; past tender offers
by the Insignia affiliates to acquire limited  partnership units;  management of
the  partnerships  by the Insignia  affiliates;  and the series of  transactions
which  closed on October 1, 1998 and  February  26, 1999  whereby  Insignia  and
Insignia Properties Trust, respectively,  were merged into AIMCO. The plaintiffs
seek monetary damages and equitable relief,  including  judicial  dissolution of
the  Partnership.  On June 25, 1998, the Managing General Partner filed a motion
seeking  dismissal  of the action.  In lieu of  responding  to the  motion,  the
plaintiffs  filed an amended  complaint.  The  Managing  General  Partner  filed
demurrers to the amended complaint which were heard February 1999.

Pending the ruling on such  demurrers,  settlement  negotiations  commenced.  On
November 2, 1999,  the parties  executed and filed a Stipulation  of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the  settlement  was obtained on November 3, 1999 from the Court,  at which time
the Court set a final  approval  hearing for  December  10,  1999.  Prior to the
December  10,  1999  hearing,  the  Court  received  various  objections  to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement.  On
December 14, 1999, the Managing  General  Partner and its affiliates  terminated
the  proposed  settlement.  In  February  2000,  counsel  for some of the  named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated  the  settlement.  On June  27,  2000,  the  Court  entered  an order
disqualifying  them  from the case and an  appeal  was  taken  from the order on
October 5, 2000. On December 4, 2000, the Court  appointed the law firm of Lieff
Cabraser  Heimann & Bernstein  LLP as new lead  counsel for  plaintiffs  and the
putative class.  Plaintiffs filed a third amended complaint on January 19, 2001.
On March 2, 2001,  the  Managing  General  Partner  and its  affiliates  filed a
demurrer to the third amended  complaint.  On May 14, 2001,  the Court heard the
demurrer to the third amended  complaint.  On July 10, 2001, the Court issued an
order sustaining defendants' demurrer on certain grounds.  Plaintiffs have until
August 16, 2001 to file a fourth amended complaint. The Managing General Partner
does  not  anticipate  that  any  costs,  whether  legal  or  settlement  costs,
associated  with  this  case  will  be  material  to the  Partnership's  overall
operations.

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

            a)    Exhibits:

                  None.

            b)    Reports on Form 8-K:

                  None filed during the quarter ended June 30, 2001.




<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/Patrick J. Foye
                                          Patrick J. Foye
                                          Executive Vice President


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


                                    Date: