UNITED STATES
                       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 September 30, 2003


[ ] 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 Registrant 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)






<PAGE>



                         PART I - FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS



                        DAVIDSON INCOME REAL ESTATE, L.P.

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

                               September 30, 2003
<TABLE>
<CAPTION>

Assets
<S>                                                                          <C>
   Cash and cash equivalents                                                 $ 416
   Receivables and deposits                                                     914
   Restricted escrows                                                            81
   Other assets                                                                 235
   Investment properties:
       Land                                                  $ 3,523
       Buildings and related personal property                 18,283
                                                               21,806
       Less accumulated depreciation                          (12,241)        9,565
                                                                           $ 11,211
Liabilities and Partners' Deficit
Liabilities
   Accounts payable                                                          $ 83
   Tenant security deposit liabilities                                           66
   Accrued property taxes                                                       292
   Other liabilities                                                             88
   Deficit in joint venture                                                     829
   Mortgage notes payable                                                    12,334

Partners' Deficit
   General partners                                           $ (846)
   Limited partners (26,776 units issued and
      outstanding)                                             (1,635)       (2,481)
                                                                           $ 11,211


            See Accompanying Notes to Consolidated Financial Statements

</TABLE>

<PAGE>

                        DAVIDSON INCOME REAL ESTATE, L.P.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
                      (in thousands, except per unit data)
<TABLE>
<CAPTION>

                                         Three Months Ended        Nine Months Ended
                                           September 30,             September 30,
                                         2003          2002         2003        2002
                                                    (Restated)               (Restated)
Revenues:
<S>                                      <C>          <C>         <C>         <C>
  Rental income                          $ 804        $ 883       $ 2,439     $ 2,644
  Other income                               63           85          194         198
  Casualty gain                             459           --          540          --
     Total revenues                       1,326          968        3,173       2,842
Expenses:
  Operating                                 388          384        1,066       1,088
  General and administrative                 58           53          147         163
  Depreciation                              214          216          658         656
  Interest                                  184          220          632         655
  Property taxes                             94           94          283         288
  Loss on early extinguishment
    of debt                                  --           --           57          --
     Total expenses                         938          967        2,843       2,850
Income (loss) before equity in
  income (loss)of joint venture             388            1          330          (8)
Equity in income (loss) of joint
  venture                                     1           10            3         (24)
Income (loss) from continuing
  operations                                389           11          333         (32)
Income (loss) from discontinued
  operations                                 17           --         (209)        (20)
Gain on sale of discontinued
  operations                                 --           --        3,472          --
Net income (loss)                        $ 406         $ 11       $ 3,596      $ (52)

Net income (loss) allocated to
  general partners (3%)                  $ 12          $ --        $ 108        $ (2)
Net income (loss) allocated to
  limited partners (97%)                    394           11        3,488         (50)
                                         $ 406         $ 11       $ 3,596      $ (52)
Net income (loss) per limited partnership unit:
Income (loss) from continuing
  operations                            $ 14.09       $ 0.41      $ 12.06     $ (1.16)
Income (loss) from discontinued
  operations                               0.62           --        (7.57)      (0.71)
Gain on sale of discontinued
  operations                                 --           --       125.78           --
                                        $ 14.71       $ 0.41      $130.27     $ (1.87)
Distributions per limited
  partnership unit                      $ 61.44      $ 11.85      $189.80     $ 48.11

            See Accompanying Notes to Consolidated Financial Statements

</TABLE>

<PAGE>
                        DAVIDSON INCOME REAL ESTATE, L.P.

               CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
                                   (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 at
  December 31, 2002                     26,776      $ (797)     $ (41)       $ (838)

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

Net income for the nine months
  ended September 30, 2003                  --         108        3,488        3,596

Partners' deficit at
  September 30, 2003                    26,776      $ (846)    $(1,635)      $(2,481)

            See Accompanying Notes to Consolidated Financial Statements

</TABLE>

<PAGE>
                        DAVIDSON INCOME REAL ESTATE, L.P.

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

<TABLE>
<CAPTION>

                                                                 Nine Months Ended
                                                                   September 30,
                                                                 2003          2002
Cash flows from operating activities:
<S>                                                             <C>           <C>
  Net income (loss)                                             $ 3,596       $ (52)
  Adjustments to reconcile net income (loss) to net cash
   (used in) provided by operating activities:
     Gain on sale of discontinued operations                     (3,472)          --
     Casualty gain                                                 (540)          --
     Loss on early extinguishment of debt                            73           --
     Depreciation                                                   736          825
     Amortization of loan costs and discounts                        40           50
     Equity in (income) loss of joint venture                        (3)          24
     Change in accounts:
      Receivables and deposits                                     (737)          15
      Other assets                                                  (56)         (69)
      Accounts payable                                              (75)         (69)
      Tenant security deposit liabilities                           (23)          30
      Accrued property taxes                                        (10)         (23)
      Other liabilities                                             (30)          89
       Net cash (used in) provided by operating activities         (501)         820

Cash flows from investing activities:
  Net proceeds from sale of discontinued operations               5,735           --
  Property improvements and replacements                           (704)        (290)
  Net withdrawals from restricted escrows                           102          100
  Insurance proceeds from casualty                                  843           --
  Distributions from joint venture                                   33          817
       Net cash provided by investing activities                  6,009          627

Cash flows from financing activities:
  Payments on mortgage notes payable                               (141)        (137)
  Loan costs paid                                                   (95)          --
  Payment on advances from affiliate                                (71)          --
  Repayments of mortgage notes payable                           (6,122)          --
  Proceeds from mortgage note payable                             6,000           --
  Distributions to partners                                      (5,239)      (1,328)
       Net cash used in financing activities                     (5,668)      (1,465)

Net decrease in cash and cash equivalents                          (160)         (18)
Cash and cash equivalents at beginning of period                    576          594

Cash and cash equivalents at end of period                       $ 416        $ 576

Supplemental disclosure of cash flow information:
  Cash paid for interest                                         $ 671        $ 723

            See Accompanying Notes to Consolidated Financial Statements

</TABLE>

<PAGE>

                        DAVIDSON INCOME REAL ESTATE, L.P.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                               September 30, 2003

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 nine months ended  September 30,
2003, are not necessarily indicative of the results that may be expected for the
fiscal year ending  December 31,  2003.  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, 2002. The Managing  General Partner is a subsidiary of Apartment  Investment
and  Management  Company  ("AIMCO"),  a publicly  traded real estate  investment
trust.

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, which was
sold in April 2003, as loss from discontinued operations.

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.

Affiliates of the Managing  General  Partner are 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 $130,000 and $189,000 for the nine months ended September 30, 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  $92,000 and
$117,000 for the nine months ended  September  30, 2003 and 2002,  respectively,
which  is  included  in  general  and  administrative   expense  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 $8,000 and $5,000 for the nine months ended September 30, 2003 and
2002,  respectively.  The  construction  management  service fees are based on a
percentage of current year additions to investment properties.

During the nine months ended September 30, 2003 the Partnership  repaid advances
of  approximately  $71,000 to an  affiliate  of the  Managing  General  Partner.
Interest  on the  advances  was  charged  at the prime rate plus 2%, or 6.00% at
September  30,  2003,  in  accordance  with  the  Partnership   Agreement.   The
Partnership paid  approximately  $2,000 in interest during the nine months ended
September  30,  2003.  There were no such  repayments  made or interest  charged
during the nine months ended September 30, 2002.

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 nine months ended September 30, 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 nine months ended September 30, 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.

Note C - Deficit 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.

During the nine months  ended  September  30,  2003,  the  Partnership  received
distributions  of  approximately  $33,000 from  operations of the joint venture.
During the nine months  ended  September  30,  2002,  the  Partnership  received
distributions of approximately $817,000 from the joint venture consisting of its
portion  of the  excess  proceeds  received  from the  refinancing  of the joint
venture's  investment  property in January 2002 and from operations of the joint
venture.  For  the  nine  months  ended  September  30,  2003,  the  Partnership
recognized  approximately  $3,000 of equity in income of the joint venture.  For
the  nine  months  ended   September  30,  2002,  the   Partnership   recognized
approximately  $24,000 of equity in loss of the joint venture,  which was net of
approximately  $54,000 due to the loss incurred on the early  extinguishment  of
debt at the joint  venture's  investment  property.  At September 30, 2003,  the
Partnership  had  received  distributions  in excess of its general  partnership
interest and has an investment deficiency of approximately $829,000.

The following  table  represents  the joint  venture's net income (loss) for the
nine months ended September 30, 2003 and 2002 (in thousands):

                                                 Nine Months Ended September 30,
                                                      2003                2002

Total revenues                                      $ 1,815            $ 1,941
Total expenses                                        1,796              2,079
Net income (loss)                                   $    19            $  (138)

Note D - Casualty Event

In December 2002, Bexley House Apartments  experienced a fire, causing damage to
32 units.  As of  September  30, 2003 the  Partnership  estimates  the  property
damages  to be  approximately  $1,300,000  and lost  rents  to be  approximately
$300,000 as a result of the fire.  Reconstruction  of the units is in  progress.
The  expected  date for  completion  of  reconstruction  is the  latter  part of
November  2003.  During the three and nine months  ended  September  30, 2003, a
partial casualty gain of approximately $459,000 and $540,000,  respectively, was
recorded at Bexley House  Apartments.  The gain was the result of the receipt of
insurance  proceeds  of  approximately  $843,000  offset  by  the  write  off of
approximately  $303,000 of  undepreciated  fixed  assets.  The Managing  General
Partner  expects  that the  damage  and lost  rents  will be  fully  covered  by
insurance proceeds to be received during 2003.

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  $3,472,000  during the nine months ended  September 30, 2003. The
property's  operations,  loss of approximately $209,000 and $20,000 for the nine
months ended  September  30, 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  $808,000,
respectively.   In  addition,   the   Partnership   recorded  a  loss  on  early
extinguishment  of debt of  approximately  $16,000  for the  nine  months  ended
September 30, 2003 due to the write off of  unamortized  loan costs and mortgage
discounts, which is also included in loss from discontinued operations.

Note F - Refinancing of Mortgage Note Payable

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 approximately  $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.

Note G - Subsequent Event

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 of approximately $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.

The mortgage is currently  refinanced under an interim credit facility ("Interim
Credit Facility") which also provided for the refinancing of other  Partnerships
that are affiliated with the Partnership.  However,  the Interim Credit Facility
created  separate  loans for each  property  thereunder,  which  loans  were not
cross-collateralized  or cross-defaulted with each other. During the term of the
Interim Credit Facility,  Lakeside  Apartments is required to make interest only
payments.   The   interest   rate  is  based  on  the  Fannie   Mae   discounted
mortgage-backed security index plus 85 basis points.

At  December  1,  2003,  the loan on  Lakeside  Apartments  will be assumed by a
different lender. The credit facility ("Permanent Credit Facility") with the new
lender will have a maturity of five years with an option for the  Partnership to
elect one  five-year  extension.  This  Permanent  Credit  Facility  will create
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 will begin as a variable rate loan, and provides the
option, after three years, of converting to a fixed rate loan. The interest rate
on the  variable  rate loans will be the Fannie Mae  discounted  mortgage-backed
security  index  85  basis  points  and  will  reset  monthly.  Each  loan  will
automatically  renew at the end of each month.  In addition,  monthly  principal
payments will be required based on a 30-year  amortization  schedule,  using the
interest  rate in effect during the first month that the property is financed by
the Permanent Credit Facility. The loans will be prepayable without penalty.

Note H - Legal Proceedings

In March 1998, several putative unit holders of limited partnership units of the
Partnership  commenced an action  entitled  Rosalie  Nuanes,  et al. v. Insignia
Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the
State of  California  for the  County  of San  Mateo.  The  plaintiffs  named as
defendants,  among others,  the  Partnership,  its Managing  General Partner and
several of their  affiliated  partnerships  and corporate  entities.  The action
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
filed an appeal  seeking  to vacate  and/or  reverse  the  order  approving  the
settlement and entering judgment  thereto.  The Managing General Partner intends
to file a respondent's  brief in support of the order  approving  settlement and
entering judgment thereto.

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.

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.  Although the outcome of any
litigation  is  uncertain,  in the opinion of the Managing  General  Partner the
claims will not result in any material liability to the Partnership.

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.

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

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.

The Partnership's  investment  properties consist of three apartment  complexes.
The following  table sets forth the average  occupancy of the properties for the
nine months ended September 30, 2003 and 2002:

                                                   Average Occupancy
      Property                                      2003       2002

      Lakeside Apartments                           89%        91%
         Charlotte, North Carolina
      Bexley House Apartments                       49%        99%
         Columbus, Ohio (1)
      Covington Pointe Apartments                   93%        88%
         Dallas, Texas (2)

      (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 units are currently
            in the process of being rebuilt.

      (2)   The Managing General Partner attributes the increase in occupancy at
            Covington Pointe  Apartments to the lowering of average rental rates
            to be competitive in the Dallas area.

Results of Operations

The  Partnership's  net income for the nine months ended  September 30, 2003 was
approximately $3,596,000 compared to a net loss of approximately $52,000 for the
nine months ended September 30, 2002. The Partnership's net income for the three
months  ended  September  30, 2003 was  approximately  $406,000  compared to net
income of  approximately  $11,000 for the three months ended September 30, 2002.
Net income for the three months ended  September  30, 2003  increased  due to an
increase  in total  revenues.  The  decrease in the net loss for the nine months
ended September 30, 2003 is due to the gain on sale of  discontinued  operations
and an increase in total  revenues  partially  offset by an increase in the loss
from discontinued operations.

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  $3,472,000  during the nine months ended  September 30, 2003. The
property's operations, a loss of approximately $209,000 and $20,000 for the nine
months ended  September  30, 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  $808,000,
respectively.   In  addition,   the   Partnership   recorded  a  loss  on  early
extinguishment  of debt of  approximately  $16,000  for the  nine  months  ended
September 30, 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 nine months ended
September 30, 2003 was approximately $333,000 compared to a loss from continuing
operations  of  approximately  $32,000 for the nine months ended  September  30,
2002. The Partnership's  income from continuing  operations for the three months
ended  September  30, 2003 was  approximately  $389,000  compared to income from
continuing  operations  of  approximately  $11,000  for the three  months  ended
September 30, 2002.  The increase in income from  continuing  operations for the
three months ended  September  30, 2003 is due to an increase in total  revenues
and a  decrease  in  total  expenses.  The  decrease  in  loss  from  continuing
operations for the nine months ended September 30, 2003 is due to an increase in
total  revenues,  a decrease  in the equity in loss of the joint  venture  and a
slight decrease in total expenses.  Total revenues for the three and nine months
ended  September 30, 2003  increased due to the  recognition  of a casualty gain
partially offset by a decrease in rental income.  Rental income decreased due to
a significant  decrease in occupancy at Bexley House Apartments and decreases in
the average rental rates at Covington Pointe and Lakeside Apartments,  partially
offset by an increase in occupancy at Covington Pointe Apartments.

In December 2002, Bexley House Apartments  experienced a fire, causing damage to
32 units.  As of September  30, 2003,  the  Partnership  estimates  the property
damages  to be  approximately  $1,300,000  and lost  rents  to be  approximately
$300,000 as a result of the fire.  Reconstruction  of the units is in  progress.
The  expected  date for  completion  of  reconstruction  is the  latter  part of
November  2003.  During the three and nine months  ended  September  30, 2003, a
partial casualty gain of approximately $459,000 and $540,000,  respectively, was
recorded at Bexley House  Apartments.  The gain was the result of the receipt of
insurance  proceeds  of  approximately  $843,000  offset  by  the  write  off of
approximately  $303,000 of  undepreciated  fixed  assets.  The Managing  General
Partner  expects  that the  damages  and lost  rents  will be fully  covered  by
insurance proceeds to be received during 2003.

The  Partnership  owns a 17.5%  interest in Sterling  Crest Joint  Venture  (the
"Joint Venture").  For the nine months ended September 30, 2003, the Partnership
recognized  equity  in  income  of the joint  venture  of  approximately  $3,000
compared to equity in loss of the joint venture of approximately $24,000 for the
nine months  ended  September  30, 2002,  respectively.  Equity in income of the
joint venture increased due to a decrease in total expenses  partially offset by
a decrease in total revenues.

Total  expenses for the nine months ended  September  30, 2003  decreased due to
decreases  in  operating,  general  and  administrative  and  interest  expenses
partially offset by a loss on early  extinguishment  of debt. Total expenses for
the three  months  ended  September  30,  2003  decreased  due to a decrease  in
interest expense.  Operating  expenses decreased due to decreases in advertising
expense  and  property  management  fees  partially  offset  by an  increase  in
maintenance   expense.   Advertising  expense  decreased  due  to  decreases  in
periodical  advertising at Lakeside and Covington Pointe Apartments and referral
fees at Covington Pointe Apartments.  Property  management fees decreased due to
decreases in rental revenues at all of the Partnership's  investment properties.
Maintenance  expense  increased due to increases in contract  painting and floor
covering repairs at Lakeside  Apartments.  Interest expense decreased due to the
payment of scheduled principal payments on the mortgages  encumbering  Covington
Pointe and Bexley  House  Apartments  which has reduced the average  outstanding
balance over the last twelve  months and a decrease in the interest  rate on the
mortgage of Covington  Pointe  Apartments as a result of the  refinancing of the
mortgage in June 2003.

General and administrative  expense for the nine months ended September 30, 2003
decreased due to a decrease in management reimbursements to the Managing General
Partner as allowed under the Partnership Agreement. Also included in general and
administrative  expenses for the nine months ended  September  30, 2003 and 2002
are costs associated with the quarterly and annual communications with investors
and  regulatory  agencies  and the  annual  audit  required  by the  Partnership
Agreement.

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 approximately  $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.

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

At  September  30,  2003  the  Partnership  had cash  and  cash  equivalents  of
approximately $416,000 compared to approximately $576,000 at September 30, 2002.
The decrease in cash and cash  equivalents  for the nine months ended  September
30, 2003 was approximately  $160,000.  The decrease in cash and cash equivalents
is due to  approximately  $501,000  of cash  used in  operating  activities  and
approximately  $5,668,000 of cash used in financing  activities partially offset
by approximately $6,009,000 of cash provided by investing activities.  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 and Covington Pointe  Apartments,  payment on advances
from an affiliate of the Managing General Partner, distributions to the partners
and new loan costs paid with the  refinancing  of  Covington  Pointe  Apartments
partially   offset  by  proceeds  from  the  refinancing  of  Covington   Pointe
Apartments. 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  joint venture
and the refund of restricted  escrows  maintained by the former  mortgage lender
partially  offset by property  improvements  and  replacements.  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.  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.  Capital
improvements planned for the Partnership's properties are detailed below.

Lakeside Apartments

During the nine months ended  September  30,  2003,  the  Partnership  completed
approximately   $103,000  of  capital   improvements  at  Lakeside   Apartments,
consisting  primarily  of  major  landscaping,   appliance  and  floor  covering
replacements,  parking area  improvements and plumbing fixture  upgrades.  These
improvements were funded from operating cash flow and replacement reserves.  The
Partnership  evaluates the capital  improvement needs of the property during the
year and  currently  expects  to  complete  an  additional  $16,000  in  capital
improvements  during the remainder of 2003. The additional capital  improvements
will consist  primarily of floor  covering and appliance  replacements  and HVAC
upgrades.  Additional capital  improvements may be considered and will depend on
the  physical  condition of the  property as well as the  anticipated  cash flow
generated by the property and replacement reserves.

Bexley House Apartments

During the nine months ended  September  30,  2003,  the  Partnership  completed
approximately  $445,000  of capital  improvements  at Bexley  House  Apartments,
consisting  primarily of electrical and heating system upgrades,  damage repairs
associated  with the fire,  plumbing  upgrades and appliance and floor  covering
replacements.  These  improvements  were  funded  from  operating  cash flow and
insurance proceeds.  The Partnership is reconstructing this property as a result
of the fire discussed in "Note D - Casualty Event" to the consolidated financial
statements  and  estimates  that  additional  costs of repairs of  approximately
$13,000 will be fully covered by insurance  proceeds to be received during 2003.
Additional  capital  improvements  may be  considered  and  will  depend  on the
physical  condition  of the  property  as  well  as the  anticipated  cash  flow
generated by the property and replacement reserves.

Covington Pointe Apartments

During the nine months ended  September  30,  2003,  the  Partnership  completed
approximately  $69,000 of capital  improvements at Covington Pointe  Apartments,
consisting  primarily  of  major  landscaping,   appliance  and  floor  covering
replacements,  air conditioning  upgrades,  and structural  improvements.  These
improvements were funded from operating cash flow. The Partnership evaluates the
capital  improvement needs of the property during the year and currently expects
to complete an additional $16,000 in capital  improvements  during the remainder
of 2003. The additional  capital  improvements  will consist  primarily of floor
covering and appliance  replacements,  interior  decoration  and HVAC  upgrades.
Additional  capital  improvements  may be  considered  and  will  depend  on the
physical  condition  of the  property  as  well  as the  anticipated  cash  flow
generated by the property.

North Springs Apartments

During the nine months ended  September  30,  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.

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.

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 approximately  $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.

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  $12,334,000  is  amortized  over  varying  periods,  with balloon
payments  of  approximately  $4,416,000  due in July 2010 for  Covington  Pointe
Apartments  and  approximately  $4,100,000  due in  November  2003 for  Lakeside
Apartments.  The Managing  General Partner will attempt to refinance and/or sell
the  properties  prior to such  maturity  dates.  If the  properties  cannot  be
refinanced or sold for a sufficient amount, the Partnership may risk losing such
properties  through  foreclosure.  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 (see "Item 1. Financial Statements, Note G - Subsequent Event").

The Partnership  distributed the following  amounts during the nine months ended
September 30, 2003 and 2002 (in thousands, except per unit data):
<TABLE>
<CAPTION>

                      Nine Months          Per          Nine Months          Per
                         Ended           Limited           Ended           Limited
                     September 30,     Partnership     September 30,     Partnership
                         2003             Unit             2002             Unit

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

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

(2)   Proceeds from the sale of North Springs Apartments in April 2003.
</TABLE>

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  additional  distributions to its
partners during 2003 or subsequent periods.

Other

In addition to its indirect  ownership of the general  partner  interests in the
Partnership,  AIMCO and its affiliates owned 11,916.50 limited partnership units
(the "Units") in the Partnership representing 44.50% of the outstanding Units at
September  30,  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.  In this regard, on November
14, 2003, AIMCO Properties,  L.P., commenced a tender offer to acquire 14,859.50
Units for a purchase  price of $81.72 per Unit.  Such offer  expires on December
15, 2003. 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  44.50% 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

The consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States which require the Partnership
to  make  estimates  and  assumptions.  The  Partnership  believes  that  of its
significant  accounting  policies,  the following may involve a higher degree of
judgment and complexity.

Impairment of Long-Lived Assets

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

Real  property  investments  are  subject  to varying  degrees of risk.  Several
factors  may  adversely  affect  the  economic  performance  and  value  of  the
Partnership's investment properties.  These factors include, 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 and
the Partnership  fully reserves all balances  outstanding  over thirty days. The
Partnership will offer rental concessions during  particularly slow months or in
response to heavy  competition  from other  similar  complexes in the area.  Any
concessions  given at the inception of the lease are amortized  over the life of
the lease.

ITEM 3.     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
fiscal quarter to which this report relates that have  materially  affected,  or
are reasonably likely to materially affect,  the Partnership's  internal control
over financial reporting.

                           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. (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
filed an appeal  seeking  to vacate  and/or  reverse  the  order  approving  the
settlement and entering judgment  thereto.  The Managing General Partner intends
to file a respondent's  brief in support of the order  approving  settlement and
entering judgment thereto.

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.

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.  Although the outcome of any
litigation  is  uncertain,  in the opinion of the Managing  General  Partner the
claims will not result in any material liability to the Partnership.

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

            a) Exhibits:

                  3.1   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.

                  3.2   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.

                  4.1   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.

                  4.2   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.

                  10UU  Contracts  related to refinancing of debt (Schedules and
                        supplemental materials to the exhibits have been omitted
                        but will be  provided  to the  Securities  and  Exchange
                        Commission upon request.):

                  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.

            b) Reports on Form 8-K:

                  Current  report on Form 8-K dated June 26, 2003 and filed July
                  7,  2003  disclosing  the  refinancing  of  Covington   Pointe
                  Apartments.



<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/Paul J. McAuliffe
                                          Paul J. McAuliffe
                                          Executive Vice President and
                                          Chief Financial Officer

                                    Date: November 13, 2003


<PAGE>


Exhibit 31.1

                                  CERTIFICATION


I, Patrick J. Foye, certify that:


1.    I have reviewed this  quarterly  report on Form 10-QSB 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: November 13, 2003

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


<PAGE>


Exhibit 31.2

                                  CERTIFICATION


I, Paul J. McAuliffe, certify that:


1.    I have reviewed this  quarterly  report on Form 10-QSB 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: November 13, 2003

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


<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 Quarterly  Report on Form 10-QSB of Davidson Income Real
Estate, L.P. (the  "Partnership"),  for the quarterly period ended September 30,
2003 as filed with the  Securities  and Exchange  Commission  on the date hereof
(the  "Report"),  Patrick  J. Foye,  as the  equivalent  of the chief  executive
officer of the  Partnership,  and Paul J.  McAuliffe,  as the  equivalent of the
chief financial officer of the Partnership,  each hereby certifies,  pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that, to the best of his knowledge:

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

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


                                           /s/Patrick J. Foye
                                    Name:  Patrick J. Foye
                                    Date:  November 13, 2003


                                           /s/Paul J. McAuliffe
                                    Name:  Paul J. McAuliffe
                                    Date:  November 13, 2003


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.

<PAGE>

                                                                Exhibit 10UU(a)
                                                             Lakeside Apartments

                                MULTIFAMILY NOTE
                                 (VARIABLE LOAN)


US $2,875,000.00                                        As of November 3, 2003


      FOR VALUE RECEIVED,  the undersigned  ("Borrower")  promises to pay to the
order of GMAC COMMERCIAL MORTGAGE  CORPORATION,  a California  corporation,  the
principal  sum of Two Million  Eight  Hundred  Seventy-Five  Thousand and 00/100
Dollars (US  $2,875,000.00),  with  interest on each  Variable Loan at an annual
rate as calculated in Section 3 hereof.

      This Note is executed and delivered by Borrower  pursuant to one of either
(i) that certain Amended and Restated Loan Agreement,  dated as of September 16,
2002, by and among certain  borrowers  signatory thereto and Lender or (ii) that
certain  Loan  Agreement  dated as of  November  1, 2002,  by and among  certain
borrowers  signatory  thereto  and  Lender.  As  used  herein,  the  term  "Loan
Agreement"  shall  mean  whichever  of  the  loan  agreements  described  in the
preceding  sentence  shall  apply  from time to time in  accordance  with  their
respective  terms,  along  with  all  amendments,   supplements,   replacements,
restatements or other  modifications  thereto or thereof from time to time made.
The Loan Agreement shall evidence the obligation of Borrower to repay a Variable
Loan  made by  Lender  to  Borrower  in  accordance  with the  terms of the Loan
Agreement.  This  Note is  entitled  to the  benefit  and  security  of the Loan
Documents provided for in the Loan Agreement,  to which reference is hereby made
for a statement of all of the terms and conditions under which the Variable Loan
evidenced  hereby is made. The Loan Agreement  requires  certain of the terms of
each  Variable  Loan to be  evidenced  by one or a series  of Loan  Confirmation
Instruments,  and  reference  is  hereby  made to each  such  Loan  Confirmation
Instrument for such terms.

1. Defined  Terms.  As used in this Note, (i) the term "Lender" means the holder
of this Note, and (ii) the term "Indebtedness"  means the principal of, interest
on,  or any  other  amounts  due at any time  under,  this  Note,  the  Security
Instrument  or any other Loan  Document,  including  prepayment  premiums,  late
charges,  default interest, and advances to protect the security of the Security
Instrument  under  Section 12 of the Security  Instrument.  Event of Default and
other  capitalized  terms  used but not  defined  in this  Note  shall  have the
meanings  given to such terms in the Loan  Agreement  or, if not  defined in the
Loan Agreement,  as defined in the Security  Instrument (as defined in Paragraph
5).

2.  Address for  Payment.  All  payments due under this Note shall be payable at
GMAC  Commercial  Mortgage  Corporation,  200 Witmer Road,  Horsham,  PA 19044 ,
Attention: Servicing - Account Manager, or such other place as may be designated
by written notice to Borrower from or on behalf of Lender.

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

(a) This Note shall  evidence  a Variable  Loan made from time to time under the
Loan  Agreement.  The Variable Loan shall bear interest at a rate  determined in
accordance with Section 2.01 of the Loan Agreement.

(b) Borrower shall pay imputed  interest on each Variable Loan in advance in the
form of a Discount in  accordance  with  Section  1.04(b) of the Loan  Agreement
(except that  Borrower  shall pay actual  interest on the Variable  Loan for the
partial month period,  if any, in  accordance  with Section  1.04(a) of the Loan
Agreement).

(c) Borrower shall make monthly  payments of principal each in the amount as set
forth on the  attached  Amortization  Schedule.  Lender  shall  apply  each such
principal  payment  to the  outstanding  principal  amount  of the  Loan  on the
Rollover Date next  following  receipt of any such payment.  If not sooner paid,
the entire principal amount of the Variable Loan shall be due and payable on the
earlier of (i) the termination of the Loan Agreement  pursuant to subsection (e)
of  Section  1.02  thereof,  (ii) the  fifth  anniversary  (unless  such date is
extended  pursuant to Section  1.07 of the Loan  Agreement,  in which case,  the
tenth anniversary) of the Initial Closing Date or (iii) the maturity date of any
outstanding MBS, unless either (A) not less than five Business Days prior to the
maturity  date of the  outstanding  MBS,  a  Borrower  has  requested  that  the
outstanding  MBS be renewed  with a new MBS or converted to a Fixed Loan to take
effect on the  maturity  date of the  outstanding  MBS and such new MBS has been
issued or conversion has occurred or (B) the MBS is automatically renewed, which
automatic  renewal  shall  occur in the event that a Borrower  does not make the
request set forth in subpart  (iii)(A) above and does not give Lender notice not
less than five Business days prior to the maturity date of the  outstanding  MBS
that the  Variable  Loan  related to such  outstanding  MBS shall be paid on the
maturity date of such  outstanding  MBS (the "Maturity  Date").  Any MBS that is
issued as a result of an automatic  renewal of a maturing MBS as contemplated by
subpart  (iii)(B) above shall have a maturity date of three (3) months after the
MBS Issue Date.

(d) In addition to payment of principal and the Discount, Borrower shall pay the
Variable  Loan  Fee  due on  each  Variable  Loan  in  accordance  with  Section
1.04(b)(ii) of the Loan Agreement.

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

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

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

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

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

9. Limits on Personal Liability.

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

(b) Borrower shall be personally liable to Lender for the repayment of a portion
of the  Indebtedness  equal to any loss or damage suffered by Lender as a result
of (1)  failure  of  Borrower  to pay to Lender  upon  demand  after an Event of
Default,  all  Rents to which  Lender  is  entitled  under  Section  3(a) of the
Security  Instrument  and the  amount  of all  security  deposits  collected  by
Borrower  from tenants then in  residence;  (2) failure of Borrower to apply all
insurance  proceeds  and  condemnation  proceeds  as  required  by the  Security
Instrument;  (3) failure of Borrower to comply with Section  14(d) or (e) of the
Security Instrument  relating to the delivery of books and records,  statements,
schedules  and  reports;  (4) fraud or  written  material  misrepresentation  by
Borrower or any officer,  director,  partner,  member or employee of Borrower in
connection  with the  application  for or  creation of the  Indebtedness  or any
request  for any action or consent by  Lender;  or (5)  failure to apply  Rents,
first,  to the payment of  reasonable  operating  expenses  (other than Property
management  fees  that are not  currently  payable  pursuant  to the terms of an
Assignment of Management  Agreement or any other  agreement with Lender executed
in  connection  with the  Loan) and then to  amounts  ("Debt  Service  Amounts")
payable  under this Note,  the Security  Instrument  or any other Loan  Document
(except  that  Borrower  will not be  personally  liable (i) to the extent  that
Borrower lacks the legal right to direct the  disbursement  of such sums because
of a  bankruptcy,  receivership  or similar  judicial  proceeding,  or (ii) with
respect to Rents that are  distributed in any calendar year if Borrower has paid
all operating expenses and Debt Service Amounts for that calendar year).

(c) Borrower shall become  personally  liable to Lender for the repayment of all
of the  Indebtedness  upon the  occurrence  of any of the  following  Events  of
Default: (1) Borrower's acquisition of any property or operation of any business
not permitted by Section 33 of the Security  Instrument;  or (2) a Transfer that
is an Event of Default under Section 21 of the Security Instrument.

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

10.  Voluntary and  Involuntary  Prepayments.  Pursuant to the terms of the Loan
Agreement,  Borrower shall pay the entire amount of the Discount on any Variable
Loan in advance.  Accordingly,  any Variable  Loan may be prepaid in whole or in
part and at any  time  without  penalty.  Borrower  shall  give  Lender  six (6)
Business Days advance notice of any prepayment.

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

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

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

14. Loan Charges. If any applicable law limiting the amount of interest or other
charges  permitted to be collected from Borrower in connection  with the Loan is
interpreted  so that any  interest  or  other  charge  provided  for in any Loan
Document,  whether considered separately or together with other charges provided
for in any other Loan  Document,  violates that law, and Borrower is entitled to
the benefit of that law, that interest or charge is hereby reduced to the extent
necessary to eliminate that  violation.  Borrower agrees to an effective rate of
interest  that is the  stated  rate of  interest  plus  any  additional  rate of
interest  resulting  from  any  other  charges  or fees  that  are to be paid by
Borrower to Lender that may be found by a court of competent  jurisdiction to be
interest.  The  amounts,  if any,  previously  paid to  Lender  in excess of the
permitted  amounts  shall be applied  by Lender to reduce  the unpaid  principal
balance of this Note. For the purpose of determining  whether any applicable law
limiting the amount of interest or other charges  permitted to be collected from
Borrower has been violated,  all Indebtedness that constitutes interest, as well
as all other charges made in connection  with the  Indebtedness  that constitute
interest,  shall be deemed to be  allocated  and spread  ratably over the stated
term of the Note.  Unless otherwise  required by applicable law, such allocation
and  spreading  shall be  effected in such a manner that the rate of interest so
computed is uniform throughout the stated term of the Note.

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

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

17. Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. The provisions
of Section  11.07 of the Loan  Agreement  (entitled  "Choice of Law;  Consent to
Jurisdiction;  Waiver of Jury Trial") are hereby  incorporated into this Note by
this  reference  to the fullest  extent as if the text of such  Section were set
forth in its entirety herein.

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

19. Notices. All notices, demands and other communications required or permitted
to be given by  Lender  to  Borrower  pursuant  to this  Note  shall be given in
accordance with Section 11.09 of the Loan Agreement.

20.  Security for this Note.  Reference is made hereby to the Loan Agreement and
the Security  Documents for additional rights and remedies of Lender relating to
the  indebtedness  evidenced  by this  Note.  Each  Security  Document  shall be
released in accordance with the provisions of the Security Documents.

21. Loan May Not Be  Reborrowed.  Borrower may not  re-borrow  any amounts under
this Note which it has previously borrowed and repaid under this Note.

22. Default Under Loan Agreement and Other Loan Documents.  The occurrence of an
Event of Default  under the Loan  Agreement  or the  Security  Instrument  shall
constitute  an "Event of Default"  under this Note in  accordance  with the Loan
Agreement  and the  Security  Instrument.  Upon  the  occurrence  of an Event of
Default  under  the  Loan  Agreement  or the  Security  Instrument,  the  entire
principal  amount  outstanding  hereunder and accrued  interest thereon shall at
once become due and payable, at the option of the holder hereof.

23. Loan Confirmation  Instruments;  Accounting for Variable Loans. The terms of
the Loan  Agreement  and this Note  govern the  repayment,  and all other  terms
relating  to  the  Variable  Loan.  However,   Borrower  shall  execute  a  Loan
Confirmation  Instrument  to create a physical  instrument  evidencing  each MBS
issued to fund the Variable Loan. The Loan Confirmation  Instrument  executed by
Borrower in accordance  with Section 2.02 of the Loan Agreement  shall set forth
the amount,  term,  Discount,  Closing Date and certain  other terms of each MBS
issued  to fund the  Variable  Loan.  The  Loan  Confirmation  Instrument  shall
conclusively  establish each of the terms  described in the preceding  sentence,
absent manifest  error.  The MBS evidenced by the Loan  Confirmation  Instrument
does not represent a separate  indebtedness from that evidenced by this Note. In
making  proof of this  Note,  no other  documents  other than this Note shall be
required.  In making proof of the amount and terms of the  outstanding  Variable
Loans under this Note, this Note, the related Loan Confirmation Instruments, and
Lender's records concerning  payments made by Borrower under this Note, shall be
conclusive  evidence of the terms and outstanding  amounts of the Variable Loan,
absent manifest error.

24.  Modifications to Note.  There are standard  modifications to this Note that
are attached as Exhibit B-1 and Exhibit B-2 hereto.  In  addition,  there may be
special  modifications  to this Note  attached as Exhibit  B-3 hereto.  All such
exhibits are hereby incorporated into this Note as a part hereof.

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


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                                   DAVIDSON INCOME REAL ESTATE, L.P., a Delaware
                                       limited partnership

                                  By:   Davidson Diversified Properties, Inc., a
                                             Tennessee corporation, its managing
                                             general partner


                                          By:/s/Patti K. Fielding
                                             Patti K. Fielding



                                    PAY TO THE ORDER OF FANNIE MAE, WITHOUT
                                    RECOURSE.

                                    GMAC COMMERCIAL MORTGAGE CORPORATION, a
                                      California corporation



                                          By:/s/James J. Bertson
                                       Name: James J. Bertson
                                       Title: Senior Vice President



Fannie Mae Commitment Number:  _________________

<PAGE>
                                                                Exhibit 10UU(b)
                                                             Lakeside Apartments

                                    GUARANTY

      This Guaranty (the  "Guaranty") is made and entered into as of the 3rd day
of November, 2003 by AIMCO PROPERTIES, L.P., a Delaware limited partnership (the
"Guarantor"),  for  the  benefit  of GMAC  COMMERCIAL  MORTGAGE  CORPORATION,  a
California corporation ("Lender").

                                    RECITALS

A. Lender has agreed to execute both (i) that certain  Amended and Restated Loan
Agreement, dated as of September 16, 2002, by and among AIMCO Properties,  L.P.,
a Delaware limited  partnership,  certain borrowers signatory thereto and Lender
and (ii) that certain Loan Agreement  dated as of November 1, 2002, by and among
certain  borrowers  signatory  thereto and Lender (as amended,  supplemental  or
otherwise  modified  or  amended  and  restated  from  time to time,  the  "Loan
Agreement"),  pursuant to which,  inter alia, Lender has agreed,  subject to the
terms,  conditions  and  limitations  of the Loan  Agreement,  to make a loan to
Davidson  Income  Real  Estate,   L.P.,  a  Delaware  limited  partnership  (the
"Borrower")  from time to time loan to be  evidenced  by the Note (the  "Loan").
Terms used herein not defined herein have the definition  given them in the Loan
Agreement.

B. The repayment of the Loan and all of the  Obligations  of the Borrower  under
the Loan  Agreement or the other Loan  Documents are guaranteed by this Guaranty
to the extent of Borrower's  personal  liability as provided in Section 9 of the
Note  evidencing the Loan,  and except for such  obligations  described  herein,
Guarantor  shall have no liability in  connection  with,  or  responsibility  to
perform, under or in accordance with the Loan Agreement or other Loan Documents.

C. Guarantor owns, directly or indirectly, an ownership interest in the Borrower
and will receive a direct and material benefit from the Loans to the Borrower.

D. Lender is willing to make the Loan to the Borrower  only if Guarantor  agrees
to enter into this Guaranty.

      NOW,  THEREFORE,  in order to induce  Lender to make the Loan to Borrower,
and in consideration thereof, Guarantor hereby agrees as follows:

      Section 1. Definitions. All capitalized terms used but not defined in this
Guaranty shall have the meanings  ascribed to such terms in the Loan  Agreement.
The following  terms shall have the meaning set forth below for purposes of this
Guaranty:

      "Material Adverse Effect" means,  with respect to any  circumstance,  act,
condition or event of whatever nature  (including any adverse  determination  in
any  litigation,  arbitration,  or  governmental  investigation  or proceeding),
whether  singly or in conjunction  with any other event or events,  act or acts,
condition  or  conditions,  or  circumstance  or  circumstances,  whether or not
related,  a material  adverse change in or a materially  adverse effect upon the
present or future ability of the Guarantor,  to the extent specifically referred
to in the  applicable  provision  of that  Guaranty,  to perform the  Guaranteed
Obligations.

      "Net Worth"  means,  as of any date of  determination  and without  double
counting  any  item,  the sum of the  capital  stock  or  other  capital  equity
interests  and  additional  paid-in  capital  plus  retained  earnings (or minus
accumulated   deficits)  of  the  Guarantor,   the  REIT  and  their  respective
Subsidiaries on a consolidated basis determined in conformity with GAAP.

      "REIT" means  Apartment  Investment  and  Management  Company,  a Maryland
corporation.

      "Subsidiary"  means,  with  respect  to  the  REIT,  the  Guarantor  or an
Affiliate of either of them, a corporation,  partnership, joint venture, limited
liability  company or other business entity of which a majority of the shares of
securities or other  interests  having ordinary voting power for the election of
directors or other  governing  body (other than  securities or interests  having
such power only by reason of the  happening  of a  contingency)  are at the time
beneficially owned, or the management of which is otherwise controlled, directly
or  indirectly,  through one or more  intermediaries,  or both, by the REIT, the
Guarantor or an Affiliate of either of them.

      Section 2.  Guaranty of Payment.  Guarantor  irrevocably,  absolutely  and
unconditionally  guarantees  to Lender all of the following  (collectively,  the
"Guaranteed  Obligations"):  the due and punctual  payment when due,  whether at
maturity or earlier,  by reason of acceleration  or otherwise,  at all times, of
all amounts for which Borrower is personally liable under Section 9 of the Note.

This Guaranty shall be an unconditional  guaranty of payment and performance and
not of collection,  and is in no way  conditioned  upon any attempt by Lender to
pursue or exhaust any remedy  against  Borrower.  This  Guaranty is a continuing
guaranty which shall remain in full force and effect until all of the Guaranteed
Obligations  have been paid and performed in full;  and  Guarantor  shall not be
released  from any  obligations  to Lender  under this  Guaranty  as long as any
amount  payable by the Borrower to Lender,  or any  obligation  by the Borrower,
under the Loan Documents is not performed, satisfied, settled or paid in full.

      Section 3. Form of Payment. All payments under this Guaranty shall be made
to Lender in immediately  available funds,  without reduction by any recoupment,
set-off, counterclaim or cross-claim against Lender.

      Section 4.  Guarantor's  Obligations  are  Absolute.  The  obligations  of
Guarantor under this Guaranty shall be absolute and unconditional,  shall not be
subject to any counterclaim,  set-off,  recoupment,  deduction, or defense based
upon any claim Guarantor may have against Lender or Borrower and shall remain in
full force and effect without  regard to, and shall not be released,  discharged
or  terminated  or in any other way affected by, any  circumstance  or condition
(whether  or  not  Guarantor  shall  have  any  knowledge  or  notice  thereof),
including, without limitation:

(a) any amendment or modification of, or extension of time for payment of any of
the principal of, interest on or other amounts payable under the Loan Documents;

(b) any exercise or non-exercise  by Lender of any right,  power or remedy under
or in  respect  of the Loan  Documents,  or any  waiver,  consent,  forbearance,
indulgence or other  action,  inaction or omission by Lender under or in respect
of the Loan Documents;

(c) any assignment,  sale or other transfer of Borrower's interest in all or any
part of the real or personal  property which at any time constitutes  collateral
for the payment of the Guaranteed Obligations,  including, without limitation, a
conveyance  of  such  property  by  Borrower  to  Lender  by  deed  in  lieu  of
foreclosure;

(d)  any  bankruptcy,  insolvency,   reorganization,   adjustment,  dissolution,
liquidation or other like proceeding  involving or affecting  Borrower or Lender
or their respective properties or creditors, or any action taken with respect to
the Loan  Documents by any trustee or receiver of Borrower or Lender,  or by any
court, in any such proceeding;

(e) any  invalidity  or  unenforceability,  in whole or in part,  of any term or
provision of the Loan Documents or Borrower's incapacity or lack of authority to
enter into the Loan Documents;

(f) any release, compromise,  settlement or discharge with respect to all or any
portion of Borrower's obligations under the Loan Documents;

(g) any  acceptance of additional or  substituted  collateral for payment of the
Guaranteed Obligations or any release or subordination of any collateral held at
any time by Lender as security for the payment of the Guaranteed Obligations; or

(h) any resort to Guarantor for payment of all or any portion of the  Guaranteed
Obligations,  whether  or not  Lender  shall  have  resorted  to any  collateral
securing the Guaranteed  Obligations,  if any, or shall have proceeded to pursue
or exhaust its  remedies  against  Borrower (or any other  Person)  primarily or
secondarily liable for the Guaranteed Obligations.

No  exercise,  delay in exercise or  non-exercise  by Lender of any right hereby
given it, no dealing by Lender with Borrower,  Guarantor or any other Person, no
change, impairment or suspension of any right or remedy of Lender, and no act or
thing which,  but for this  provision,  could act as a release or exoneration of
the  liabilities  of  Guarantor  hereunder,  shall in any way affect,  decrease,
diminish  or  impair  any of the  obligations  of  Guarantor  hereunder  or give
Guarantor or any other Person any recourse or defense against Lender.

      Section 5.  Waiver.  Guarantor unconditionally waives the following:

(a) notice of  acceptance  of this  Guaranty  and  notice of any of the  matters
referred to in Section 4 hereof;

(b) all notices  which may be required by statute,  rule of law or  otherwise to
preserve  intact any rights which Lender may have against  Guarantor  under this
Guaranty,  including,  without  limitation,  any  demand,  proof  or  notice  of
non-payment  of any of the  principal of,  interest on or other amounts  payable
under the Loan  Documents,  and notice of any failure on the part of Borrower to
perform and comply with any covenant,  agreement,  term or condition of the Loan
Documents;

(c) any right to the enforcement,  assertion or exercise of any right,  power or
remedy conferred upon Lender in the Loan Documents or otherwise;

(d) any requirement that Lender act with diligence in enforcing its rights under
the Loan Documents or this Guaranty;

(e) any right to require  Lender to proceed  against  or  exhaust  its  recourse
against  Borrower or any security or collateral  held by Lender,  if any, at any
time for the payment of the Guaranteed Obligations or to pursue any other remedy
in its power before being entitled to payment from Guarantor under this Guaranty
or before proceeding against Guarantor;

(f) any failure by Lender to file or enforce a claim against the estate  (either
in administration,  bankruptcy or any other proceeding) of Borrower or any other
Person;

(g) any defense  based upon an election of remedies by Lender which  destroys or
otherwise impairs the subrogation  rights of Guarantor or the right of Guarantor
(after payment of the Guaranteed  Obligations) to proceed  against  Borrower for
reimbursement, or both;

(h) any defense based upon any taking, modification or release of any collateral
for the Guaranteed  Obligations,  if any, or any failure to perfect any security
interest  in, or the taking of, or failure to take any other action with respect
to, any collateral securing payment of the Guaranteed Obligations, if any;

(i) any defense based upon the addition, substitution or release, in whole or in
part,  of any  Person(s),  including,  without  limitation,  another  guarantor,
primarily or secondarily liable for or in respect of the Guaranteed Obligations;

(j) any  rights  or  defenses  based  upon an offset by  Guarantor  against  any
obligation now or hereafter owed to Guarantor by Borrower; and

(k) all other notices which may or might be lawfully waived by Guarantor;

it being the intention  hereof that Guarantor  shall remain liable as principal,
to the extent set forth in this Guaranty,  until the payment and  performance in
full of the Guaranteed  Obligations,  notwithstanding any act, omission or thing
which might  otherwise  operate as a legal or  equitable  discharge of Guarantor
other than the payment and performance in full of the Guaranteed Obligations. No
delay by Lender in exercising  any rights  and/or powers  hereunder or in taking
any action to enforce  Borrower's  obligations  under the Loan  Documents  shall
operate as a waiver as to such rights or powers or in any manner  prejudice  any
and all of Lender's rights and powers hereunder against Guarantor. The intention
of  Guarantor  under this  Guaranty  is that,  so long as any of the  Guaranteed
Obligations  remains  unsatisfied,  the obligations of Guarantor hereunder shall
not be  discharged  except by  performance  and then only to the  extent of such
performance.  Guarantor agrees that Guarantor's  obligations hereunder shall not
be affected by any  circumstances,  whether or not referred to in this Guaranty,
which might constitute a legal or equitable discharge of a surety or guarantor.

      Section 6.  Election of Remedies.  This Guaranty may be enforced from time
to time, as often as occasion  therefor may arise,  and without any  requirement
that Lender must first  pursue or exhaust any  remedies  available to it against
Borrower  under the Loan  Documents or against any other Person or resort to any
collateral at any time held by it for performance of the Guaranteed Obligations,
if any,  or any  other  source  or  means  of  obtaining  payment  of any of the
Guaranteed Obligations.

      Section 7.  Representations and Warranties of Guarantor.  Guarantor hereby
represents and warrants to the Lender as follows:

(a) Due Organization; Qualification. Guarantor is qualified to transact business
and is in good  standing in the State in which it is organized and in each other
jurisdiction  in which such  qualification  and/or  standing is necessary to the
conduct of its business and where the failure to be so qualified would adversely
affect the  validity of, the  enforceability  of, or the ability of Guarantor to
perform the Guaranteed Obligations.

(b) Power and Authority.  Guarantor has the requisite power and authority (i) to
own  its  properties  and to  carry  on its  business  as now  conducted  and as
contemplated  to  be  conducted  in  connection  with  the  performance  of  the
Guaranteed  Obligations,  and (ii) to execute and deliver  this  Guaranty and to
carry out the transactions contemplated by this Guaranty.

(c) Due Authorization.  The execution, delivery and performance of this Guaranty
has been duly authorized by all necessary action and proceedings by or on behalf
of  Guarantor,  and no further  approvals or filings of any kind,  including any
approval of or filing with any  Governmental  Authority,  are  required by or on
behalf  of  Guarantor  as a  condition  to the  valid  execution,  delivery  and
performance by Guarantor of this Guaranty.

(d) Valid and  Binding  Obligations.  This  Guaranty  has been duly  authorized,
executed and delivered by Guarantor and constitutes the legal, valid and binding
obligations of Guarantor,  enforceable  against Guarantor in accordance with its
terms,  except as such  enforceability may be limited by applicable  bankruptcy,
insolvency,  reorganization,  moratorium or similar laws or equitable principles
affecting  the  enforcement  of  creditors'  rights  generally  or by  equitable
principles or by the exercise of discretion by any court.

(e)  Non-contravention:  No Liens.  Neither the  execution  and delivery of this
Guaranty,  nor the fulfillment of or compliance with the terms and conditions of
this Guaranty nor the payment or performance of the Guaranteed Obligations:

      (i) does or will conflict with or result in any breach or violation of any
      Applicable  Law enacted or issued by any  Governmental  Authority or other
      agency having jurisdiction over Guarantor, any of the Mortgaged Properties
      or any other  portion of the  Collateral  or assets of  Guarantor,  or any
      judgment  or  order  applicable  to  Guarantor  or to which  Guarantor  is
      subject;

      (ii)  does or will  conflict  with or  result  in any  material  breach or
      violation of, or constitute a default under, any of the terms,  conditions
      or provisions of  Guarantor's  Organizational  Documents,  any  indenture,
      existing agreement or other instrument to which Guarantor is a party or to
      which Guarantor,  any of the Mortgaged  Properties or any other portion of
      the Collateral or other assets of Guarantor is subject; or

      (iii) does or will  require the  consent or  approval  of any  creditor of
      Guarantor,  any  Governmental  Authority or any other  Person  except such
      consents or approvals which have already been obtained.

(f) Pending Litigation or Other  Proceedings.  Since the date of the most recent
financial  statements  delivered  to Lender  pursuant  to  Section  8(b) of this
Guaranty, there is no pending or, to the best knowledge of guarantor, threatened
action,  suit,  proceeding  or  investigation,  at law or in equity,  before any
court,  board,  body or official of any  Governmental  Authority  or  arbitrator
which,  if decided  adversely to  Guarantor,  would have,  or may  reasonably be
expected to have, a Material  Adverse  Effect on Guarantor.  Guarantor is not in
default  with respect to any order of any  Governmental  Authority to any extent
which would have,  or may  reasonably  be expected to have,  a Material  Adverse
Effect on Guarantor.

(g) Solvency.  Guarantor is not insolvent and will not be rendered  insolvent by
the  transaction  contemplated  by this Guaranty and after giving effect to such
transaction,  Guarantor  will not be left with an  unreasonably  small amount of
capital with which to engage in its business or undertakings, nor will Guarantor
have incurred,  have intended to incur,  or believe that it has incurred,  debts
beyond its ability to pay such debts as they mature.  Guarantor  did not receive
less than a  reasonably  equivalent  value in  exchange  for  incurrence  of the
Guaranteed Obligations. There (i) is no contemplated, pending or, to the best of
Guarantor's  knowledge,  threatened  bankruptcy,  reorganization,  receivership,
insolvency  or like  proceeding,  whether  voluntary or  involuntary,  affecting
Guarantor  and (ii) has been no  assertion  or  exercise  of  jurisdiction  over
Guarantor by any court empowered to exercise bankruptcy powers.

(h) No Contractual Defaults.  There are no material defaults by Guarantor or, to
the  knowledge  of  Guarantor,  by any other  Person under any contract to which
Guarantor  is a  party  other  than  defaults  which  do not  have,  and are not
reasonably be expected to have, a Material Adverse Effect on Guarantor.  Neither
Guarantor  nor, to the  knowledge of Guarantor,  any other Person,  has received
notice or has any knowledge of any existing circumstances in respect of which it
could receive any notice of default or breach in respect of any contracts, which
default  would have,  or which may  reasonably  be expected to have,  a Material
Adverse Effect on Guarantor.

(i) Representations True and Correct. The representations and warranties made by
Guarantor  in this  Guaranty  are true,  complete  and  correct in all  material
respects as of the Initial Closing Date and do not contain any untrue  statement
of material fact or omit to state a material fact required to be stated  therein
or  necessary  in order to make the  statements  made  therein,  in light of the
circumstances under which they were made, not misleading.

(j)  ERISA.  Guarantor  is in  compliance  in all  material  respects  with  all
applicable provisions of ERISA and has not incurred any liability to the PBGC on
a Plan under Title LV of ERISA. None of the assets of Guarantor  constitute plan
assets (within the meaning of Department of Labor Regulation ss.  2510.3-101) of
any employee benefit plan subject to Title I of ERISA.

(k) Financial Information. The financial statements of Guarantor which have been
furnished to the Lender are  complete and accurate in all material  respects and
present  fairly  the  financial  condition  of  Guarantor,  as of  its  date  in
accordance with GAAP,  applied on a consistent basis. Since the date of the most
recent of such  financial  statements no event has occurred which would have, or
may  reasonably  be expected  to have a Material  Adverse  Effect on  Guarantor,
except as disclosed in any filings made by Guarantor or its affiliates  with the
United  States  Securities  and Exchange  Commission  ("SEC").  Guarantor has no
material  contingent  obligations which are not otherwise  disclosed in its most
recent financial statements except as disclosed in any filings made by Guarantor
or its affiliates with the SEC.

(l) Accuracy of Information.  No information,  statement or report  furnished in
writing to the Lender by Guarantor  concerning the Guarantor in connection  with
this Guaranty or any other Loan Document or in connection with the  consummation
of the  transactions  contemplated  hereby and  thereby  contains  any  material
misstatement  of fact or omits to state a material  fact  necessary  to make the
statements  contained  therein,  in light of the circumstances  under which they
were made,  not  misleading as of the date made,  except to the extent that such
misstatements and omissions when considered in the totality of such information,
statements and reports  furnished by Guarantor are not materially  misleading in
the aggregate;  provided,  however,  the foregoing  representation  and warranty
shall not apply to any  information,  statement or report  prepared by any third
party.

(m) No Conflicts of Interest.  To the best  knowledge of  Guarantor,  no member,
officer,  agent  or  employee  of  the  Lender  has  been  or is in  any  manner
interested, directly or indirectly, in that Person's own name, or in the name of
any other Person, in the Guarantor (other than through the ownership of publicly
traded  shares  of  common  stock of  affiliates  of the  Guarantor  or  limited
partnership units of Guarantor),  the Loan Documents, or any Mortgaged Property,
in any contract for property or materials to be furnished or used in  connection
with such Mortgaged  Property or in any aspect of the transactions  contemplated
by the Loan Documents.

(n)  Governmental   Approvals.   To  the  best  of  Guarantor's  knowledge,   no
Governmental Approval not already obtained or made is required for the execution
and delivery of this  Guaranty or the  performance  of the terms and  provisions
hereof by Guarantor.

(o)  Governmental  Orders.  Guarantor is not presently under any cease or desist
order or other  orders of a  similar  nature,  temporary  or  permanent,  of any
Governmental  Authority  which would have the effect of  preventing or hindering
performance of its duties hereunder,  nor are there any proceedings presently in
progress or to its knowledge  contemplated  which would, if successful,  lead to
the issuance of any such order.

(p) No  Reliance.  Guarantor  acknowledges,  represents  and  warrants  that  it
understands  the nature and structure of the  transactions  contemplated by this
Guaranty and the other Loan  Documents;  that it is familiar with the provisions
of all of the documents and instruments  relating to such transactions;  that it
understands the risks inherent in such transactions,  including the risk of loss
of all or any of the  Mortgaged  Properties;  and that it has not  relied on the
Lender or Fannie Mae for any guidance or expertise in analyzing the financial or
other  consequences  of the  transactions  contemplated  by this Guaranty or any
other  Loan  Document  or  otherwise  relied on the  Lender or Fannie Mae in any
manner in connection with interpreting, entering into or otherwise in connection
with this Guaranty,  any other Loan Document or any of the matters  contemplated
hereby or thereby.

(q) Compliance with  Applicable Law.  Guarantor is in compliance with Applicable
Law,  including all  Governmental  Approvals,  if any,  except for such items of
noncompliance  that,  singly  or in the  aggregate,  have  not  had  and are not
reasonably expected to cause, a Material Adverse Effect on Guarantor.

(r) Contracts with Affiliates.  Except for the management  agreement relating to
each of the Mortgaged  Properties  or in the ordinary  course of business and on
terms which are no less  favorable to the Guarantor  than would be obtained in a
corporate arms-length  transaction with an unrelated third party,  Guarantor has
not entered  into and is not a party to any  material  contract,  lease or other
agreement  with any  Affiliate  of Guarantor  for the  provision of any service,
materials or supplies relating to any Mortgaged Property.

      Section  8.  Affirmative  Covenants  of  Guarantor.  Guarantor  agrees and
covenants with the Lender that, at all times during the Term of this Guaranty:

(a)  Maintenance  of  Existence.  Guarantor  shall  maintain its  existence  and
continue to be a limited  partnership  organized  under the laws of the state of
its  organization.  Guarantor shall continue to be duly qualified to do business
in each jurisdiction in which such  qualification is necessary to the conduct of
its business and where the failure to be so qualified would adversely affect the
validity of, the enforceability  of, or the ability to perform,  its obligations
under this Guaranty.

(b) Financial Statements; Accountants' Reports: Other Information. The Guarantor
shall keep and maintain at all times complete and accurate books of accounts and
records  in  sufficient  detail  to  correctly  reflect  all of the  Guarantor's
financial  transactions and assets. In addition, the Guarantor shall furnish, or
cause to be furnished, to the Lender the following:

            (i) So long as Guarantor is a reporting company under the Securities
      and Exchange  Act of 1934 (the "`34 Act"),  promptly  upon their  becoming
      available,  copies of (A) all 10K's, 10Q's, 8K's, annual reports and proxy
      statements, and all replacement,  substitute or similar filings or reports
      required to be filed  after the date of this  Guaranty by the SEC or other
      Governmental  Authority  exercising similar  functions,  and (B) all press
      releases and other statements made available generally by Guarantor to the
      public concerning material developments in the business of Guarantor.

             (ii) In the event  Guarantor is not a reporting  company  under the
       '34 Act,

                   (A) Annual Financial Statements. As soon as available, and in
             any event  within 90 days after the close of its fiscal year during
             the Term of this Agreement,  the audited balance sheet of Guarantor
             as of the end of such fiscal year, the audited statement of income,
             equity and retained  earnings of Guarantor for such fiscal year and
             the audited  statement of cash flows of  Guarantor  for such fiscal
             year, all in reasonable  detail and stating in comparative form the
             respective  figures  for the  corresponding  date and period in the
             prior fiscal year,  prepared in accordance with GAAP,  consistently
             applied,   and   accompanied   by  a  certificate   of  Guarantor's
             independent  certified  public  accountants to the effect that such
             financial  statements  have been prepared in accordance  with GAAP,
             consistently  applied,  and that such financial  statements  fairly
             present the results of its operations  and financial  condition for
             the periods and dates indicated with such  certification to be free
             of exceptions and qualifications as to the scope of the audit or as
             to the going concern nature of the business.

                   (B) Quarterly Financial Statements. As soon as available, and
             in any event  within 45 days after each of the first  three  fiscal
             quarters of each fiscal year during the Term of this Agreement, the
             unaudited  balance  sheet of Guarantor as of the end of such fiscal
             quarter, the unaudited statement of income and retained earnings of
             Guarantor  and the  unaudited  statement of cash flows of Guarantor
             for the  portion of the fiscal year ended with the last day of such
             quarter,  all in reasonable  detail and stating in comparative form
             the respective figures for the corresponding date and period in the
             previous  fiscal year,  accompanied by a certificate of a member of
             Senior  Management  (which  certificate  shall be without  personal
             liability to such officer)  stating that such financial  statements
             have been prepared in accordance with GAAP,  consistently  applied,
             and fairly  present the  results of its  operations  and  financial
             condition for the periods and dates  indicated  subject to year end
             adjustments in accordance with GAAP.

            (iii) [Left blank intentionally]

             (iv) Other Reports.  Promptly upon receipt thereof,  all schedules,
       financial  statements or other similar reports delivered by the Guarantor
       pursuant to the Loan Documents or reasonably requested by the Lender with
       respect to the Guarantor's  business  affairs or condition  (financial or
       otherwise) subject to the confidentiality covenant set forth below.

            After the providing by Guarantor of any  statement,  report or other
       information on a collective basis to Standard & Poor's, Moody's Investors
       Service,  Duff & Phelps,  Fitch  and/or any other rating  agency,  and/or
       after  providing  any  statement,   report  or  other  information  on  a
       collective basis to the banks or other institutions  providing  unsecured
       lines of credit and loans to Guarantor,  Guarantor shall promptly furnish
       such statement, report or other information to Lender.

            As used in this Paragraph  (iv), the phrase "on a collective  basis"
       means  as  provided  to a group as a whole as  opposed  to an  individual
       basis,  e.g..,  providing  information to a rating agency or to a bank to
       respond to a particular request of such rating agency or bank.

            The Lender agrees to treat all Information  received by it (I) under
       this Paragraph (iv) as confidential and (II) which Guarantor  requests in
       writing  to the  Persons  at  the  Lender  who  receive  any  Information
       regarding  Guarantor that such  information  be treated as  confidential;
       provided, however, that such Information may be disclosed (A) as required
       by  law,  (B)  to  officers,  directors,   employees,  agents,  partners,
       attorneys, auditors, accountants,  engineers and other consultants of the
       Lender, or its successors or assigns,  who need to know such Information,
       provided  such  Persons  are   instructed   to  treat  such   Information
       confidentially,  (C) by the  Lender  to any  successor  or assign of such
       Person,  (D)  to  any  federal  or  state  regulatory   authority  having
       jurisdiction  over the Lender,  or its successors or assigns,  (E) to any
       other  Person to which such  delivery or  disclosure  may be necessary or
       appropriate  (w) in compliance  with any law,  rule,  regulation or order
       applicable to the Lender,  or its successors or assigns,  (x) in response
       to any  subpoena  or other  legal  process or  information  investigative
       demand,  or (y) in connection with any litigation to which the Lender, or
       its successors or assigns, is a party.  Guarantor agrees that Information
       subject to this Paragraph (iv) does not include information which (I) was
       publicly known,  or otherwise  known to the Lender,  or its successors or
       assigns,  at the time of disclosure,  (II) subsequently  becomes publicly
       known  through no act of or omission by the Lender or its  successors  or
       assigns,  other than  through  disclosure  by  Guarantor  or by any other
       Person in violation of this Paragraph  (iv) or any other  confidentiality
       arrangement and the Lender,  or its successors or assigns,  has knowledge
       of such violation;  provided,  however,  that in the event the disclosing
       Person shall reasonably  endeavor to notify Guarantor  thereof as soon as
       possible  after  such  disclosure  has been made and  Guarantor  shall be
       afford  an  opportunity  to  seek  protective   orders,   or  such  other
       confidential   treatment  of  such  Information  as  Guarantor  may  deem
       reasonable.

            (v)  Certification.  All  certifications  required  to be  delivered
      pursuant to this Section 8(b) shall run directly to and be for the benefit
      of Lender and Fannie Mae.

(c) Maintain  Licenses.  Guarantor  shall procure and maintain in full force and
effect all licenses,  Permits,  charters and registrations which are material to
the  conduct  of its  business  and  shall  abide by and  satisfy  all terms and
conditions of all such licenses, Permits, charters and registrations.

(d)  Access to  Records;  Discussions  With  Senior  Management.  To the  extent
permitted by law, Guarantor shall permit the Lender to:

            (i) inspect  Guarantor's  books and records  related to the Borrower
       and the Mortgaged Property;

            (ii)  discuss  Guarantor's  affairs,   finances  and  accounts  with
      Guarantor's  Senior  Management  or,  provided  that Senior  Management of
      Guarantor has been given the  opportunity  by Lender to be a party to such
      discussions, property managers and independent public accountants;

            (iii)  provided  that Senior  Management of Guarantor has been given
      the opportunity by Lender to be a party to such  discussions,  discuss the
      Mortgaged  Properties'  conditions,  operations  or  maintenance  with the
      managers of such  Mortgaged  Properties  and the officers and employees of
      Guarantor; and

            (iv) receive any other  information that the Lender deems reasonably
      necessary or relevant in connection  with the Guaranty,  any Loan Document
      or the Guaranteed Obligations.

Notwithstanding  the foregoing,  prior to an Event of Default or Potential Event
of Default, all inspections shall be conducted at reasonable times during normal
business hours and upon reasonable notice to the Guarantor.

(e) Inform the Lender of Material Events.  Guarantor shall promptly,  but in any
event within five (5) Business Days,  inform the Lender in writing of any of the
following  (and  shall  deliver  to the  Lender  copies of any  related  written
communications,  complaints,  orders,  judgments and other documents relating to
the following) of which Guarantor has actual knowledge:

            (i)  Defaults.  The  occurrence  of  any  Event  of  Default  or any
      Potential Event of Default under any Loan Document;

            (ii) Bankruptcy Proceedings.  The commencement of any proceedings by
      or against  Guarantor  under any  applicable  bankruptcy,  reorganization,
      liquidation, insolvency or other similar law now or hereafter in effect or
      of any  proceeding  in  which a  receiver,  liquidator,  trustee  or other
      similar official is sought to be appointed for it;

            (iii)  Accounting  Changes.   Any  material  change  in  Guarantor's
      accounting policies or financial reporting practices; and

            (iv) Restructuring of Guarantor. Any restructuring or reorganization
      of any Guarantor.

(f) ERISA.  Guarantor  shall at all times remain in  compliance  in all material
respects with all applicable provisions of ERISA and similar requirements of the
PBGC.

(g) Further Assurances.  Provided they do not materially increase the Guaranteed
Obligations of Guarantor,  Guarantor,  at the request of the Lender, but without
incurring any liability  beyond the  Guaranteed  Obligations,  shall execute and
deliver  and,  if  necessary,   file  or  record  such  statements,   documents,
agreements, UCC financing and continuation statements and such other instruments
and take such  further  action as the  Lender  from time to time may  request as
reasonably  necessary,  desirable  or proper to carry out more  effectively  the
purposes of this  Guaranty or any of the other Loan  Documents or to subject the
Collateral  to the lien and  security  interests  of the  Loan  Documents  or to
evidence,  perfect  or  otherwise  implement,  to assure  the lien and  security
interests intended by the terms of the Loan Documents or in order to exercise or
enforce its rights under the Loan Documents.

(h) Monitoring Compliance. Upon the request of the Lender, but without incurring
any liability beyond the Guaranteed  Obligations,  from time to time,  Guarantor
shall  promptly  provide to the Lender such  documents,  certificates  and other
information  as may be  deemed  reasonably  necessary  to enable  the  Lender to
perform its functions  under the Servicing  Agreement as the same relates to the
Guarantor.

      Section 9.  Negative Covenants of Guarantor.

      (a) Liquidation.  Guarantor shall not dissolve or liquidate in whole or in
part.

      (b) Principal Place of Business.  Guarantor shall not change its principal
place of business or the location of its books and records  without first giving
10 days' prior written notice to the Lender.

      Section 10. Financial  Covenants.  Guarantor agrees and covenants with the
Lender that, at all times during the Term of this Guaranty, the Net Worth of the
REIT, the Guarantor and the  Subsidiaries  on a consolidated  basis shall not be
below $1,500,000,000.

      Section 11.  Expenses.  Guarantor  agrees to pay all reasonable  costs and
out-of-pocket  expenses,  including  court costs and expenses and the reasonable
fees and  disbursements of legal counsel,  incurred by or on behalf of Lender in
connection with the enforcement of Guarantor's  obligations  under this Guaranty
or the  protection  of  Lender's  rights  under  this  Guaranty.  The  covenants
contained  in  this  Section  shall  survive  the  payment  of  the   Guaranteed
Obligations.

      Section  12.  Condition  of  Borrower.  Guarantor  is  fully  aware of the
financial  condition of Borrower and is executing and  delivering  this Guaranty
based  solely upon  Guarantor's  own  independent  investigation  of all matters
pertinent  hereto and is not  relying in any manner upon any  representation  or
statement made by Lender. Guarantor represents and warrants that Guarantor is in
a position to obtain,  and  Guarantor  hereby  assumes full  responsibility  for
obtaining,  any additional information concerning Borrower's financial condition
and any other matters  pertinent hereto as Guarantor may desire and Guarantor is
not relying upon or expecting Lender to furnish to Guarantor any information now
or hereafter in Lender's possession  concerning the same or any other matter. By
executing this  Guaranty,  Guarantor  knowingly  accepts the full range of risks
encompassed within a contract of this type, which risks Guarantor acknowledges.

      Section 13. Further Assurances. Guarantor agrees at any time and from time
to time upon request by Lender to take, or cause to be taken,  any action and to
execute and deliver any additional documents which, in the reasonable opinion of
Lender,  may be necessary in order to assure to Lender the full benefits of this
Guaranty,  so long as any such action does not materially  increase  Guarantor's
Guaranteed Obligations hereunder or materially decrease its rights hereunder.

      Section   14.    Subordination.    Guarantor   hereby    irrevocably   and
unconditionally  agrees that any claims, direct or indirect,  Guarantor may have
by  subrogation  or other  form of  reimbursement,  against  Borrower  or to any
security or any interest therein, by virtue of this Guaranty or as a consequence
of any  payment  made by  Guarantor  pursuant to this  Guaranty,  shall be fully
subordinated  in  time  and  right  of  payment  to the  payment  in full of the
Guaranteed  Obligations  and all other  obligations of Guarantor to Lender under
this Guaranty.

      Section  15.  No  Subrogation.  Guarantor  shall  not  have  any  right of
subrogation  against  Borrower by reason of any payment by Guarantor  under this
Guaranty  until  such  time  as all  of the  Guaranteed  Obligations  have  been
satisfied  in full.  Nothing in the  foregoing  shall affect any claim which any
Guarantor has against Borrower under the terms of the  Organizational  Documents
of the Borrower.

      Section 16.  Insolvency  and Liability of Borrower.  So long as any of the
Guaranteed  Obligations  is unpaid and this  Guaranty  is in effect,  and to the
extent not prohibited by the applicable  bankruptcy  court,  Guarantor agrees to
file all claims against  Borrower in any bankruptcy or other proceeding in which
the filing of claims is required by law in connection with  indebtedness owed by
Borrower to Guarantor and to assign to Lender all rights of Guarantor thereunder
up to the  lesser of (i) the amount of such  indebtedness  or (ii) the amount of
the Guaranteed  Obligations.  In all such cases the Person or Persons authorized
to pay such  claims  shall pay to Lender  the full  amount  thereof  to the full
extent necessary to pay the Guaranteed Obligations, and Guarantor hereby assigns
to Lender all of  Guarantor's  rights to all such  payments  to which  Guarantor
would otherwise be entitled.  Notwithstanding  the foregoing,  and except to the
extent that any sums owed by Borrower to Lender under the Loan  Documents  shall
have been fully satisfied thereby, the liability of Guarantor hereunder shall in
no way be affected by

(a) the  release or  discharge  of  Borrower  in any  creditors',  receivership,
bankruptcy or other proceedings; or

(b) the  impairment,  limitation or modification of the liability of Borrower or
the estate of Borrower in bankruptcy resulting from the operation of any present
or  future  provisions  of the  Bankruptcy  Code or  other  statute  or from the
decision in any court.

      Section  17.  Preferences,  Fraudulent  Conveyances,  Etc.  If  Lender  is
required to refund, or voluntarily  refunds,  any payment received from Borrower
because such payment is or may be avoided, invalidated, declared fraudulent, set
aside  or  determined  to  be  void  or  voidable  as a  preference,  fraudulent
conveyance,  impermissible  setoff  or a  diversion  of trust  funds  under  the
bankruptcy laws or for any similar reason,  including,  without limitation,  any
judgment,   order  or  decree  of  any  court  or  administrative   body  having
jurisdiction over Lender or any of its property, or any settlement or compromise
of any claim  effected by Lender with  Borrower or other  claimant (a "Rescinded
Payment"), then Guarantor's liability to Lender shall continue in full force and
effect, or Guarantor's liability to Lender shall be reinstated,  as the case may
be, with the same effect and to the same extent as if the Rescinded  Payment had
not been received by Lender (but only to the extent such  Rescinded  Payment was
part of the Guaranteed Obligations hereunder),  notwithstanding the cancellation
or  termination  of any Note or any of the other Loan  Documents.  In  addition,
Guarantor  shall pay, or  reimburse  Lender for,  all  expenses  (including  all
reasonable attorneys' fees, court costs and related  disbursements)  incurred by
Lender in the defense of any claim that a payment  received by Lender in respect
of all  or any  part  of the  Guaranteed  Obligations  from  Guarantor  must  be
refunded.  The provisions of this Section shall survive the  termination of this
Guaranty  and any  satisfaction  and  discharge  of  Borrower  by  virtue of any
payment, court order or any federal or state law.

      Section  18.  Waiver.  Neither  this  Guaranty  nor any term hereof may be
changed,  waived,  discharged or  terminated  except by an instrument in writing
signed by Lender and Guarantor  expressly  referring to this Guaranty and to the
provisions  so changed or limited.  No such waiver shall extend to or affect any
obligation  not  expressly  waived or impair any right  consequent  thereon.  No
course of dealing or delay or omission on the part of Lender in  exercising  any
right under this  Guaranty  shall  operate as a waiver  thereof or  otherwise by
prejudice thereto.

      Section 19. Notices. All notices or other  communications  hereunder shall
be  sufficiently  given  and  shall be  deemed  given  when  sent in the  manner
prescribed by the Loan Agreement addressed to the parties as follows:

      As to the Guarantor:    AIMCO
                        Stanford Place 3
                          4582 South Ulster St. Parkway
                        Suite 1100
                        Denver, Colorado  80237
                        Attn:  Senior Vice President-Debt & Securities

      with a copy to:         Loeb & Loeb LLP
                        10100 Santa Monica Boulevard, Suite 2200
                          Los Angeles, California 90067
                           Attn: Susan Noonoo, Esquire

If to Lender or Fannie Mae:

      As provided in the Loan Agreement.

      Section  20.  Assignability  by  Lender.  Lender  may,  without  notice to
Guarantor,  assign or transfer the Loans and the Loan Documents,  in whole or in
part.  In  such  event,  each  and  every  immediate  and  successive  assignee,
transferee  or holder  of all or any part of the  Loans  and the Loan  Documents
shall have the right to enforce this Guaranty, by legal action or otherwise,  as
fully as if such assignee, transferee, or holder were by name specifically given
such right and power in this Guaranty.  Lender shall have an unimpaired right to
enforce  this  Guaranty  for its benefit as to so much of the Loans and the Loan
Documents as Lender has not sold, assigned or transferred.

      Section 21. Guarantor Bound by Judgment Against Borrower.  Guarantor shall
be  conclusively  bound, in any  jurisdiction,  by the judgment in any action by
Lender  against  Borrower  in  connection  with  the  Loan  Documents  (wherever
instituted) as if Guarantor were a party to such action even if not so joined as
a party.

      Section 22.  Governing  Law. The  provisions  of Section 11.06 of the Loan
Agreement  (entitled  Choice of Law;  Consent  to  Jurisdiction;  Waiver of Jury
Trial) are hereby  incorporated  into this  Agreement  by this  reference to the
fullest  extent as if the text of such  Section  were set forth in its  entirety
herein.

      Section 23. Invalid  Provisions.  If any provision of this Guaranty or the
application  thereof to Guarantor or any circumstance in any jurisdiction  whose
laws govern this  Guaranty  shall,  to any extent,  be invalid or  unenforceable
under any  applicable  statute,  regulation or rule of law, then such  provision
shall be deemed inoperative to the extent of such invalidity or unenforceability
and shall be deemed  modified to conform to such statute,  regulation or rule or
law. The remainder of this Guaranty and the  application  of any such invalid or
unenforceable  provision to parties,  jurisdictions or circumstances  other than
those to whom or to which it is held  invalid  or  unenforceable,  shall  not be
affected by such  invalidity or  unenforceability  nor shall such  invalidity or
unenforceability affect the validity or enforceability of any other provision of
this Guaranty.

      Section 24.  General  Provisions.  This Guaranty shall be binding upon the
respective  successors and assigns of Guarantor,  and shall inure to the benefit
of Lender and its successors and assigns,  including,  without limitation,  each
successive  holder of the Note. The descriptive  headings of the Sections of the
Guaranty have been inserted  herein for  convenience of reference only and shall
not define or limit the provisions hereof.

      IN WITNESS  WHEREOF,  Guarantor has signed this Guaranty  under seal as of
the day and year first above written.


                [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]



                                    AIMCO PROPERTIES, L.P., a Delaware
                                       limited partnership

                                    By:   AIMCO-GP, Inc., a Delaware
                                          corporation, its general partner


                                          By: /s/Patti K. Fielding
                                             Patti K. Fielding
                                             Executive Vice President


STATE OF COLORADO, CITY/COUNTY OF DENVER ss:

      On this 31st day of October 2003,  personally  came before me, Cathleen M.
O'Donnell,  a Notary  Public of the County of Denver State of Colorado  Patti K.
Fielding, who, being by me duly sworn, says that she is Executive Vice President
of AIMCO-GP, Inc., a Delaware corporation,  general partner of AIMCO Properties,
L.P., a Delaware limited partnership, and that the foregoing instrument was duly
executed  by her for and on behalf  of said  partnership.  And said  partnership
acknowledged said instrument to be the act and deed of said partnership.

      Witness my hand and official seal.

My Commission Expires: August 2, 2006

                                    /s/Cathleen M. O'Donnell
      ______                        Cathleen M. O'Donnell
      ______                        Notary


<PAGE>
                                                                Exhibit 10UU(c)

Prepared by, and after recording return to:

Bernice H. Cilley, Esquire
Troutman Sanders LLP
P.O. Box 1122 Richmond, Virginia 23218-1122



                           MULTIFAMILY DEED OF TRUST,
                               ASSIGNMENT OF RENTS
                             AND SECURITY AGREEMENT

                                (NORTH CAROLINA)



<PAGE>



                                TABLE OF CONTENTS

                                                                            PAGE

1.    DEFINITIONS............................................................1

2.    UNIFORM COMMERCIAL CODE SECURITY AGREEMENT.............................5

3.    ASSIGNMENT OF RENTS; APPOINTMENT OF RECEIVER; LENDER IN POSSESSION.....6

4.    ASSIGNMENT OF LEASES; LEASES AFFECTING THE MORTGAGED PROPERTY..........8

5.    PAYMENT OF INDEBTEDNESS; PERFORMANCE UNDER LOAN DOCUMENTS; PREPAYMENT
      PREMIUM................................................................9

6.    EXCULPATION............................................................9

7.    DEPOSITS FOR TAXES, INSURANCE AND OTHER CHARGES........................9

8.    COLLATERAL AGREEMENTS.................................................10

9.    APPLICATION OF PAYMENTS...............................................10

10.   COMPLIANCE WITH LAWS..................................................11

11.   USE OF PROPERTY.......................................................11

12.   PROTECTION OF LENDER'S SECURITY.......................................11

13.   INSPECTION............................................................11

14.   BOOKS AND RECORDS; FINANCIAL REPORTING................................11

15.   TAXES; OPERATING EXPENSES.............................................13

16.   LIENS; ENCUMBRANCES...................................................14

17.   PRESERVATION, MANAGEMENT AND MAINTENANCE OF MORTGAGED PROPERTY........14

18.   ENVIRONMENTAL HAZARDS.................................................14

19.   PROPERTY AND LIABILITY INSURANCE......................................19

20.   CONDEMNATION..........................................................20

21.   TRANSFERS OF THE MORTGAGED PROPERTY OR INTERESTS IN BORROWER..........21

22.   EVENTS OF DEFAULT.....................................................24

23.   REMEDIES CUMULATIVE...................................................24

24.   FORBEARANCE...........................................................24

25.   LOAN CHARGES..........................................................25

26.   WAIVER OF STATUTE OF LIMITATIONS......................................25

27.   WAIVER OF MARSHALLING.................................................25

28.   FURTHER ASSURANCES....................................................25

29.   ESTOPPEL CERTIFICATE..................................................26

30.   GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE......................26

31.   NOTICE................................................................26

32.   SALE OF NOTE; CHANGE IN SERVICER......................................27

33.   SINGLE ASSET BORROWER.................................................27

34.   SUCCESSORS AND ASSIGNS BOUND..........................................27

35.   JOINT AND SEVERAL LIABILITY...........................................27

36.   RELATIONSHIP OF PARTIES; NO THIRD PARTY BENEFICIARY...................27

37.   SEVERABILITY; AMENDMENTS..............................................27

38.   CONSTRUCTION..........................................................27

39.   LOAN SERVICING........................................................28

40.   DISCLOSURE OF INFORMATION.............................................28

41.   NO CHANGE IN FACTS OR CIRCUMSTANCES...................................28

42.   SUBROGATION...........................................................28

43.   ACCELERATION; REMEDIES................................................28

44.   RELEASE...............................................................29

45.   SUBSTITUTE TRUSTEE....................................................29

46.   ENVIRONMENTAL INDEMNITY...............................................29

47.   WAIVER OF TRIAL BY JURY...............................................29

<PAGE>

                                                             Lakeside Apartments

                           MULTIFAMILY DEED OF TRUST,
                             ASSIGNMENT OF RENTS AND
                               SECURITY AGREEMENT


      THIS MULTIFAMILY DEED OF TRUST, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT
(the "Instrument") is dated as of the 3rd day of November,  2003, among DAVIDSON
INCOME REAL ESTATE, L.P., a limited partnership organized and existing under the
laws of Delaware whose address is c/o AIMCO, Stanford Place 3, 4582 South Ulster
Parkway, Suite 1100, Denver, Colorado 80237, as grantor ("Borrower"), to MARK S.
SHIEMBOB and BERNICE H. CILLEY, as trustee ("Trustee"),  for the benefit of GMAC
COMMERCIAL MORTGAGE CORPORATION,  a corporation organized and existing under the
laws of  California,  whose address is 200 Witmer Road,  P.O. Box 809,  Horsham,
Pennsylvania 19044, Attn:  Servicing - Executive Vice President,  as beneficiary
("Lender").

      Borrower,  in  consideration  of the Indebtedness and the trust created by
this  Instrument,  irrevocably  grants,  conveys  and  assigns  to  Trustee  and
Trustee's  successors and assigns,  in trust,  with power of sale, the Mortgaged
Property,  including  the Land  located in  Mecklenburg  County,  State of North
Carolina and described in Exhibit A attached to this Instrument.  To have and to
hold the Mortgaged  Property unto Trustee and Trustee's  successors and assigns,
forever.

      TO  SECURE  TO LENDER  the  repayment  of the  Indebtedness  evidenced  by
Borrower's  Multifamily  Note  payable  to  Lender  dated as of the date of this
Instrument, and maturing as set forth in the Loan Agreement between Borrower and
Lender,  but in no event later than October 1, 2012, in the principal  amount of
$2,875,000.00,   and  all  renewals,   extensions  and   modifications   of  the
Indebtedness,  and the  performance  of the covenants and agreements of Borrower
contained in the Loan Documents.

      Borrower  represents and warrants that Borrower is lawfully  seized of the
Mortgaged  Property and has the right,  power and authority to mortgage,  grant,
convey and assign the Mortgaged  Property,  and that the  Mortgaged  Property is
unencumbered. Borrower covenants that Borrower will warrant and defend generally
the title to the Mortgaged  Property against all claims and demands,  subject to
any easements and restrictions listed in a schedule of exceptions to coverage in
any title insurance policy issued to Lender contemporaneously with the execution
and  recordation  of this  Instrument  and  insuring  Lender's  interest  in the
Mortgaged Property.

Covenants.        Borrower and Lender covenant and agree as follows:

1.                DEFINITIONS. The following terms, when used in this Instrument
                  (including  when used in the above  recitals),  shall have the
                  following meanings:

(a)               "Borrower"  means  all  persons  or  entities   identified  as
                  "Borrower" in the first paragraph of this Instrument, together
                  with their successors and assigns.

(b)               "Collateral  Agreement" means any separate  agreement  between
                  Borrower   and   Lender  for  the   purpose  of   establishing
                  replacement reserves for the Mortgaged Property,  establishing
                  a  fund  to  assure  completion  of  repairs  or  improvements
                  specified  in that  agreement,  or assuring  reduction  of the
                  outstanding  principal  balance  of  the  Indebtedness  if the
                  occupancy of or income from the  Mortgaged  Property  does not
                  increase to a level specified in that agreement,  or any other
                  agreement  or  agreements  between  Borrower  and Lender which
                  provide for the  establishment  of any other fund,  reserve or
                  account.

(c)               "Environmental  Permit"  means any permit,  license,  or other
                  authorization  issued under any  Hazardous  Materials Law with
                  respect to any  activities  or  businesses  conducted on or in
                  relation to the Mortgaged Property.

(d)               "Event of Default" means the occurrence of any event listed in
                  Section 22.

(e)               "Fixtures" means all property which is so attached to the Land
                  or  the   Improvements   as  to  constitute  a  fixture  under
                  applicable  law,  including:  machinery,  equipment,  engines,
                  boilers,  incinerators,  installed building materials; systems
                  and  equipment  for the purpose of supplying  or  distributing
                  heating,  cooling,  electricity,  gas,  water,  air, or light;
                  antennas,  cable,  wiring and conduits used in connection with
                  radio,   television,   security,  fire  prevention,   or  fire
                  detection  or  otherwise  used to  carry  electronic  signals;
                  telephone   systems  and  equipment;   elevators  and  related
                  machinery  and  equipment;  fire  detection,   prevention  and
                  extinguishing  systems  and  apparatus;  security  and  access
                  control  systems  and  apparatus;   plumbing  systems;   water
                  heaters,  ranges,  stoves,  microwave  ovens,   refrigerators,
                  dishwashers,  garbage  disposers,  washers,  dryers  and other
                  appliances;  light fixtures,  awnings, storm windows and storm
                  doors; pictures, screens, blinds, shades, curtains and curtain
                  rods;  mirrors;  cabinets,  paneling,  rugs and floor and wall
                  coverings;  fences,  trees and  plants;  swimming  pools;  and
                  exercise equipment.

(f)               "Governmental   Authority"   means  any   board,   commission,
                  department or body of any municipal,  county, state or federal
                  governmental unit, or any subdivision of any of them, that has
                  or acquires  jurisdiction  over the Mortgaged  Property or the
                  use, operation or improvement of the Mortgaged Property.

(g)               "Hazardous  Materials" means petroleum and petroleum  products
                  and compounds containing them, including gasoline, diesel fuel
                  and  oil;   explosives;   flammable   materials;   radioactive
                  materials;  polychlorinated  biphenyls  ("PCBs") and compounds
                  containing  them;  lead  and  lead-based  paint;  asbestos  or
                  asbestos-containing  materials  in any  form  that is or could
                  become  friable;  underground or  above-ground  storage tanks,
                  whether empty or containing any  substance;  any substance the
                  presence of which on the  Mortgaged  Property is prohibited by
                  any federal,  state or local  authority;  any  substance  that
                  requires special handling; and any other material or substance
                  now or in  the  future  defined  as a  "hazardous  substance,"
                  "hazardous  material,"  "hazardous  waste," "toxic substance,"
                  "toxic  pollutant,"  "contaminant," or "pollutant"  within the
                  meaning of any Hazardous Materials Law.

(h)               "Hazardous Materials Laws" means all federal, state, and local
                  laws,   ordinances  and  regulations  and  standards,   rules,
                  policies and other governmental  requirements,  administrative
                  rulings  and court  judgments  and decrees in effect now or in
                  the  future  and  including  all  amendments,  that  relate to
                  Hazardous  Materials and apply to Borrower or to the Mortgaged
                  Property.  Hazardous  Materials  Laws  include,  but  are  not
                  limited   to,  the   Comprehensive   Environmental   Response,
                  Compensation  and  Liability  Act, 42 U.S.C.  Section 9601, et
                  seq.,  the Resource  Conservation  and Recovery Act, 42 U.S.C.
                  Section 6901,  et seq.,  the Toxic  Substance  Control Act, 15
                  U.S.C.  Section 2601, et seq.,  the Clean Water Act, 33 U.S.C.
                  Section   1251,   et  seq.,   and  the   Hazardous   Materials
                  Transportation Act, 49 U.S.C. Section 5101, et seq., and their
                  state analogs.

(i)               "Impositions" and "Imposition Deposits" are defined in Section
                  7(a).

(j)               "Improvements" means the buildings, structures,  improvements,
                  and  alterations  now constructed or at any time in the future
                  constructed  or placed  upon the Land,  including  any  future
                  replacements and additions.

(k)               "Indebtedness"  means the principal  of,  interest on, and all
                  other amounts due at any time under, the Note, this Instrument
                  or any other Loan  Document,  including  prepayment  premiums,
                  late charges,  default  interest,  and advances as provided in
                  Section 12 to protect the security of this Instrument.

(l)               [Intentionally omitted]

(m)               "Key  Principal"   means  the  natural   person(s)  or  entity
                  identified  as such at the  foot of this  Instrument,  and any
                  person or entity who becomes a Key Principal after the date of
                  this  Instrument  and is identified as such in an amendment or
                  supplement to this Instrument.

(n)               "Land" means the land described in Exhibit A.

(o)               "Leases"  means all  present  and  future  leases,  subleases,
                  licenses,  concessions or grants or other possessory interests
                  now or hereafter in force,  whether oral or written,  covering
                  or affecting  the  Mortgaged  Property,  or any portion of the
                  Mortgaged Property (including  proprietary leases or occupancy
                  agreements if Borrower is a cooperative housing  corporation),
                  and all modifications, extensions or renewals.

(p)               "Lender" means the entity  identified as "Lender" in the first
                  paragraph of this  Instrument  and its successors and assigns,
                  or any subsequent holder of the Note.

(q)               "Loan  Documents"   means  the  Note,  this  Instrument,   all
                  guaranties,   all   indemnity   agreements,   all   Collateral
                  Agreements,  O&M Programs,  and any other  documents now or in
                  the future executed by Borrower, Key Principal,  any guarantor
                  or any other person in connection  with the loan  evidenced by
                  the Note, as such documents may be amended from time to time.

(r)               "Loan  Servicer"  means the  entity  that from time to time is
                  designated  by Lender to collect  payments  and  deposits  and
                  receive  notices under the Note, this Instrument and any other
                  Loan Document,  and otherwise to service the loan evidenced by
                  the Note for the benefit of Lender.  Unless Borrower  receives
                  notice  to the  contrary,  the  Loan  Servicer  is the  entity
                  identified  as  "Lender"  in  the  first   paragraph  of  this
                  Instrument.

(s)               "Mortgaged  Property"  means  all of  Borrower's  present  and
                  future  right,  title  and  interest  in  and  to  all  of the
                  following:

(1)               the Land;

(2)               the Improvements;

(3)               the Fixtures;

(4)               the Personalty;

(5)   all  current  and  future  rights,  including  air  rights,  development
                  rights,   zoning   rights  and  other   similar   rights  or
                  interests, easements, tenements,  rights-of-way,  strips and
                  gores  of  land,  streets,   alleys,  roads,  sewer  rights,
                  waters,  watercourses,   and  appurtenances  related  to  or
                  benefitting the Land or the  Improvements,  or both, and all
                  rights-of-way,  streets,  alleys  and  roads  which may have
                  been or may in the future be vacated;

(6)               all  proceeds  paid or to be paid by any  insurer of the Land,
                  the  Improvements,  the Fixtures,  the Personalty or any other
                  part  of the  Mortgaged  Property,  whether  or  not  Borrower
                  obtained the insurance pursuant to Lender's requirement;

(7)   all awards,  payments and other  compensation  made or to be made by any
                  municipal,  state or federal  authority  with respect to the
                  Land, the Improvements,  the Fixtures, the Personalty or any
                  other part of the Mortgaged  Property,  including any awards
                  or settlements  resulting from  condemnation  proceedings or
                  the total or partial taking of the Land,  the  Improvements,
                  the  Fixtures,  the  Personalty  or any  other  part  of the
                  Mortgaged  Property  under  the power of  eminent  domain or
                  otherwise and including any conveyance in lieu thereof;

(8)               all  contracts,  options and other  agreements for the sale of
                  the Land, the  Improvements,  the Fixtures,  the Personalty or
                  any  other  part of the  Mortgaged  Property  entered  into by
                  Borrower now or in the future,  including  cash or  securities
                  deposited   to  secure   performance   by   parties  of  their
                  obligations;

(9)               all proceeds from the conversion, voluntary or involuntary, of
                  any of the above into cash or liquidated claims, and the right
                  to collect such proceeds;

(10)              all Rents and Leases;

(11)              all  earnings,  royalties,  accounts  receivable,  issues  and
                  profits from the Land, the  Improvements  or any other part of
                  the Mortgaged  Property,  and all undisbursed  proceeds of the
                  loan  secured  by  this  Instrument  and,  if  Borrower  is  a
                  cooperative  housing   corporation,   maintenance  charges  or
                  assessments payable by shareholders or residents;

(12)              all Imposition Deposits;

(13)              all refunds or rebates of Impositions by any municipal,  state
                  or federal  authority or insurance company (other than refunds
                  applicable  to periods  before the real  property  tax year in
                  which this Instrument is dated);

(14)              all tenant security  deposits which have not been forfeited by
                  any tenant under any Lease; and

(15)              all  names  under  or by  which  any  of the  above  Mortgaged
                  Property may be operated or known,  and all trademarks,  trade
                  names, and goodwill relating to any of the Mortgaged Property.

(t)               "Note" means the Multifamily  Note described on page 1 of this
                  Instrument,  including the Acknowledgment and Agreement of Key
                  Principal to Personal Liability for Exceptions to Non-Recourse
                  Liability (if any),  and all schedules,  riders,  allonges and
                  addenda,  as such Multifamily Note may be amended from time to
                  time.

(u)               "O&M Program" is defined in Section 18(a).

(v)               "Personalty"   means   all   equipment,   inventory,   general
                  intangibles  which are used now or in the future in connection
                  with the ownership, management or operation of the Land or the
                  Improvements   or  are   located   on  the   Land  or  in  the
                  Improvements,  including  furniture,  furnishings,  machinery,
                  building materials, appliances, goods, supplies, tools, books,
                  records  (whether  in written or  electronic  form),  computer
                  equipment  (hardware and software) and other tangible personal
                  property  (other than  Fixtures)  which are used now or in the
                  future  in  connection  with  the  ownership,   management  or
                  operation  of the Land or the  Improvements  or are located on
                  the Land or in the Improvements,  and any operating agreements
                  relating  to the Land or the  Improvements,  and any  surveys,
                  plans and  specifications  and  contracts  for  architectural,
                  engineering and construction  services relating to the Land or
                  the Improvements and all other intangible  property and rights
                  relating to the operation of, or used in connection  with, the
                  Land or the Improvements,  including all governmental  permits
                  relating to any activities on the Land.

(w)               "Property Jurisdiction" is defined in Section 30(a).

(x)               "Rents"  means  all  rents   (whether  from   residential   or
                  non-residential  space), revenues and other income of the Land
                  or the Improvements,  including subsidy payments received from
                  any sources (including,  but not limited to payments under any
                  Housing  Assistance  Payments  Contract) parking fees, laundry
                  and  vending  machine  income and fees and  charges  for food,
                  health  care and  other  services  provided  at the  Mortgaged
                  Property,  whether now due,  past due,  or to become due,  and
                  deposits forfeited by tenants.

(y)               "Taxes" means all taxes, assessments,  vault rentals and other
                  charges, if any, general, special or otherwise,  including all
                  assessments  for schools,  public  betterments  and general or
                  local improvements,  which are levied,  assessed or imposed by
                  any public authority or quasi-public authority,  and which, if
                  not paid, will become a lien, on the Land or the Improvements.

(z)               "Transfer"  means (A) a sale,  assignment,  transfer  or other
                  disposition (whether voluntary, involuntary or by operation of
                  law);  (B) the  granting,  creating or  attachment  of a lien,
                  encumbrance   or   security   interest   (whether   voluntary,
                  involuntary or by operation of law); (C) the issuance or other
                  creation of an ownership interest in a legal entity, including
                  a  partnership  interest,  interest  in  a  limited  liability
                  company or corporate  stock;  (D) the withdrawal,  retirement,
                  removal  or   involuntary   resignation  of  a  partner  in  a
                  partnership  or a member or  manager  in a  limited  liability
                  company;  or (E)  the  merger,  dissolution,  liquidation,  or
                  consolidation  of a legal entity.  "Transfer" does not include
                  (i) a conveyance  of the  Mortgaged  Property at a judicial or
                  non-judicial  foreclosure  sale under this  Instrument or (ii)
                  the Mortgaged Property becoming part of a bankruptcy estate by
                  operation of law under the United States  Bankruptcy Code. For
                  purposes   of   defining   the  term   "Transfer,"   the  term
                  "partnership"  shall  mean a  general  partnership,  a limited
                  partnership,   a  joint   venture  and  a  limited   liability
                  partnership,  and the  term  "partner"  shall  mean a  general
                  partner, a limited partner and a joint venturer.

2.                UNIFORM COMMERCIAL CODE SECURITY AGREEMENT. This Instrument is
                  also a security  agreement  under the Uniform  Commercial Code
                  for any of the Mortgaged Property which, under applicable law,
                  may be  subject  to a  security  interest  under  the  Uniform
                  Commercial Code,  whether  acquired now or in the future,  and
                  all   products  and  cash  and   non-cash   proceeds   thereof
                  (collectively,  "UCC Collateral"),  and Borrower hereby grants
                  to Lender a security interest in the UCC Collateral.  Borrower
                  hereby  authorizes   Lender  to  file  financing   statements,
                  continuation statements and financing statement amendments, in
                  such form as Lender may  require to  perfect or  continue  the
                  perfection of this security  interest and Borrower agrees,  if
                  Lender so  requests,  to execute  and  deliver to Lender  such
                  financing statements,  continuation statements and amendments.
                  Borrower shall pay all filing costs and all costs and expenses
                  of any record  searches for financing  statements  that Lender
                  may  require.  Without  the prior  written  consent of Lender,
                  Borrower shall not create or permit to exist any other lien or
                  security interest in any of the UCC Collateral. If an Event of
                  Default has occurred and is continuing,  Lender shall have the
                  remedies of a secured party under the Uniform Commercial Code,
                  in addition to all  remedies  provided by this  Instrument  or
                  existing  under  applicable  law. In exercising  any remedies,
                  Lender may exercise its  remedies  against the UCC  Collateral
                  separately or together,  and in any order,  without in any way
                  affecting the  availability of Lender's other  remedies.  This
                  Instrument  constitutes a financing  statement with respect to
                  any part of the  Mortgaged  Property  which is or may become a
                  Fixture.

3.                ASSIGNMENT  OF  RENTS;  APPOINTMENT  OF  RECEIVER;  LENDER  IN
                  POSSESSION.

(a)               As part of the consideration  for the  Indebtedness,  Borrower
                  absolutely and unconditionally assigns and transfers to Lender
                  all Rents.  It is the  intention  of Borrower  to  establish a
                  present,  absolute and irrevocable  transfer and assignment to
                  Lender of all Rents and to  authorize  and  empower  Lender to
                  collect and receive all Rents without the necessity of further
                  action  on the part of  Borrower.  Promptly  upon  request  by
                  Lender,  Borrower  agrees to execute and deliver  such further
                  assignments as Lender may from time to time require.  Borrower
                  and Lender intend this  assignment of Rents to be  immediately
                  effective and to constitute an absolute present assignment and
                  not an assignment for  additional  security only. For purposes
                  of giving effect to this absolute assignment of Rents, and for
                  no other  purpose,  Rents  shall not be deemed to be a part of
                  the  "Mortgaged  Property," as that term is defined in Section
                  1(s).  However,  if this present,  absolute and  unconditional
                  assignment of Rents is not  enforceable by its terms under the
                  laws of the  Property  Jurisdiction,  then the Rents  shall be
                  included  as a part of the  Mortgaged  Property  and it is the
                  intention  of the  Borrower  that  in this  circumstance  this
                  Instrument  create  and  perfect  a lien on  Rents in favor of
                  Lender,  which lien shall be  effective as of the date of this
                  Instrument.

(b)               After  the  occurrence  of  an  Event  of  Default,   Borrower
                  authorizes Lender to collect, sue for and compromise Rents and
                  directs each tenant of the Mortgaged Property to pay all Rents
                  to, or as  directed  by,  Lender,  and  Borrower  shall,  upon
                  Borrower's  receipt of any Rents from any sources  (including,
                  but  not  limited  to  subsidy   payments  under  any  Housing
                  Assistance  Payments  Contract),  pay the total amount of such
                  receipts to the Lender.  However,  until the  occurrence of an
                  Event of Default, Lender hereby grants to Borrower a revocable
                  license to collect and receive all Rents, to hold all Rents in
                  trust for the  benefit of Lender and to apply all Rents to pay
                  the  installments  of  interest  and  principal  then  due and
                  payable  under  the Note and the  other  amounts  then due and
                  payable under the other Loan Documents,  including  Imposition
                  Deposits,  and  to pay  the  current  costs  and  expenses  of
                  managing,  operating and maintaining  the Mortgaged  Property,
                  including  utilities,  Taxes and  insurance  premiums  (to the
                  extent  not   included   in   Imposition   Deposits),   tenant
                  improvements  and other  capital  expenditures.  So long as no
                  Event of Default has  occurred  and is  continuing,  the Rents
                  remaining after application pursuant to the preceding sentence
                  may be retained by  Borrower  free and clear of, and  released
                  from,  Lender's  rights  with  respect  to  Rents  under  this
                  Instrument.  From  and  after  the  occurrence  of an Event of
                  Default, and without the necessity of Lender entering upon and
                  taking  and  maintaining  control  of the  Mortgaged  Property
                  directly,  or by a  receiver,  Borrower's  license  to collect
                  Rents shall  automatically  terminate and Lender shall without
                  notice  be  entitled  to all  Rents  as  they  become  due and
                  payable,  including Rents then due and unpaid.  Borrower shall
                  pay to  Lender  upon  demand  all  Rents  to which  Lender  is
                  entitled.  At any time on or after the date of Lender's demand
                  for Rents,  Lender may give, and Borrower  hereby  irrevocably
                  authorizes  Lender  to  give,  notice  to all  tenants  of the
                  Mortgaged  Property  instructing  them  to pay  all  Rents  to
                  Lender,  no tenant shall be obligated to inquire further as to
                  the occurrence or  continuance of an Event of Default,  and no
                  tenant shall be obligated to pay to Borrower any amounts which
                  are actually paid to Lender in response to such a notice.  Any
                  such  notice  by  Lender  shall be  delivered  to each  tenant
                  personally,  by  mail or by  delivering  such  demand  to each
                  rental  unit.  Borrower  shall  not  interfere  with and shall
                  cooperate with Lender's collection of such Rents.

(c)               Borrower  represents  and warrants to Lender that Borrower has
                  not  executed  any prior  assignment  of Rents  (other than an
                  assignment of Rents  securing  indebtedness  that will be paid
                  off and discharged  with the proceeds of the loan evidenced by
                  the Note),  that  Borrower  has not  performed,  and  Borrower
                  covenants  and agrees that it will not  perform,  any acts and
                  has not executed,  and shall not execute, any instrument which
                  would  prevent  Lender from  exercising  its rights under this
                  Section  3,  and  that  at  the  time  of  execution  of  this
                  Instrument there has been no anticipation or prepayment of any
                  Rents for more than two months  prior to the due dates of such
                  Rents.  Borrower  shall not  collect or accept  payment of any
                  Rents  more  than two  months  prior to the due  dates of such
                  Rents.

(d)               If an Event of Default has occurred and is continuing,  Lender
                  may,  regardless  of the adequacy of Lender's  security or the
                  solvency of Borrower  and even in the absence of waste,  enter
                  upon and take  and  maintain  full  control  of the  Mortgaged
                  Property  in order to  perform  all acts  that  Lender  in its
                  discretion  determines  to be necessary  or desirable  for the
                  operation and maintenance of the Mortgaged Property, including
                  the execution,  cancellation or  modification  of Leases,  the
                  collection  of  all  Rents,  the  making  of  repairs  to  the
                  Mortgaged   Property  and  the  execution  or  termination  of
                  contracts   providing   for  the   management,   operation  or
                  maintenance  of the  Mortgaged  Property,  for the purposes of
                  enforcing the  assignment  of Rents  pursuant to Section 3(a),
                  protecting  the  Mortgaged  Property  or the  security of this
                  Instrument,  or for  such  other  purposes  as  Lender  in its
                  discretion may deem necessary or desirable.  Alternatively, if
                  an Event of Default has occurred and is continuing, regardless
                  of the  adequacy  of  Lender's  security,  without  regard  to
                  Borrower's  solvency and without the necessity of giving prior
                  notice (oral or written) to Borrower,  Lender may apply to any
                  court having  jurisdiction  for the  appointment of a receiver
                  for the  Mortgaged  Property to take any or all of the actions
                  set forth in the preceding sentence.  If Lender elects to seek
                  the  appointment  of a receiver for the Mortgaged  Property at
                  any  time  after  an  Event of  Default  has  occurred  and is
                  continuing,  Borrower,  by its  execution of this  Instrument,
                  expressly  consents  to  the  appointment  of  such  receiver,
                  including the  appointment of a receiver ex parte if permitted
                  by applicable law. Lender or the receiver, as the case may be,
                  shall be entitled to receive a reasonable fee for managing the
                  Mortgaged Property. Immediately upon appointment of a receiver
                  or  immediately  upon the  Lender's  entering  upon and taking
                  possession  and control of the  Mortgaged  Property,  Borrower
                  shall surrender possession of the Mortgaged Property to Lender
                  or the  receiver,  as the case may be,  and shall  deliver  to
                  Lender or the  receiver,  as the case may be,  all  documents,
                  records  (including  records on electronic or magnetic media),
                  accounts,  surveys,  plans, and specifications relating to the
                  Mortgaged  Property  and all  security  deposits  and  prepaid
                  Rents. In the event Lender takes possession and control of the
                  Mortgaged  Property,  Lender  may  exclude  Borrower  and  its
                  representatives   from  the   Mortgaged   Property.   Borrower
                  acknowledges  and agrees that the exercise by Lender of any of
                  the  rights  conferred  under  this  Section  3  shall  not be
                  construed  to make  Lender  a  mortgagee-in-possession  of the
                  Mortgaged  Property  so long as Lender has not itself  entered
                  into actual possession of the Land and Improvements.

(e)               If Lender  enters  the  Mortgaged  Property,  Lender  shall be
                  liable to account  only to  Borrower  and only for those Rents
                  actually  received.  Lender  shall not be liable to  Borrower,
                  anyone claiming under or through  Borrower or anyone having an
                  interest in the  Mortgaged  Property,  by reason of any act or
                  omission of Lender under this  Section 3, and Borrower  hereby
                  releases and discharges  Lender from any such liability to the
                  fullest extent permitted by law.

(f)               If the  Rents are not  sufficient  to meet the costs of taking
                  control of and managing the Mortgaged  Property and collecting
                  the Rents,  any funds  expended  by Lender  for such  purposes
                  shall  become  an  additional  part  of  the  Indebtedness  as
                  provided in Section 12.

(g)               Any  entering  upon and  taking of  control  of the  Mortgaged
                  Property  by Lender or the  receiver,  as the case may be, and
                  any application of Rents as provided in this Instrument  shall
                  not cure or waive any Event of Default or invalidate any other
                  right or remedy of Lender under applicable law or provided for
                  in this Instrument.

4.                ASSIGNMENT OF LEASES; LEASES AFFECTING THE MORTGAGED PROPERTY.

(a)               As part of the consideration  for the  Indebtedness,  Borrower
                  absolutely and unconditionally assigns and transfers to Lender
                  all of Borrower's  right,  title and interest in, to and under
                  the Leases, including Borrower's right, power and authority to
                  modify the terms of any such Lease, or extend or terminate any
                  such Lease.  It is the  intention  of Borrower to  establish a
                  present,  absolute and irrevocable  transfer and assignment to
                  Lender of all of Borrower's  right,  title and interest in, to
                  and  under  the  Leases.   Borrower  and  Lender  intend  this
                  assignment  of the Leases to be  immediately  effective and to
                  constitute  an  absolute   present   assignment   and  not  an
                  assignment  for  additional  security  only.  For  purposes of
                  giving effect to this absolute  assignment of the Leases,  and
                  for no other  purpose,  the Leases shall not be deemed to be a
                  part of the  "Mortgaged  Property," as that term is defined in
                  Section  1(s).   However,   if  this  present,   absolute  and
                  unconditional  assignment of the Leases is not  enforceable by
                  its terms under the laws of the  Property  Jurisdiction,  then
                  the  Leases  shall  be  included  as a part  of the  Mortgaged
                  Property and it is the  intention of the Borrower that in this
                  circumstance  this Instrument create and perfect a lien on the
                  Leases in favor of Lender, which lien shall be effective as of
                  the date of this Instrument.

(b)               Until Lender gives notice to Borrower of Lender's  exercise of
                  its rights  under  this  Section  4,  Borrower  shall have all
                  rights,  power and  authority  granted to  Borrower  under any
                  Lease  (except as  otherwise  limited  by this  Section or any
                  other  provision  of this  Instrument),  including  the right,
                  power and authority to modify the terms of any Lease or extend
                  or terminate  any Lease.  Upon the  occurrence  of an Event of
                  Default,  the  permission  given to  Borrower  pursuant to the
                  preceding sentence to exercise all rights, power and authority
                  under Leases shall  automatically  terminate.  Borrower  shall
                  comply  with and  observe  Borrower's  obligations  under  all
                  Leases,  including  Borrower's  obligations  pertaining to the
                  maintenance and disposition of tenant security deposits.

(c)               Borrower  acknowledges and agrees that the exercise by Lender,
                  either  directly  or by a  receiver,  of  any  of  the  rights
                  conferred  under this Section 4 shall not be construed to make
                  Lender a mortgagee-in-possession  of the Mortgaged Property so
                  long as Lender has not itself  entered into actual  possession
                  of the Land and the Improvements.  The acceptance by Lender of
                  the  assignment  of the Leases  pursuant to Section 4(a) shall
                  not at any time or in any  event  obligate  Lender to take any
                  action  under  this  Instrument  or to expend  any money or to
                  incur any expenses.  Lender shall not be liable in any way for
                  any injury or damage to person or  property  sustained  by any
                  person  or  persons,  firm  or  corporation  in or  about  the
                  Mortgaged  Property.  Prior to Lender's  actual entry into and
                  taking possession of the Mortgaged Property,  Lender shall not
                  (i) be  obligated to perform any of the terms,  covenants  and
                  conditions  contained  in any  Lease  (or  otherwise  have any
                  obligation  with  respect to any Lease);  (ii) be obligated to
                  appear in or defend any action or  proceeding  relating to the
                  Lease or the Mortgaged  Property;  or (iii) be responsible for
                  the  operation,  control,  care,  management  or repair of the
                  Mortgaged  Property or any portion of the Mortgaged  Property.
                  The execution of this Instrument by Borrower shall  constitute
                  conclusive evidence that all responsibility for the operation,
                  control, care, management and repair of the Mortgaged Property
                  is and shall be that of  Borrower,  prior to such actual entry
                  and taking of possession.

(d)               Upon  delivery  of notice by Lender to  Borrower  of  Lender's
                  exercise of Lender's  rights  under this Section 4 at any time
                  after the  occurrence of an Event of Default,  and without the
                  necessity of Lender  entering upon and taking and  maintaining
                  control of the Mortgaged Property directly,  by a receiver, or
                  by any other manner or proceeding permitted by the laws of the
                  Property  Jurisdiction,  Lender  immediately  shall  have  all
                  rights,  powers and  authority  granted to Borrower  under any
                  Lease,  including the right, power and authority to modify the
                  terms of any such  Lease,  or  extend  or  terminate  any such
                  Lease.

(e)               Borrower  shall,  promptly upon Lender's  request,  deliver to
                  Lender an  executed  copy of each  residential  Lease  then in
                  effect. All Leases for residential  dwelling units shall be on
                  forms  approved by Lender,  shall be for  initial  terms of at
                  least six months  and not more than two  years,  and shall not
                  include  options to purchase.  If customary in the  applicable
                  market,  residential Leases with terms of less than six months
                  may be permitted with Lender's prior written consent.

(f)               Borrower shall not lease any portion of the Mortgaged Property
                  for  non-residential use except with the prior written consent
                  of Lender and  Lender's  prior  written  approval of the Lease
                  agreement.  Borrower  shall not modify the terms of, or extend
                  or terminate, any Lease for non-residential use (including any
                  Lease in existence on the date of this Instrument) without the
                  prior  written  consent of  Lender.  Borrower  shall,  without
                  request  by  Lender,   deliver  an   executed   copy  of  each
                  non-residential  Lease to Lender  promptly after such Lease is
                  signed.  All  non-residential  Leases,  including  renewals or
                  extensions of existing Leases, shall specifically provide that
                  (1) such Leases are subordinate to the lien of this Instrument
                  (unless  waived in writing by  Lender);  (2) the tenant  shall
                  attorn to Lender and any purchaser at a foreclosure sale, such
                  attornment to be self-executing and effective upon acquisition
                  of title  to the  Mortgaged  Property  by any  purchaser  at a
                  foreclosure  sale or by Lender in any  manner;  (3) the tenant
                  agrees to execute such  further  evidences  of  attornment  as
                  Lender or any purchaser at a foreclosure sale may from time to
                  time  request;  (4)  the  Lease  shall  not be  terminated  by
                  foreclosure or any other  transfer of the Mortgaged  Property;
                  (5) after a foreclosure sale of the Mortgaged Property, Lender
                  or any  other  purchaser  at such  foreclosure  sale  may,  at
                  Lender's or such purchaser's option,  accept or terminate such
                  Lease;  and (6) the  tenant  shall,  upon  receipt  after  the
                  occurrence  of an Event of Default of a written  request  from
                  Lender, pay all Rents payable under the Lease to Lender.

(g)               Borrower  shall not  receive  or accept  Rent  under any Lease
                  (whether  residential  or  non-residential)  for more than two
                  months in advance.

5.                PAYMENT OF  INDEBTEDNESS;  PERFORMANCE  UNDER LOAN  DOCUMENTS;
                  PREPAYMENT  PREMIUM.  Borrower shall pay the Indebtedness when
                  due in  accordance  with the  terms of the Note and the  other
                  Loan Documents and shall perform,  observe and comply with all
                  other  provisions  of the Note and the other  Loan  Documents.
                  Borrower  shall pay a prepayment  premium in  connection  with
                  certain  prepayments of the Indebtedness,  including a payment
                  made after Lender's  exercise of any right of  acceleration of
                  the Indebtedness, as provided in the Note.

6.                EXCULPATION.  Borrower's personal liability for payment of the
                  Indebtedness  and for performance of the other  obligations to
                  be  performed  by it under this  Instrument  is limited in the
                  manner, and to the extent, provided in the Note.

7.                DEPOSITS FOR TAXES, INSURANCE AND OTHER CHARGES.

(a)               Borrower   shall  deposit  with  Lender  on  the  day  monthly
                  installments of principal or interest,  or both, are due under
                  the Note (or on another day  designated in writing by Lender),
                  until the  Indebtedness is paid in full, an additional  amount
                  sufficient to  accumulate  with Lender the entire sum required
                  to pay, when due (1) any water and sewer charges which, if not
                  paid, may result in a lien on all or any part of the Mortgaged
                  Property,   (2)  the   premiums  for  fire  and  other  hazard
                  insurance,  rent loss  insurance  and such other  insurance as
                  Lender may  require  under  Section  19,  (3)  Taxes,  and (4)
                  amounts for other  charges and  expenses  which  Lender at any
                  time  reasonably  deems  necessary  to protect  the  Mortgaged
                  Property,  to prevent the imposition of liens on the Mortgaged
                  Property,  or otherwise to protect Lender's interests,  all as
                  reasonably  estimated from time to time by Lender. The amounts
                  deposited  under  the  preceding   sentence  are  collectively
                  referred to in this Instrument as the  "Imposition  Deposits".
                  The obligations of Borrower for which the Imposition  Deposits
                  are required are  collectively  referred to in this Instrument
                  as "Impositions".  The amount of the Imposition Deposits shall
                  be sufficient to enable Lender to pay each  Imposition  before
                  the last date upon which such  payment may be made without any
                  penalty or interest charge being added.  Lender shall maintain
                  records indicating how much of the monthly Imposition Deposits
                  and how  much of the  aggregate  Imposition  Deposits  held by
                  Lender  are held for the  purpose of paying  Taxes,  insurance
                  premiums  and each  other  obligation  of  Borrower  for which
                  Imposition Deposits are required.  Any waiver by Lender of the
                  requirement that Borrower remit Imposition  Deposits to Lender
                  may be revoked by Lender, in Lender's discretion,  at any time
                  upon notice to Borrower.

(b)               Imposition Deposits shall be held in an institution (which may
                  be Lender, if Lender is such an institution) whose deposits or
                  accounts are insured or guaranteed by a federal agency. Lender
                  shall not be obligated to open additional  accounts or deposit
                  Imposition Deposits in additional institutions when the amount
                  of the Imposition  Deposits  exceeds the maximum amount of the
                  federal deposit insurance or guaranty.  Lender shall apply the
                  Imposition  Deposits to pay Impositions so long as no Event of
                  Default has occurred and is continuing.  Unless applicable law
                  requires,  Lender  shall not be required to pay  Borrower  any
                  interest,  earnings  or  profits on the  Imposition  Deposits.
                  Borrower  hereby  pledges  and  grants  to  Lender a  security
                  interest in the Imposition Deposits as additional security for
                  all of Borrower's  obligations  under this  Instrument and the
                  other Loan Documents.  Any amounts deposited with Lender under
                  this  Section  7 shall  not be trust  funds,  nor  shall  they
                  operate to reduce the  Indebtedness,  unless applied by Lender
                  for that purpose under Section 7(e).

(c)               If Lender receives a bill or invoice for an Imposition, Lender
                  shall pay the Imposition from the Imposition  Deposits held by
                  Lender.  Lender shall have no obligation to pay any Imposition
                  to the  extent it  exceeds  Imposition  Deposits  then held by
                  Lender.  Lender may pay an  Imposition  according to any bill,
                  statement or estimate  from the  appropriate  public office or
                  insurance  company without  inquiring into the accuracy of the
                  bill,  statement  or  estimate  or into  the  validity  of the
                  Imposition.

(d)               If at any time the amount of the  Imposition  Deposits held by
                  Lender for payment of a specific Imposition exceeds the amount
                  reasonably  deemed  necessary  by Lender,  the excess shall be
                  credited against future  installments of Imposition  Deposits.
                  If at any time the amount of the  Imposition  Deposits held by
                  Lender for payment of a specific  Imposition  is less than the
                  amount  reasonably   estimated  by  Lender  to  be  necessary,
                  Borrower  shall pay to  Lender  the  amount of the  deficiency
                  within 15 days after notice from Lender.

(e)               If an Event of Default has occurred and is continuing,  Lender
                  may apply any Imposition  Deposits,  in any amounts and in any
                  order as Lender determines, in Lender's discretion, to pay any
                  Impositions  or as a credit  against  the  Indebtedness.  Upon
                  payment in full of the  Indebtedness,  Lender  shall refund to
                  Borrower any Imposition Deposits held by Lender.

8.                COLLATERAL AGREEMENTS. Borrower shall deposit with Lender such
                  amounts as may be required  by any  Collateral  Agreement  and
                  shall  perform all other  obligations  of Borrower  under each
                  Collateral Agreement.

9.                APPLICATION OF PAYMENTS. If at any time Lender receives,  from
                  Borrower  or   otherwise,   any  amount   applicable   to  the
                  Indebtedness which is less than all amounts due and payable at
                  such time,  then Lender may apply that payment to amounts then
                  due and payable in any manner and in any order  determined  by
                  Lender, in Lender's discretion. Neither Lender's acceptance of
                  an amount  which is less than all amounts then due and payable
                  nor  Lender's  application  of  such  payment  in  the  manner
                  authorized shall constitute or be deemed to constitute  either
                  a waiver of the unpaid amounts or an accord and  satisfaction.
                  Notwithstanding  the  application  of any such  amount  to the
                  Indebtedness, Borrower's obligations under this Instrument and
                  the Note shall remain unchanged.

10.               COMPLIANCE  WITH LAWS.  Borrower  shall  comply with all laws,
                  ordinances,  regulations and  requirements of any Governmental
                  Authority and all recorded  lawful  covenants  and  agreements
                  relating to or affecting the Mortgaged Property, including all
                  laws,  ordinances,  regulations,  requirements  and  covenants
                  pertaining to health and safety,  construction of improvements
                  on the Mortgaged Property,  fair housing, zoning and land use,
                  and Leases.  Borrower  also shall  comply with all  applicable
                  laws that pertain to the maintenance and disposition of tenant
                  security  deposits.  Borrower  shall  at  all  times  maintain
                  records   sufficient  to  demonstrate   compliance   with  the
                  provisions of this Section 10. Borrower shall take appropriate
                  measures  to  prevent,  and shall not  engage in or  knowingly
                  permit,  any illegal activities at the Mortgaged Property that
                  could  endanger  tenants or visitors,  result in damage to the
                  Mortgaged  Property,  result in  forfeiture  of the  Mortgaged
                  Property,  or otherwise  materially impair the lien created by
                  this   Instrument  or  Lender's   interest  in  the  Mortgaged
                  Property.  Borrower  represents and warrants to Lender that no
                  portion  of  the  Mortgaged  Property  has  been  or  will  be
                  purchased with the proceeds of any illegal activity.

11.               USE OF PROPERTY.  Unless required by applicable law,  Borrower
                  shall not (a) except for any change in use approved by Lender,
                  allow  changes  in the use for  which  all or any  part of the
                  Mortgaged  Property is being used at the time this  Instrument
                  was executed,  (b) convert any  individual  dwelling  units or
                  common areas to commercial use, (c) initiate or acquiesce in a
                  change in the zoning classification of the Mortgaged Property,
                  or (d) establish any  condominium or  cooperative  regime with
                  respect to the Mortgaged Property.

12.               PROTECTION OF LENDER'S SECURITY.

(a)               If Borrower fails to perform any of its obligations under this
                  Instrument  or any other  Loan  Document,  or if any action or
                  proceeding is commenced which purports to affect the Mortgaged
                  Property,  Lender's  security  or Lender's  rights  under this
                  Instrument,   including  eminent  domain,   insolvency,   code
                  enforcement,  civil or  criminal  forfeiture,  enforcement  of
                  Hazardous   Materials   Laws,    fraudulent    conveyance   or
                  reorganizations   or  proceedings   involving  a  bankrupt  or
                  decedent,  then  Lender  at  Lender's  option  may  make  such
                  appearances,  disburse  such  sums and take  such  actions  as
                  Lender  reasonably deems necessary to perform such obligations
                  of Borrower and to protect  Lender's  interest,  including (1)
                  payment  of fees  and  out-of-pocket  expenses  of  attorneys,
                  accountants,  inspectors and  consultants,  (2) entry upon the
                  Mortgaged  Property  to make  repairs or secure the  Mortgaged
                  Property, (3) procurement of the insurance required by Section
                  19, and (4) payment of amounts  which  Borrower  has failed to
                  pay under Sections 15 and 17.

(b)               Any  amounts  disbursed  by Lender  under this  Section 12, or
                  under any other  provision of this Instrument that treats such
                  disbursement  as being made under this  Section  12,  shall be
                  added to, and become part of, the  principal  component of the
                  Indebtedness,  shall be immediately  due and payable and shall
                  bear interest from the date of disbursement  until paid at the
                  "Default Rate", as defined in the Note.

(c)               Nothing in this Section 12 shall  require  Lender to incur any
                  expense or take any action.

13.               INSPECTION. Lender, its agents, representatives, and designees
                  may make or cause to be made entries upon and  inspections  of
                  the Mortgaged Property  (including  environmental  inspections
                  and  tests)  during  normal  business  hours,  or at any other
                  reasonable time.

14.               BOOKS AND RECORDS; FINANCIAL REPORTING.

(a)               Borrower shall keep and maintain at all times at the Mortgaged
                  Property or the management agent's offices,  and upon Lender's
                  request  shall  make  available  at  the  Mortgaged  Property,
                  complete and accurate books of account and records  (including
                  copies of supporting  bills and invoices)  adequate to reflect
                  correctly the operation of the Mortgaged Property,  and copies
                  of all written contracts,  Leases, and other instruments which
                  affect the Mortgaged Property. The books, records,  contracts,
                  Leases and other  instruments  shall be subject to examination
                  and inspection at any reasonable time by Lender.

(b)               Borrower shall furnish to Lender all of the following:

(1)   within  120  days  after  the end of each  fiscal  year of  Borrower,  a
                  statement of income and expenses  for  Borrower's  operation
                  of the Mortgaged  Property for that fiscal year, a statement
                  of changes in  financial  position of  Borrower  relating to
                  the  Mortgaged  Property  for that  fiscal  year  and,  when
                  requested by Lender,  a balance sheet showing all assets and
                  liabilities of Borrower  relating to the Mortgaged  Property
                  as of the end of that fiscal year;

(2)   within 120 days after the end of each  fiscal year of  Borrower,  and at
                  any other time upon  Lender's  request,  a rent schedule for
                  the Mortgaged  Property showing the name of each tenant, and
                  for each tenant,  the space occupied,  the lease  expiration
                  date,  the rent  payable  for the  current  month,  the date
                  through   which  rent  has  been  paid,   and  any   related
                  information requested by Lender;

(3)   within 120 days after the end of each  fiscal year of  Borrower,  and at
                  any other time upon Lender's  request,  an accounting of all
                  security  deposits  held  pursuant to all Leases,  including
                  the  name of the  institution  (if any)  and the  names  and
                  identification  numbers  of the  accounts  (if any) in which
                  such  security  deposits are held and the name of the person
                  to contact  at such  financial  institution,  along with any
                  authority  or  release   necessary   for  Lender  to  access
                  information regarding such accounts;

(4)   within 120 days after the end of each  fiscal year of  Borrower,  and at
                  any other  time upon  Lender's  request,  a  statement  that
                  identifies  all owners of any  interest in Borrower  and the
                  interest  held by each,  if Borrower is a  corporation,  all
                  officers and  directors  of  Borrower,  and if Borrower is a
                  limited liability company, all managers who are not members;

(5)               upon Lender's  request,  a monthly property  management report
                  for the  Mortgaged  Property,  showing the number of inquiries
                  made  and  rental   applications   received  from  tenants  or
                  prospective tenants and deposits received from tenants and any
                  other information requested by Lender;

(6)               upon Lender's request,  a balance sheet, a statement of income
                  and  expenses  for  Borrower  and a  statement  of  changes in
                  financial  position of  Borrower  for  Borrower's  most recent
                  fiscal year; and

(7)               if required by Lender,  a statement  of income and expense for
                  the Mortgaged Property for the prior month or quarter.

(c)               Each of the  statements,  schedules  and  reports  required by
                  Section  14(b) shall be  certified to be complete and accurate
                  by an individual having authority to bind Borrower,  and shall
                  be in  such  form  and  contain  such  detail  as  Lender  may
                  reasonably   require.   Lender  also  may  require   that  any
                  statements,  schedules  or reports  be  audited at  Borrower's
                  expense by independent certified public accountants acceptable
                  to Lender.

(d)               If  Borrower   fails  to  provide  in  a  timely   manner  the
                  statements,  schedules and reports  required by Section 14(b),
                  Lender  shall  have the  right to have  Borrower's  books  and
                  records  audited,   at  Borrower's   expense,  by  independent
                  certified  public  accountants  selected by Lender in order to
                  obtain such statements, schedules and reports, and all related
                  costs and expenses of Lender shall become  immediately due and
                  payable   and  shall   become  an   additional   part  of  the
                  Indebtedness as provided in Section 12.

(e)               If an  Event  of  Default  has  occurred  and  is  continuing,
                  Borrower shall deliver to Lender upon written demand all books
                  and  records  relating  to  the  Mortgaged   Property  or  its
                  operation.

(f)               Borrower  authorizes  Lender  to  obtain  a credit  report  on
                  Borrower at any time.

(g)               If an  Event  of  Default  has  occurred  and  Lender  has not
                  previously  required Borrower to furnish a quarterly statement
                  of income and expense for the Mortgaged  Property,  Lender may
                  require  Borrower to furnish  such a statement  within 45 days
                  after the end of each  fiscal  quarter of  Borrower  following
                  such Event of Default.

15.               TAXES; OPERATING EXPENSES.

(a)               Subject to the  provisions of Section 15(c) and Section 15(d),
                  Borrower  shall pay,  or cause to be paid,  all Taxes when due
                  and before the addition of any interest, fine, penalty or cost
                  for nonpayment.

(b)               Subject to the provisions of Section 15(c), Borrower shall pay
                  the expenses of operating, managing, maintaining and repairing
                  the  Mortgaged   Property   (including   insurance   premiums,
                  utilities, repairs and replacements) before the last date upon
                  which each such  payment  may be made  without  any penalty or
                  interest charge being added.

(c)               As long as no Event of Default  exists and Borrower has timely
                  delivered  to Lender any bills or premium  notices that it has
                  received,  Borrower  shall  not be  obligated  to  pay  Taxes,
                  insurance  premiums or any other individual  Imposition to the
                  extent that sufficient  Imposition Deposits are held by Lender
                  for the  purpose of paying  that  specific  Imposition.  If an
                  Event of Default exists, Lender may exercise any rights Lender
                  may have with respect to Imposition Deposits without regard to
                  whether  Impositions  are then due and  payable.  Lender shall
                  have  no   liability  to  Borrower  for  failing  to  pay  any
                  Impositions  to the  extent  that  any  Event of  Default  has
                  occurred and is continuing,  insufficient  Imposition Deposits
                  are held by Lender at the time an  Imposition  becomes due and
                  payable or  Borrower  has failed to provide  Lender with bills
                  and premium notices as provided above.

(d)               Borrower, at its own expense, may contest by appropriate legal
                  proceedings,  conducted  diligently  and in  good  faith,  the
                  amount or  validity  of any  Imposition  other than  insurance
                  premiums,  if (1) Borrower notifies Lender of the commencement
                  or  expected   commencement  of  such  proceedings,   (2)  the
                  Mortgaged   Property  is  not  in  danger  of  being  sold  or
                  forfeited,   (3)  Borrower   deposits  with  Lender   reserves
                  sufficient  to pay the contested  Imposition,  if requested by
                  Lender,  and  (4)  Borrower   furnishes  whatever   additional
                  security  is  required  in the  proceedings  or is  reasonably
                  requested by Lender,  which may include the delivery to Lender
                  of the reserves  established  by Borrower to pay the contested
                  Imposition.

(e)               Borrower  shall  promptly  deliver  to  Lender  a copy  of all
                  notices of, and  invoices  for,  Impositions,  and if Borrower
                  pays any Imposition directly,  Borrower shall promptly furnish
                  to Lender receipts evidencing such payments.

16.               LIENS; ENCUMBRANCES. Borrower acknowledges that, to the extent
                  provided in Section 21, the grant,  creation or  existence  of
                  any  mortgage,  deed of trust,  deed to secure debt,  security
                  interest  or  other  lien or  encumbrance  (a  "Lien")  on the
                  Mortgaged Property (other than the lien of this Instrument) or
                  on certain ownership interests in Borrower, whether voluntary,
                  involuntary  or by  operation  of law, and whether or not such
                  Lien  has  priority  over the  lien of this  Instrument,  is a
                  "Transfer" which constitutes an Event of Default.

17.               PRESERVATION,   MANAGEMENT   AND   MAINTENANCE   OF  MORTGAGED
                  PROPERTY.

(a)               Borrower  (1) shall not commit waste or permit  impairment  or
                  deterioration of the Mortgaged Property, (2) shall not abandon
                  the Mortgaged Property,  (3) shall restore or repair promptly,
                  in a good and  workmanlike  manner,  any  damaged  part of the
                  Mortgaged   Property  to  the   equivalent   of  its  original
                  condition,  or such other  condition  as Lender may approve in
                  writing,  whether or not  insurance  proceeds or  condemnation
                  awards are available to cover any costs of such restoration or
                  repair,  (4) shall keep the Mortgaged Property in good repair,
                  including  the  replacement  of  Personalty  and Fixtures with
                  items of equal or  better  function  and  quality,  (5)  shall
                  provide for professional  management of the Mortgaged Property
                  by a  residential  rental  property  manager  satisfactory  to
                  Lender under a contract approved by Lender in writing, and (6)
                  shall give notice to Lender of and, unless otherwise  directed
                  in writing by Lender, shall appear in and defend any action or
                  proceeding   purporting  to  affect  the  Mortgaged  Property,
                  Lender's  security or Lender's  rights under this  Instrument.
                  Borrower  shall not (and  shall not permit any tenant or other
                  person to) remove, demolish or alter the Mortgaged Property or
                  any part of the Mortgaged  Property  except in connection with
                  the replacement of tangible Personalty.

(b)               If, in connection with the making of the loan evidenced by the
                  Note or at any  later  date,  Lender  waives  in  writing  the
                  requirement of Section 17(a)(5) above that Borrower enter into
                  a written  contract for  management of the Mortgaged  Property
                  and if, after the date of this Instrument, Borrower intends to
                  change the management of the Mortgaged Property,  Lender shall
                  have the right to approve  such new  property  manager and the
                  written contract for the management of the Mortgaged  Property
                  and require that Borrower and such new property  manager enter
                  into an Assignment of Management  Agreement on a form approved
                  by Lender.  If required by Lender  (whether before or after an
                  Event of  Default),  Borrower  will  cause  any  Affiliate  of
                  Borrower to whom fees are payable  for the  management  of the
                  Mortgaged  Property to enter into an agreement with Lender, in
                  a form  approved by Lender,  providing  for  subordination  of
                  those fees and such other  provisions  as Lender may  require.
                  "Affiliate of Borrower"  means any  corporation,  partnership,
                  joint venture,  limited liability  company,  limited liability
                  partnership,  trust or individual  controlled by, under common
                  control with, or which  controls  Borrower (the term "control"
                  for these  purposes  shall  mean the  ability,  whether by the
                  ownership of shares or other equity interests,  by contract or
                  otherwise,   to  elect  a  majority  of  the  directors  of  a
                  corporation,  to make  management  decisions  on behalf of, or
                  independently   to  select   the   managing   partner   of,  a
                  partnership,  or otherwise to have the power  independently to
                  remove  and  then  select  a  majority  of  those  individuals
                  exercising  managerial  authority over an entity,  and control
                  shall be conclusively presumed in the case of the ownership of
                  50% or more of the equity interests).

18.               ENVIRONMENTAL HAZARDS.

(a)               Except for matters  covered by a written program of operations
                  and  maintenance  approved  in  writing  by  Lender  (an  "O&M
                  Program")  or matters  described  in Section  18(b),  Borrower
                  shall not cause or permit any of the following:

(1)               the presence, use, generation, release, treatment, processing,
                  storage  (including  storage in above  ground and  underground
                  storage  tanks),   handling,  or  disposal  of  any  Hazardous
                  Materials  on or under  the  Mortgaged  Property  or any other
                  property  of  Borrower  that  is  adjacent  to  the  Mortgaged
                  Property;

(2)               the  transportation  of any  Hazardous  Materials to, from, or
                  across the Mortgaged Property;

(3)               any  occurrence or condition on the Mortgaged  Property or any
                  other  property of Borrower  that is adjacent to the Mortgaged
                  Property,  which  occurrence  or  condition  is or  may  be in
                  violation of Hazardous Materials Laws; or

(4)               any  violation  of or  noncompliance  with  the  terms  of any
                  Environmental Permit with respect to the Mortgaged Property or
                  any  property  of Borrower  that is adjacent to the  Mortgaged
                  Property.

The  matters  described  in  clauses  (1)  through  (4)  above are  referred  to
collectively in this Section 18 as "Prohibited Activities or Conditions".

(b)               Prohibited  Activities  and  Conditions  shall not include the
                  safe  and  lawful  use  and  storage  of   quantities  of  (1)
                  pre-packaged   supplies,   cleaning  materials  and  petroleum
                  products  customarily used in the operation and maintenance of
                  comparable  multifamily  properties,  (2) cleaning  materials,
                  personal  grooming items and other items sold in  pre-packaged
                  containers  for consumer use and used by tenants and occupants
                  of residential  dwelling units in the Mortgaged Property;  and
                  (3) petroleum  products used in the operation and  maintenance
                  of motor  vehicles  from time to time located on the Mortgaged
                  Property's  parking areas, so long as all of the foregoing are
                  used,  stored,   handled,   transported  and  disposed  of  in
                  compliance with Hazardous Materials Laws.

(c)               Borrower  shall  take  all  commercially   reasonable  actions
                  (including  the  inclusion of  appropriate  provisions  in any
                  Leases executed after the date of this  Instrument) to prevent
                  its employees,  agents,  and contractors,  and all tenants and
                  other  occupants  from causing or  permitting  any  Prohibited
                  Activities or  Conditions.  Borrower  shall not lease or allow
                  the  sublease  or use of all or any  portion of the  Mortgaged
                  Property to any tenant or subtenant for  nonresidential use by
                  any user that, in the ordinary  course of its business,  would
                  cause or permit any Prohibited Activity or Condition.

(d)               If an  O&M  Program  has  been  established  with  respect  to
                  Hazardous Materials,  Borrower shall comply in a timely manner
                  with,  and cause all  employees,  agents,  and  contractors of
                  Borrower  and  any  other  persons  present  on the  Mortgaged
                  Property  to  comply  with  the  O&M  Program.  All  costs  of
                  performance  of Borrower's  obligations  under any O&M Program
                  shall be paid by Borrower,  and Lender's  out-of-pocket  costs
                  incurred in connection  with the  monitoring and review of the
                  O&M  Program  and  Borrower's  performance  shall  be  paid by
                  Borrower upon demand by Lender. Any such  out-of-pocket  costs
                  of Lender which Borrower fails to pay promptly shall become an
                  additional part of the Indebtedness as provided in Section 12.

(e)               Borrower  represents  and warrants to Lender  that,  except as
                  previously disclosed by Borrower to Lender in writing:

(1)               Borrower has not at any time  engaged in,  caused or permitted
                  any Prohibited Activities or Conditions;

(2)               to the  best of  Borrower's  knowledge  after  reasonable  and
                  diligent inquiry, no Prohibited Activities or Conditions exist
                  or have existed;

(3)   except to the  extent  previously  disclosed  by  Borrower  to Lender in
                  writing,  the  Mortgaged  Property  does not now contain any
                  underground  storage  tanks,  and, to the best of Borrower's
                  knowledge  after  reasonable  and  diligent   inquiry,   the
                  Mortgaged   Property  has  not  contained  any   underground
                  storage  tanks  in the  past.  If  there  is an  underground
                  storage  tank  located  on  the  Property   which  has  been
                  previously disclosed by Borrower to Lender in writing,  that
                  tank complies with all  requirements of Hazardous  Materials
                  Laws;

(4)   Borrower has complied with all Hazardous  Materials Laws,  including all
                  requirements   for   notification   regarding   releases  of
                  Hazardous  Materials.  Without  limiting the  generality  of
                  the  foregoing,  Borrower  has  obtained  all  Environmental
                  Permits   required  for  the   operation  of  the  Mortgaged
                  Property in accordance with Hazardous  Materials Laws now in
                  effect and all such Environmental  Permits are in full force
                  and effect;

(5)               no event has occurred with respect to the  Mortgaged  Property
                  that constitutes, or with the passing of time or the giving of
                  notice would constitute,  noncompliance  with the terms of any
                  Environmental Permit;

(6)               there are no actions, suits, claims or proceedings pending or,
                  to the  best of  Borrower's  knowledge  after  reasonable  and
                  diligent  inquiry,   threatened  that  involve  the  Mortgaged
                  Property and allege, arise out of, or relate to any Prohibited
                  Activity or Condition; and

(7)   Borrower has not received any complaint,  order,  notice of violation or
                  other  communication  from any  Governmental  Authority with
                  regard to air emissions,  water discharges,  noise emissions
                  or Hazardous Materials,  or any other environmental,  health
                  or safety  matters  affecting the Mortgaged  Property or any
                  other   property  of  Borrower   that  is  adjacent  to  the
                  Mortgaged Property.

The  representations  and  warranties  in this  Section  18 shall be  continuing
representations  and  warranties  that  shall be deemed  to be made by  Borrower
throughout  the term of the loan evidenced by the Note,  until the  Indebtedness
has been paid in full.

(f)               Borrower  shall  promptly  notify  Lender in writing  upon the
                  occurrence of any of the following events:

(1)               Borrower's discovery of any Prohibited Activity or Condition;

(2)   Borrower's  receipt of or knowledge of any complaint,  order,  notice of
                  violation  or  other  communication  from  any  Governmental
                  Authority  or other  person with regard to present or future
                  alleged  Prohibited  Activities  or  Conditions or any other
                  environmental,   health  or  safety  matters  affecting  the
                  Mortgaged  Property or any other  property of Borrower  that
                  is adjacent to the Mortgaged Property; and

(3)               any  representation  or  warranty  in this  Section 18 becomes
                  untrue after the date of this Agreement.

Any such notice given by Borrower shall not relieve  Borrower of, or result in a
waiver of, any  obligation  under this  Instrument,  the Note, or any other Loan
Document.

(g)               Borrower  shall pay  promptly  the costs of any  environmental
                  inspections,  tests or  audits  ("Environmental  Inspections")
                  required by Lender in connection  with any foreclosure or deed
                  in lieu of foreclosure,  or as a condition of Lender's consent
                  to any  Transfer  under  Section  21,  or  required  by Lender
                  following a reasonable determination by Lender that Prohibited
                  Activities or Conditions may exist. Any such costs incurred by
                  Lender  (including  the  fees  and   out-of-pocket   costs  of
                  attorneys  and  technical   consultants  whether  incurred  in
                  connection  with any  judicial  or  administrative  process or
                  otherwise)  which  Borrower fails to pay promptly shall become
                  an additional part of the  Indebtedness as provided in Section
                  12.  The  results  of all  Environmental  Inspections  made by
                  Lender  shall at all times  remain the  property of Lender and
                  Lender shall have no obligation to disclose or otherwise  make
                  available  to Borrower or any other party such  results or any
                  other  information  obtained by Lender in connection  with its
                  Environmental  Inspections.  Lender hereby reserves the right,
                  and  Borrower  hereby  expressly  authorizes  Lender,  to make
                  available to any party,  including any prospective bidder at a
                  foreclosure sale of the Mortgaged Property, the results of any
                  Environmental  Inspections  made by Lender with respect to the
                  Mortgaged Property.  Borrower consents to Lender notifying any
                  party (either as part of a notice of sale or otherwise) of the
                  results of any of Lender's Environmental Inspections. Borrower
                  acknowledges  that Lender cannot  control or otherwise  assure
                  the  truthfulness  or  accuracy  of the  results of any of its
                  Environmental Inspections and that the release of such results
                  to prospective  bidders at a foreclosure sale of the Mortgaged
                  Property  may have a  material  and  adverse  effect  upon the
                  amount  which a party may bid at such  sale.  Borrower  agrees
                  that Lender shall have no liability  whatsoever as a result of
                  delivering the results of any of its Environmental Inspections
                  to any third party,  and Borrower  hereby releases and forever
                  discharges Lender from any and all claims,  damages, or causes
                  of action, arising out of, connected with or incidental to the
                  results  of, the  delivery  of any of  Lender's  Environmental
                  Inspections.

(h)               If any investigation, site monitoring,  containment, clean-up,
                  restoration  or  other  remedial  work  ("Remedial  Work")  is
                  necessary to comply with any Hazardous  Materials Law or order
                  of  any   Governmental   Authority   that   has  or   acquires
                  jurisdiction over the Mortgaged Property or the use, operation
                  or improvement  of the Mortgaged  Property under any Hazardous
                  Materials  Law,  Borrower  shall,  by the  earlier  of (1) the
                  applicable deadline required by Hazardous Materials Law or (2)
                  30 days after notice from Lender demanding such action,  begin
                  performing  the  Remedial  Work,  and  thereafter   diligently
                  prosecute it to  completion,  and shall in any event  complete
                  the  work  by  the  time  required  by  applicable   Hazardous
                  Materials Law. If Borrower fails to begin on a timely basis or
                  diligently  prosecute any required  Remedial Work, Lender may,
                  at its option,  cause the Remedial  Work to be  completed,  in
                  which case Borrower shall  reimburse  Lender on demand for the
                  cost of doing  so.  Any  reimbursement  due from  Borrower  to
                  Lender  shall become part of the  Indebtedness  as provided in
                  Section 12.

(i)               Borrower shall cooperate with any inquiry by any  Governmental
                  Authority and shall comply with any  governmental  or judicial
                  order which  arises from any  alleged  Prohibited  Activity or
                  Condition.

(j)               Borrower shall indemnify, hold harmless and defend (i) Lender,
                  (ii) any prior  owner or  holder  of the Note,  (iii) the Loan
                  Servicer,  (iv) any prior  Loan  Servicer,  (v) the  officers,
                  directors,  shareholders,  partners, employees and trustees of
                  any   of  the   foregoing,   and   (vi)   the   heirs,   legal
                  representatives,   successors  and  assigns  of  each  of  the
                  foregoing  (collectively,  the "Indemnitees") from and against
                  all proceedings, claims, damages, penalties and costs (whether
                  initiated  or sought by  Governmental  Authorities  or private
                  parties),   including  fees  and  out-of-pocket   expenses  of
                  attorneys  and  expert  witnesses,   investigatory  fees,  and
                  remediation  costs,  whether  incurred in connection  with any
                  judicial  or  administrative  process  or  otherwise,  arising
                  directly or indirectly from any of the following:

(1)               any breach of any  representation  or  warranty of Borrower in
                  this Section 18;

(2)               any  failure by  Borrower  to perform  any of its  obligations
                  under this Section 18;

(3)               the existence or alleged existence of any Prohibited  Activity
                  or Condition;

(4)               the presence or alleged presence of Hazardous  Materials on or
                  under the Mortgaged  Property or any property of Borrower that
                  is adjacent to the Mortgaged Property; and

(5)               the actual or alleged  violation  of any  Hazardous  Materials
                  Law.

(k)               Counsel  selected by Borrower to defend  Indemnitees  shall be
                  subject to the  approval of those  Indemnitees.  However,  any
                  Indemnitee   may  elect  to  defend  any  claim  or  legal  or
                  administrative proceeding at the Borrower's expense.

(l)               Borrower shall not, without the prior written consent of those
                  Indemnitees  who are named as  parties  to a claim or legal or
                  administrative  proceeding  (a "Claim"),  settle or compromise
                  the Claim if the  settlement  (1)  results in the entry of any
                  judgment  that does not include as an  unconditional  term the
                  delivery by the  claimant or  plaintiff to Lender of a written
                  release  of  those  Indemnitees,   satisfactory  in  form  and
                  substance  to  Lender;  or (2) may  materially  and  adversely
                  affect Lender, as determined by Lender in its discretion.

(m)               Lender agrees that the  indemnity  under this Section 18 shall
                  be limited to the assets of Borrower and Lender shall not seek
                  to recover any  deficiency  from any  natural  persons who are
                  general partners of Borrower.

(n)               Borrower  shall,  at its own cost and  expense,  do all of the
                  following:

(1)               pay or  satisfy  any  judgment  or decree  that may be entered
                  against  any   Indemnitee  or  Indemnitees  in  any  legal  or
                  administrative  proceeding  incident  to any  matters  against
                  which  Indemnitees  are entitled to be indemnified  under this
                  Section 18;

(2)               reimburse  Indemnitees  for any  expenses  paid or incurred in
                  connection  with any matters  against  which  Indemnitees  are
                  entitled to be indemnified under this Section 18; and

(3)               reimburse Indemnitees for any and all expenses, including fees
                  and out-of-pocket  expenses of attorneys and expert witnesses,
                  paid  or  incurred  in  connection  with  the  enforcement  by
                  Indemnitees  of their  rights  under  this  Section  18, or in
                  monitoring and  participating  in any legal or  administrative
                  proceeding.

(o)               In any circumstances in which the indemnity under this Section
                  18  applies,  Lender  may  employ  its own legal  counsel  and
                  consultants  to  prosecute,  defend or negotiate  any claim or
                  legal or administrative  proceeding and Lender, with the prior
                  written  consent of Borrower  (which shall not be unreasonably
                  withheld,  delayed or  conditioned),  may settle or compromise
                  any  action or legal or  administrative  proceeding.  Borrower
                  shall reimburse  Lender upon demand for all costs and expenses
                  incurred by Lender, including all costs of settlements entered
                  into in good faith, and the fees and out-of-pocket expenses of
                  such attorneys and consultants.

(p)               The  provisions of this Section 18 shall be in addition to any
                  and all other  obligations and  liabilities  that Borrower may
                  have under  applicable law or under other Loan Documents,  and
                  each  Indemnitee  shall be entitled to  indemnification  under
                  this  Section  18  without  regard to  whether  Lender or that
                  Indemnitee  has  exercised  any rights  against the  Mortgaged
                  Property or any other security, pursued any rights against any
                  guarantor,  or pursued any other  rights  available  under the
                  Loan Documents or applicable law. If Borrower consists of more
                  than one person or entity,  the obligation of those persons or
                  entities to indemnify  the  Indemnitees  under this Section 18
                  shall be joint and  several.  The  obligation  of  Borrower to
                  indemnify the Indemnitees  under this Section 18 shall survive
                  any   repayment  or  discharge   of  the   Indebtedness,   any
                  foreclosure proceeding,  any foreclosure sale, any delivery of
                  any deed in lieu of foreclosure,  and any release of record of
                  the lien of this Instrument.

19.               PROPERTY AND LIABILITY INSURANCE.

(a)               Borrower  shall  keep the  Improvements  insured  at all times
                  against such hazards as Lender may from time to time  require,
                  which  insurance  shall include but not be limited to coverage
                  against  loss by fire and allied  perils,  general  boiler and
                  machinery  coverage,  and business income  coverage.  Lender's
                  insurance requirements may change from time to time throughout
                  the term of the  Indebtedness.  If  Lender so  requires,  such
                  insurance  shall  also  include   sinkhole   insurance,   mine
                  subsidence  insurance,   earthquake  insurance,  and,  if  the
                  Mortgaged  Property does not conform to  applicable  zoning or
                  land use laws,  building ordinance or law coverage.  If any of
                  the  Improvements  is  located  in an area  identified  by the
                  Federal Emergency  Management Agency (or any successor to that
                  agency) as an area having special flood hazards,  and if flood
                  insurance  is available  in that area,  Borrower  shall insure
                  such Improvements against loss by flood.

(b)               All  premiums on insurance  policies  required  under  Section
                  19(a)  shall be paid in the  manner  provided  in  Section  7,
                  unless  Lender has  designated  in writing  another  method of
                  payment. All such policies shall also be in a form approved by
                  Lender.  All  policies  of  property  damage  insurance  shall
                  include a non-contributing,  non-reporting  mortgage clause in
                  favor of, and in a form approved by, Lender. Lender shall have
                  the right to hold the original policies or duplicate  original
                  policies of all insurance required by Section 19(a).  Borrower
                  shall  promptly  deliver to Lender a copy of all  renewal  and
                  other  notices  received  by  Borrower  with  respect  to  the
                  policies and all receipts for paid premiums.  At least 30 days
                  prior  to the  expiration  date of a  policy,  Borrower  shall
                  deliver to Lender the original (or a duplicate  original) of a
                  renewal policy in form satisfactory to Lender.

(c)               Borrower  shall  maintain  at  all  times  commercial  general
                  liability insurance,  workers' compensation insurance and such
                  other liability,  errors and omissions and fidelity  insurance
                  coverages as Lender may from time to time require.

(d)               All  insurance  policies and  renewals of  insurance  policies
                  required by this  Section 19 shall be in such  amounts and for
                  such  periods  as Lender  may from time to time  require,  and
                  shall be issued by insurance companies satisfactory to Lender.

(e)               Borrower  shall  comply with all  insurance  requirements  and
                  shall  not  permit  any  condition  to exist on the  Mortgaged
                  Property  that  would  invalidate  any  part of any  insurance
                  coverage that this Instrument requires Borrower to maintain.

(f)               In the event of loss,  Borrower shall give  immediate  written
                  notice to the insurance carrier and to Lender. Borrower hereby
                  authorizes  and  appoints  Lender  as   attorney-in-fact   for
                  Borrower to make proof of loss, to adjust and  compromise  any
                  claims under policies of property damage insurance,  to appear
                  in and prosecute any action arising from such property  damage
                  insurance  policies,  to collect and  receive the  proceeds of
                  property  damage  insurance,  and to deduct from such proceeds
                  Lender's expenses incurred in the collection of such proceeds.
                  This  power  of  attorney  is  coupled  with an  interest  and
                  therefore is irrevocable.  However,  nothing contained in this
                  Section 19 shall  require  Lender to incur any expense or take
                  any  action.  Lender may,  at  Lender's  option,  (1) hold the
                  balance of such proceeds to be used to reimburse  Borrower for
                  the cost of restoring and repairing the Mortgaged  Property to
                  the  equivalent  of its  original  condition or to a condition
                  approved  by  Lender  (the  "Restoration"),  or (2)  apply the
                  balance of such  proceeds to the payment of the  Indebtedness,
                  whether or not then due. To the extent  Lender  determines  to
                  apply insurance proceeds to Restoration, Lender shall do so in
                  accordance with Lender's then-current policies relating to the
                  restoration   of  casualty   damage  on  similar   multifamily
                  properties.

(g)               Lender  shall  not  exercise  its  option  to apply  insurance
                  proceeds  to the  payment  of the  Indebtedness  if all of the
                  following  conditions are met: (1) no Event of Default (or any
                  event which, with the giving of notice or the passage of time,
                  or both,  would  constitute  an Event of Default) has occurred
                  and is continuing;  (2) Lender determines,  in its discretion,
                  that  there  will  be   sufficient   funds  to  complete   the
                  Restoration;  (3) Lender determines,  in its discretion,  that
                  the rental income from the Mortgaged Property after completion
                  of the  Restoration  will be  sufficient to meet all operating
                  costs and other  expenses,  Imposition  Deposits,  deposits to
                  reserves  and  loan  repayment  obligations  relating  to  the
                  Mortgaged Property; (4) Lender determines,  in its discretion,
                  that the Restoration  will be completed  before the earlier of
                  (A) one year before the  maturity  date of the Note or (B) one
                  year  after  the  date of the loss or  casualty;  and (5) upon
                  Lender's  request,  Borrower  provides  Lender evidence of the
                  availability during and after the Restoration of the insurance
                  required to be maintained by Borrower pursuant to this Section
                  19.

(h)               If the  Mortgaged  Property is sold at a  foreclosure  sale or
                  Lender acquires title to the Mortgaged Property,  Lender shall
                  automatically  succeed to all rights of Borrower in and to any
                  insurance  policies and unearned insurance premiums and in and
                  to the  proceeds  resulting  from any damage to the  Mortgaged
                  Property prior to such sale or acquisition.

20.               CONDEMNATION.

(a)               Borrower  shall  promptly  notify  Lender  of  any  action  or
                  proceeding  relating to any  condemnation or other taking,  or
                  conveyance  in  lieu  thereof,  of  all  or  any  part  of the
                  Mortgaged   Property,    whether   direct   or   indirect   (a
                  "Condemnation").  Borrower  shall  appear in and  prosecute or
                  defend any action or proceeding  relating to any  Condemnation
                  unless  otherwise  directed  by  Lender in  writing.  Borrower
                  authorizes  and  appoints  Lender  as   attorney-in-fact   for
                  Borrower to commence,  appear in and prosecute, in Lender's or
                  Borrower's  name,  any action or  proceeding  relating  to any
                  Condemnation   and  to  settle  or  compromise  any  claim  in
                  connection  with any  Condemnation.  This power of attorney is
                  coupled  with  an  interest  and  therefore  is   irrevocable.
                  However,  nothing  contained in this Section 20 shall  require
                  Lender  to incur  any  expense  or take any  action.  Borrower
                  hereby  transfers  and assigns to Lender all right,  title and
                  interest  of  Borrower  in and to any  award or  payment  with
                  respect to (i) any Condemnation,  or any conveyance in lieu of
                  Condemnation,  and (ii) any damage to the  Mortgaged  Property
                  caused  by  governmental  action  that  does not  result  in a
                  Condemnation.

(b)               Lender may apply such awards or proceeds,  after the deduction
                  of  Lender's  expenses  incurred  in the  collection  of  such
                  amounts,  at Lender's option,  to the restoration or repair of
                  the Mortgaged  Property or to the payment of the Indebtedness,
                  with the balance, if any, to Borrower. Unless Lender otherwise
                  agrees in writing,  any  application of any awards or proceeds
                  to the Indebtedness  shall not extend or postpone the due date
                  of any monthly installments referred to in the Note, Section 7
                  of this Instrument or any Collateral Agreement,  or change the
                  amount of such  installments.  Borrower agrees to execute such
                  further  evidence of  assignment  of any awards or proceeds as
                  Lender may require.

21.               TRANSFERS OF THE MORTGAGED PROPERTY OR INTERESTS IN BORROWER.

(a)               The occurrence of any of the following events shall constitute
                  an Event of Default under this Instrument:

(1)               a Transfer of all or any part of the Mortgaged Property or any
                  interest in the Mortgaged Property;

(2)               a Transfer of a Controlling Interest in Borrower;

(3)               a Transfer of a Controlling Interest in any entity which owns,
                  directly  or  indirectly  through  one  or  more  intermediate
                  entities, a Controlling Interest in Borrower;

(4)               a  Transfer  of all or any part of Key  Principal's  ownership
                  interests  (other  than  limited  partnership   interests)  in
                  Borrower,  or in any other  entity  which  owns,  directly  or
                  indirectly  through  one or  more  intermediate  entities,  an
                  ownership interest in Borrower;

(5)               if Key Principal is an entity, (A) a Transfer of a Controlling
                  Interest in Key Principal,  or (B) a Transfer of a Controlling
                  Interest  in any entity  which owns,  directly  or  indirectly
                  through  one or  more  intermediate  entities,  a  Controlling
                  Interest in Key Principal;

(6)               if Borrower or Key Principal is a trust,  the  termination  or
                  revocation of such trust; and

(7)               a  conversion  of Borrower  from one type of legal entity into
                  another  type of  legal  entity,  whether  or not  there  is a
                  Transfer.

      Lender shall not be required to demonstrate  any actual  impairment of its
security  or any  increased  risk of  default  in order to  exercise  any of its
remedies with respect to an Event of Default under this Section 21.

(b)               The  occurrence  of any  of the  following  events  shall  not
                  constitute  an  Event  of  Default   under  this   Instrument,
                  notwithstanding   any   provision  of  Section  21(a)  to  the
                  contrary:

(1)               a Transfer to which Lender has consented;

(2)               a Transfer that occurs by devise,  descent, or by operation of
                  law upon the death of a natural person;

(3)               the grant of a leasehold  interest in an  individual  dwelling
                  unit for a term of two years or less not  containing an option
                  to purchase;

(4)               a Transfer of obsolete or worn out Personalty or Fixtures that
                  are  contemporaneously  replaced  by items of equal or  better
                  function  and quality,  which are free of liens,  encumbrances
                  and security  interests  other than those  created by the Loan
                  Documents or consented to by Lender;

(5)               the  grant  of  an  easement,   if  before  the  grant  Lender
                  determines  that the easement will not  materially  affect the
                  operation  or  value of the  Mortgaged  Property  or  Lender's
                  interest  in the  Mortgaged  Property,  and  Borrower  pays to
                  Lender, upon demand, all costs and expenses incurred by Lender
                  in connection with reviewing Borrower's request; and

(6)               the creation of a tax lien or a mechanic's,  materialman's  or
                  judgment lien against the Mortgaged  Property  which is bonded
                  off,  released  of record or  otherwise  remedied  to Lender's
                  satisfaction within 30 days of the date of creation.

(c)               Lender shall  consent,  without any  adjustment to the rate at
                  which  the  Indebtedness  secured  by  this  Instrument  bears
                  interest or to any other economic  terms of the  Indebtedness,
                  to a Transfer that would otherwise violate this Section 21 if,
                  prior to the  Transfer,  Borrower  has  satisfied  each of the
                  following requirements:

(1)               the submission to Lender of all information required by Lender
                  to make the determination required by this Section 21(c);

(2)               the absence of any Event of Default;

(3)   the  transferee  meets all of the  eligibility,  credit,  management and
                  other  standards  (including  any standards  with respect to
                  previous  relationships  between  Lender and the  transferee
                  and the organization of the transferee)  customarily applied
                  by  Lender  at the  time  of the  proposed  Transfer  to the
                  approval of borrowers in connection  with the origination or
                  purchase  of similar  mortgages,  deeds of trust or deeds to
                  secure debt on multifamily properties;

(4)               the Mortgaged Property,  at the time of the proposed Transfer,
                  meets all  standards  as to its  physical  condition  that are
                  customarily  applied  by  Lender  at the time of the  proposed
                  Transfer to the approval of properties in connection  with the
                  origination  or purchase of similar  mortgages on  multifamily
                  properties;

(5)   in the case of a Transfer of all or any part of the Mortgaged  Property,
                  or direct or  indirect  ownership  interests  in Borrower or
                  Key  Principal  (if an entity),  if  transferor or any other
                  person  has  obligations   under  any  Loan  Document,   the
                  execution by the  transferee or one or more  individuals  or
                  entities  acceptable  to Lender of an  assumption  agreement
                  (including,  if applicable, an Acknowledgement and Agreement
                  of Key  Principal to Personal  Liability  for  Exceptions to
                  Non-Recourse  Liability)  that is  acceptable  to Lender and
                  that,  among  other  things,   requires  the  transferee  to
                  perform all  obligations  of  transferor  or such person set
                  forth  in such  Loan  Document,  and may  require  that  the
                  transferee  comply with any provisions of this Instrument or
                  any  other  Loan  Document  which  previously  may have been
                  waived by Lender;

(6)               if a guaranty has been  executed and  delivered in  connection
                  with  the  Note,  this  Instrument  or any of the  other  Loan
                  Documents,  the  Borrower  causes one or more  individuals  or
                  entities acceptable to Lender to execute and deliver to Lender
                  a guaranty in a form acceptable to Lender; and

(7)               Lender's receipt of all of the following:

(A)               a  non-refundable  review  fee in the  amount of $3,000  and a
                  transfer   fee   equal  to  1  percent   of  the   outstanding
                  Indebtedness immediately prior to the Transfer.

(B)               In addition,  Borrower  shall be required to reimburse  Lender
                  for all of Lender's  out-of-pocket costs (including reasonable
                  attorneys'  fees) incurred in reviewing the Transfer  request,
                  to the extent such expenses exceed $3,000.

(d)               For purposes of this Section,  the following  terms shall have
                  the meanings set forth below:

(1)               "Initial Owners" means,  with respect to Borrower or any other
                  entity,  the persons or  entities  who on the date of the Note
                  own in  the  aggregate  100%  of the  ownership  interests  in
                  Borrower or that entity.

(2)               A  Transfer  of a  "Controlling  Interest"  shall  mean,  with
                  respect to any entity, the following:

(i)               if such entity is a general  partnership or a joint venture, a
                  Transfer of any general partnership  interest or joint venture
                  interest which would cause the Initial Owners to own less than
                  51% of all general  partnership or joint venture  interests in
                  such entity;

(ii)              if such  entity is a limited  partnership,  a Transfer  of any
                  general partnership interest;

(iii)             if such  entity is a limited  liability  company  or a limited
                  liability  partnership,  a Transfer of any membership or other
                  ownership interest which would cause the Initial Owners to own
                  less than 51% of all membership or other  ownership  interests
                  in such entity;

(iv)              if such entity is a  corporation  (other than a  Publicly-Held
                  Corporation)  with only one class of voting stock,  a Transfer
                  of any voting  stock which  would cause the Initial  Owners to
                  own less than 51% of voting stock in such corporation;

(v)               if such entity is a  corporation  (other than a  Publicly-Held
                  Corporation)  with  more than one  class of  voting  stock,  a
                  Transfer  of any voting  stock  which  would cause the Initial
                  Owners  to own less  than a  sufficient  number  of  shares of
                  voting  stock  having  the  power to  elect  the  majority  of
                  directors of such corporation; and

(vi)              if  such  entity  is a  trust,  the  removal,  appointment  or
                  substitution  of a trustee of such trust other than (A) in the
                  case of a land  trust,  or (B) if the  trustee  of such  trust
                  after such removal,  appointment or  substitution is a trustee
                  identified in the trust agreement approved by Lender.

(3)               "Publicly-Held  Corporation"  shall  mean  a  corporation  the
                  outstanding  voting stock of which is registered under Section
                  12(b) or 12(g) of the  Securities and Exchange Act of 1934, as
                  amended.

22.               EVENTS OF DEFAULT.  The  occurrence  of any one or more of the
                  following  shall  constitute  an Event of  Default  under this
                  Instrument:

(a)               any failure by Borrower to pay or deposit  when due any amount
                  required  by the  Note,  this  Instrument  or any  other  Loan
                  Document;

(b)               any failure by Borrower to  maintain  the  insurance  coverage
                  required by Section 19;

(c)               any  failure by  Borrower  to comply  with the  provisions  of
                  Section 33;

(d)               fraud or material  misrepresentation  or material  omission by
                  Borrower, or any of its officers, directors, trustees, general
                  partners  or  managers,  Key  Principal  or any  guarantor  in
                  connection  with (A) the  application  for or  creation of the
                  Indebtedness, (B) any financial statement, rent roll, or other
                  report or  information  provided to Lender  during the term of
                  the  Indebtedness,  or (C) any request for Lender's consent to
                  any proposed  action,  including a request for disbursement of
                  funds under any Collateral Agreement;

(e)               any Event of Default under Section 21;

(f)               the commencement of a forfeiture action or proceeding, whether
                  civil or criminal,  which,  in Lender's  reasonable  judgment,
                  could  result in a  forfeiture  of the  Mortgaged  Property or
                  otherwise   materially   impair  the  lien   created  by  this
                  Instrument or Lender's interest in the Mortgaged Property;

(g)               any  failure by  Borrower  to perform  any of its  obligations
                  under this Instrument  (other than those specified in Sections
                  22(a) through (f)), as and when required,  which continues for
                  a period of 30 days after  notice of such failure by Lender to
                  Borrower,  but no such notice or grace  period  shall apply in
                  the  case  of  any  such  failure  which  could,  in  Lender's
                  judgment,  absent  immediate  exercise by Lender of a right or
                  remedy  under  this  Instrument,  result  in harm  to  Lender,
                  impairment  of the  Note  or  this  Instrument  or  any  other
                  security given under any other Loan Document;

(h)               any failure by Borrower to perform any of its  obligations  as
                  and when  required  under any Loan  Document  other  than this
                  Instrument  which continues beyond the applicable cure period,
                  if any, specified in that Loan Document; and

(i)               any  exercise  by the  holder  of any  other  debt  instrument
                  secured by a mortgage, deed of trust or deed to secure debt on
                  the  Mortgaged  Property of a right to declare all amounts due
                  under that debt instrument immediately due and payable.

23.               REMEDIES  CUMULATIVE.  Each right and remedy  provided in this
                  Instrument is distinct from all other rights or remedies under
                  this  Instrument  or any other Loan  Document  or  afforded by
                  applicable  law,  and  each  shall  be  cumulative  and may be
                  exercised concurrently, independently, or successively, in any
                  order.

24.               FORBEARANCE.

(a)               Lender  may  (but  shall  not  be  obligated  to)  agree  with
                  Borrower,  from time to time, and without giving notice to, or
                  obtaining  the  consent  of, or  having  any  effect  upon the
                  obligations of, any guarantor or other third party obligor, to
                  take any of the following actions: extend the time for payment
                  of all or any part of the  Indebtedness;  reduce the  payments
                  due  under  this  Instrument,  the  Note,  or any  other  Loan
                  Document; release anyone liable for the payment of any amounts
                  under this  Instrument,  the Note, or any other Loan Document;
                  accept a  renewal  of the Note;  modify  the terms and time of
                  payment  of  the  Indebtedness;   join  in  any  extension  or
                  subordination agreement;  release any Mortgaged Property; take
                  or release  other or additional  security;  modify the rate of
                  interest or period of  amortization  of the Note or change the
                  amount of the monthly installments payable under the Note; and
                  otherwise modify this Instrument,  the Note, or any other Loan
                  Document.

(b)               Any  forbearance  by Lender in exercising  any right or remedy
                  under the Note, this Instrument, or any other Loan Document or
                  otherwise afforded by applicable law, shall not be a waiver of
                  or preclude  the  exercise  of any other right or remedy.  The
                  acceptance  by  Lender  of  payment  of all or any part of the
                  Indebtedness  after  the due  date of such  payment,  or in an
                  amount which is less than the required payment, shall not be a
                  waiver of Lender's right to require prompt payment when due of
                  all  other  payments  on  account  of the  Indebtedness  or to
                  exercise any remedies for any failure to make prompt  payment.
                  Enforcement  by Lender of any  security  for the  Indebtedness
                  shall not  constitute  an election by Lender of remedies so as
                  to  preclude  the  exercise of any other  right  available  to
                  Lender.  Lender's  receipt  of any  awards or  proceeds  under
                  Sections  19 and 20 shall  not  operate  to cure or waive  any
                  Event of Default.

25.               LOAN  CHARGES.  If any  applicable  law limiting the amount of
                  interest  or other  charges  permitted  to be  collected  from
                  Borrower is interpreted so that any charge provided for in any
                  Loan Document,  whether considered separately or together with
                  other  charges  levied  in  connection  with  any  other  Loan
                  Document,  violates  that law, and Borrower is entitled to the
                  benefit  of that law,  that  charge is hereby  reduced  to the
                  extent necessary to eliminate that violation.  The amounts, if
                  any,  previously  paid to Lender  in  excess of the  permitted
                  amounts  shall be applied by Lender to reduce the principal of
                  the Indebtedness.  For the purpose of determining  whether any
                  applicable  law  limiting  the  amount  of  interest  or other
                  charges  permitted  to be  collected  from  Borrower  has been
                  violated, all Indebtedness which constitutes interest, as well
                  as  all  other   charges   levied  in   connection   with  the
                  Indebtedness which constitute interest,  shall be deemed to be
                  allocated and spread over the stated term of the Note.  Unless
                  otherwise  required by  applicable  law, such  allocation  and
                  spreading  shall be effected in such a manner that the rate of
                  interest so computed is uniform  throughout the stated term of
                  the Note.

26.               WAIVER OF STATUTE OF  LIMITATIONS.  Borrower hereby waives the
                  right to assert  any  statute of  limitations  as a bar to the
                  enforcement  of the lien of this  Instrument  or to any action
                  brought to enforce any Loan Document.

27.               WAIVER OF  MARSHALLING.  Notwithstanding  the existence of any
                  other  security  interests in the  Mortgaged  Property held by
                  Lender or by any other  party,  Lender shall have the right to
                  determine  the  order  in  which  any or all of the  Mortgaged
                  Property  shall be subjected to the remedies  provided in this
                  Instrument,  the Note,  any other Loan  Document or applicable
                  law.  Lender  shall have the right to  determine  the order in
                  which any or all portions of the  Indebtedness  are  satisfied
                  from the proceeds realized upon the exercise of such remedies.
                  Borrower  and any party who now or in the  future  acquires  a
                  security interest in the Mortgaged Property and who has actual
                  or constructive  notice of this Instrument  waives any and all
                  right to require the  marshalling of assets or to require that
                  any of the Mortgaged  Property be sold in the inverse order of
                  alienation  or that any of the  Mortgaged  Property be sold in
                  parcels or as an entirety in  connection  with the exercise of
                  any of the remedies permitted by applicable law or provided in
                  this Instrument.

28.               FURTHER ASSURANCES.  Borrower shall execute,  acknowledge, and
                  deliver,  at its sole  cost and  expense,  all  further  acts,
                  deeds,   conveyances,   assignments,   estoppel  certificates,
                  financing  statements,  transfers and assurances as Lender may
                  require  from time to time in order to better  assure,  grant,
                  and convey to Lender the rights intended to be granted, now or
                  in the future,  to Lender under this  Instrument  and the Loan
                  Documents.

29.               ESTOPPEL  CERTIFICATE.  Within 10 days  after a  request  from
                  Lender,  Borrower shall deliver to Lender a written statement,
                  signed and  acknowledged by Borrower,  certifying to Lender or
                  any  person  designated  by  Lender,  as of the  date  of such
                  statement,  (i) that the Loan  Documents are unmodified and in
                  full force and effect (or,  if there have been  modifications,
                  that  the Loan  Documents  are in full  force  and  effect  as
                  modified  and  setting  forth  such  modifications);  (ii) the
                  unpaid principal  balance of the Note; (iii) the date to which
                  interest  under the Note has been paid;  (iv) that Borrower is
                  not in default in paying the  Indebtedness or in performing or
                  observing any of the covenants or agreements contained in this
                  Instrument  or any of the other  Loan  Documents  (or,  if the
                  Borrower is in default,  describing such default in reasonable
                  detail);  (v)  whether  or not  there  are then  existing  any
                  setoffs or defenses known to Borrower  against the enforcement
                  of any right or remedy of Lender under the Loan Documents; and
                  (vi) any additional facts requested by Lender.

30.               GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE.

(a)               This  Instrument,  and any Loan Document which does not itself
                  expressly  identify  the law that is to apply to it,  shall be
                  governed by the laws of the  jurisdiction in which the Land is
                  located (the "Property Jurisdiction").

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

31.               NOTICE.

(a)               All notices, demands and other communications ("notice") under
                  or concerning this Instrument shall be in writing. Each notice
                  shall be addressed  to the  intended  recipient at its address
                  set forth in this Instrument, and shall be deemed given on the
                  earliest  to occur of (1) the date when the notice is received
                  by the addressee;  (2) the first Business Day after the notice
                  is delivered to a recognized  overnight courier service,  with
                  arrangements made for payment of charges for next Business Day
                  delivery;  or (3) the third  Business  Day after the notice is
                  deposited  in the United  States  mail with  postage  prepaid,
                  certified  mail,  return  receipt  requested.  As used in this
                  Section 31, the term "Business Day" means any day other than a
                  Saturday,  a Sunday or any  other  day on which  Lender is not
                  open for business.

(b)               Any party to this  Instrument  may change the address to which
                  notices  intended for it are to be directed by means of notice
                  given to the other party in  accordance  with this Section 31.
                  Each party  agrees that it will not refuse or reject  delivery
                  of any notice given in  accordance  with this Section 31, that
                  it will  acknowledge,  in  writing,  the receipt of any notice
                  upon  request by the other party and that any notice  rejected
                  or refused by it shall be deemed for  purposes of this Section
                  31 to have been received by the rejecting party on the date so
                  refused  or  rejected,  as  conclusively  established  by  the
                  records of the U.S. Postal Service or the courier service.

(c)               Any notice  under the Note and any other Loan  Document  which
                  does not specify how notices are to be given shall be given in
                  accordance with this Section 31.

32.               SALE OF  NOTE;  CHANGE  IN  SERVICER.  The  Note or a  partial
                  interest in the Note  (together  with this  Instrument and the
                  other Loan  Documents)  may be sold one or more times  without
                  prior notice to Borrower. A sale may result in a change of the
                  Loan  Servicer.  There also may be one or more  changes of the
                  Loan  Servicer  unrelated to a sale of the Note. If there is a
                  change of the Loan Servicer,  Borrower will be given notice of
                  the change.

33.               SINGLE ASSET BORROWER. Until the Indebtedness is paid in full,
                  Borrower  (a) shall not acquire any real or personal  property
                  other  than  the  Mortgaged  Property  and  personal  property
                  related to the  operation  and  maintenance  of the  Mortgaged
                  Property;  (b) shall not operate any  business  other than the
                  management  and operation of the Mortgaged  Property;  and (c)
                  shall not maintain its assets in a way  difficult to segregate
                  and identify.

34.               SUCCESSORS AND ASSIGNS BOUND.  This Instrument shall bind, and
                  the rights  granted  by this  Instrument  shall  inure to, the
                  respective  successors  and  assigns of Lender  and  Borrower.
                  However,  a Transfer  not  permitted by Section 21 shall be an
                  Event of Default.

35.               JOINT AND SEVERAL LIABILITY. If more than one person or entity
                  signs this  Instrument as Borrower,  the  obligations  of such
                  persons and entities shall be joint and several.

36.               RELATIONSHIP OF PARTIES; NO THIRD PARTY BENEFICIARY.

(a)               The  relationship  between Lender and Borrower shall be solely
                  that  of  creditor  and  debtor,  respectively,   and  nothing
                  contained   in  this   Instrument   shall   create  any  other
                  relationship between Lender and Borrower.

(b)               No  creditor  of any  party  to this  Instrument  and no other
                  person shall be a third party  beneficiary of this  Instrument
                  or any other Loan Document. Without limiting the generality of
                  the  preceding  sentence,  (1) any  arrangement  (a "Servicing
                  Arrangement")  between  the Lender and any Loan  Servicer  for
                  loss sharing or interim  advancement of funds shall constitute
                  a  contractual  obligation  of  such  Loan  Servicer  that  is
                  independent  of the  obligation of Borrower for the payment of
                  the  Indebtedness,  (2)  Borrower  shall not be a third  party
                  beneficiary of any Servicing  Arrangement,  and (3) no payment
                  by the Loan  Servicer  under any  Servicing  Arrangement  will
                  reduce the amount of the Indebtedness.

37.               SEVERABILITY;  AMENDMENTS.  The invalidity or unenforceability
                  of any  provision  of this  Instrument  shall not  affect  the
                  validity or  enforceability  of any other  provision,  and all
                  other provisions  shall remain in full force and effect.  This
                  Instrument  contains the entire agreement among the parties as
                  to the  rights  granted  and the  obligations  assumed in this
                  Instrument.  This  Instrument  may not be amended or  modified
                  except  by  a  writing   signed  by  the  party  against  whom
                  enforcement is sought.

38.               CONSTRUCTION.  The  captions  and  headings of the sections of
                  this  Instrument  are  for  convenience   only  and  shall  be
                  disregarded in construing  this  Instrument.  Any reference in
                  this Instrument to an "Exhibit" or a "Section"  shall,  unless
                  otherwise  explicitly  provided,  be construed  as  referring,
                  respectively,  to an Exhibit attached to this Instrument or to
                  a Section of this  Instrument.  All  Exhibits  attached  to or
                  referred to in this  Instrument are  incorporated by reference
                  into this  Instrument.  Any reference in this  Instrument to a
                  statute or regulation  shall be construed as referring to that
                  statute or regulation as amended from time to time. Use of the
                  singular in this Agreement  includes the plural and use of the
                  plural includes the singular. As used in this Instrument,  the
                  term "including" means "including, but not limited to."

39.               LOAN  SERVICING.  All actions  regarding  the servicing of the
                  loan  evidenced  by the  Note,  including  the  collection  of
                  payments, the giving and receipt of notice, inspections of the
                  Property,  inspections of books and records,  and the granting
                  of consents and  approvals,  may be taken by the Loan Servicer
                  unless Borrower  receives notice to the contrary.  If Borrower
                  receives  conflicting  notices  regarding  the identity of the
                  Loan  Servicer  or any other  subject,  any such  notice  from
                  Lender shall govern.

40.               DISCLOSURE  OF  INFORMATION.  Lender may  furnish  information
                  regarding  Borrower or the Mortgaged Property to third parties
                  with an existing  or  prospective  interest in the  servicing,
                  enforcement,     evaluation,    performance,    purchase    or
                  securitization of the Indebtedness, including trustees, master
                  servicers,    special   servicers,    rating   agencies,   and
                  organizations  maintaining  databases on the  underwriting and
                  performance   of   multifamily   mortgage   loans.    Borrower
                  irrevocably  waives  any  and all  rights  it may  have  under
                  applicable  law to prohibit  such  disclosure,  including  any
                  right of privacy.

41.               NO CHANGE IN FACTS OR  CIRCUMSTANCES.  All  information in the
                  application  for the  loan  submitted  to  Lender  (the  "Loan
                  Application")  and in all  financial  statements,  rent rolls,
                  reports,   certificates  and  other  documents   submitted  in
                  connection with the Loan Application are complete and accurate
                  in all material  respects.  There has been no material adverse
                  change in any fact or  circumstance  that  would make any such
                  information incomplete or inaccurate.

42.               SUBROGATION.  If, and to the extent that,  the proceeds of the
                  loan  evidenced  by the  Note  are  used  to pay,  satisfy  or
                  discharge any  obligation of Borrower for the payment of money
                  that is secured by a pre-existing  mortgage,  deed of trust or
                  other  lien  encumbering  the  Mortgaged  Property  (a  "Prior
                  Lien"),  such  loan  proceeds  shall be  deemed  to have  been
                  advanced by Lender at  Borrower's  request,  and Lender  shall
                  automatically,  and  without  further  action on its part,  be
                  subrogated  to the rights,  including  lien  priority,  of the
                  owner or holder of the  obligation  secured by the Prior Lien,
                  whether or not the Prior Lien is released.

43.               ACCELERATION; REMEDIES. At any time during the existence of an
                  Event of Default,  Lender, at Lender's option, may declare the
                  Indebtedness to be immediately due and payable without further
                  demand,  and  may  invoke  the  power  of sale  and any  other
                  remedies  permitted  by  applicable  law or  provided  in this
                  Instrument   or  in  any   other   Loan   Document.   Borrower
                  acknowledges that the power of sale granted in this Instrument
                  may be exercised by Lender  without  prior  judicial  hearing.
                  Borrower  has the  right to  bring an  action  to  assert  the
                  non-existence  of an Event of Default or any other  defense of
                  Borrower to acceleration and sale. Lender shall be entitled to
                  collect  all costs and  expenses  incurred  in  pursuing  such
                  remedies,  including  reasonable  attorneys'  fees,  costs  of
                  documentary evidence, abstracts and title reports.

      If Lender  invokes the power of sale and if it is  determined in a hearing
held in accordance with applicable law that Trustee can proceed to sale, Trustee
shall take such action  regarding  notice of sale and shall give such additional
notices to Borrower  and to other  persons as North  Carolina  law may  require.
After the lapse of such time as may be required by applicable  law and after the
publication  of the notice of sale,  Trustee shall sell the  Mortgaged  Property
according to the laws of North Carolina. Trustee may sell the Mortgaged Property
at the time and place and under the terms  designated  in the  notice of sale in
one or more  parcels  and in such order as Trustee  may  determine.  Trustee may
postpone  sale  of  all  or  any  part  of  the  Mortgaged  Property  by  public
announcement at the time and place of any previously  scheduled sale.  Lender or
Lender's designee may purchase the Mortgaged Property at any sale.

      Trustee shall  deliver to the  purchaser at the sale,  within a reasonable
time after the sale, a deed conveying the Mortgaged Property so sold without any
covenant or warranty,  express or implied.  The recitals in Trustee's deed shall
be prima facie  evidence of the truth of the  statements  made therein.  Trustee
shall apply the proceeds of the sale in the  following  order:  (a) to all costs
and expenses of the sale, including Trustee's fees not to exceed 5% of the gross
sales price,  reasonable fees and out-of-pocket  expenses of attorneys and costs
of title evidence;  (b) to the Indebtedness in such order as Lender, in Lender's
discretion,  directs;  and (c) the  excess,  if any,  to the  person or  persons
legally entitled thereto.

44. RELEASE.  Upon payment of the  Indebtedness,  Lender or Trustee shall cancel
this  Instrument.  Borrower shall pay the reasonable costs incurred in canceling
this  Instrument.  If Trustee is requested to cancel this  Instrument,  the Note
shall be surrendered to Trustee.

45. SUBSTITUTE TRUSTEE.  Lender may from time to time remove Trustee and appoint
a  successor  trustee  to any  Trustee  appointed  under this  Instrument  by an
instrument recorded in the county in which this Instrument is recorded.  Without
conveyance of the Mortgaged Property, the successor trustee shall succeed to all
the title, powers and duties conferred upon the Trustee herein and by applicable
law.

46. ENVIRONMENTAL  INDEMNITY.  Section 18(n)(3) is deleted and the following new
provision is inserted in its place:

      "reimburse  Indemnitees  for any and all  expenses,  including  reasonable
attorneys' fees and out-of-pocket  expenses and fees and out-of-pocket  expenses
of expert  witnesses,  paid or incurred in connection  with the  enforcement  by
Indemnitees  of their  rights  under  this  Section  18,  or in  monitoring  and
participating in any legal or administrative proceeding."

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

      ATTACHED   EXHIBITS.   The  following  Exhibits  are  attached  to  this
Instrument:

            -----
             X       Exhibit A     Description of the Land (required)
            -----

            -----
             X       Exhibit B     Modifications to Instrument
            -----

      IN WITNESS  WHEREOF,  Borrower has signed and delivered this Instrument or
has caused this  Instrument  to be signed and  delivered by its duly  authorized
representative, as a sealed instrument.



<PAGE>


                                    DAVIDSON INCOME REAL ESTATE, L.P., a
                                       Delaware limited partnership

                                    By:   Davidson Diversified Properties,
                                             Inc., a Tennessee corporation,
                                             its managing general partner



                                          By:/s/Patti K. Fielding
                                             Patti K. Fielding
                                             Executive Vice President



STATE OF COLORADO, CITY/COUNTY OF DENVER ss:

      On this 31st day of October 2003,  personally  came before me, Cathleen M.
O'Donnell,  a Notary Public of the County of Denver,  State of Colorado Patti K.
Fielding, who, being by me duly sworn, says that she is Executive Vice President
of Davidson  Diversified  Properties,  Inc., a Tennessee  corporation,  managing
general  partner of  Davidson  Income  Real  Estate,  L.P.,  a Delaware  limited
partnership,  and that the foregoing instrument was duly executed by her for and
on behalf of said partnership. And said partnership acknowledged said instrument
to be the act and deed of said partnership.

      Witness my hand and official seal.

My Commission Expires: August 2, 2006

      ______                              /s/Cathleen M. O'Donnell
      ______                              Cathleen M. O'Donnell
      ______                              Notary





<PAGE>


                                  KEY PRINCIPAL


Name:       AIMCO Properties, L.P.

Address:    Stanford Place 3
            4582 S. Ulster St. Parkway
            Suite 1100
      ______Denver, Colorado  80237


<PAGE>

                                                                 Exhibit 10UU(d)

                                                             Lakeside Apartments

                  REPLACEMENT RESERVE AND SECURITY AGREEMENT


      This REPLACEMENT RESERVE AND SECURITY AGREEMENT (this "Agreement") is made
this 3rd day of November,  2003 by DAVIDSON INCOME REAL ESTATE, L.P., a Delaware
limited partnership  ("Borrower"),  and GMAC COMMERCIAL MORTGAGE CORPORATION,  a
California corporation, its successors, transferees and assigns ("Lender").

                                    RECITALS:


A. This  Agreement  is being  executed  in  connection  with  Lender's  making a
mortgage loan to Borrower in the original principal amount of $2,875,000.00 (the
"Loan"). The proceeds of the Loan will be used to finance a 216 unit multifamily
project  known as Lakeside  Apartments,  and located in  Charlotte  (Mecklenburg
County), North Carolina (the "Property").

B. The Loan is evidenced  by a  Multifamily  Note  (including  any addenda,  the
"Note"), and is secured by a Multifamily Deed of Trust,  Assignment of Rents and
Security Agreement (including any riders, the "Security  Instrument") granting a
lien on the Property.  The Note,  Security  Instrument,  this  Agreement and all
other documents  executed in connection with the Loan are collectively  referred
to as the "Loan Documents."

C. Lender  requires as a condition to the making of the Loan that Borrower enter
into this Agreement.  Lender has initially  agreed to either  partially or fully
waive its standard  requirements that Borrower fund a replacement reserve on the
condition  that  Borrower  agrees that Lender may later impose upon Borrower the
requirement  to fund such  replacement  reserve in accordance  with the terms of
this  Agreement.  All  deposits to Lender  required by this  Agreement  shall be
additional security for all of Borrower's obligations under the Loan Documents.

D. Lender intends to sell, transfer and deliver the Note and assign the Security
Instrument and other Loan Documents to Fannie Mae.

                                   AGREEMENT:

      NOW,  THEREFORE,  in  consideration  of the above and the mutual  promises
contained  in  this  Agreement,   the  receipt  and  sufficiency  of  which  are
acknowledged, Borrower and Lender agree as follows:

1. Deposits to the Replacement Reserve

(a)  Concurrently  with the execution of this Agreement,  Borrower shall deposit
with Lender the sum of $0.00 (the "Initial Deposit").

(b) Subject to the provisions of Sections 1(e), 2, 10 and 16 of this  Agreement,
on each date that a regularly  scheduled payment of principal or interest is due
under the Note,  Borrower  shall  deposit  with  Lender the  applicable  Monthly
Deposit (as defined in Section 1(c) of this Agreement).

(c) The "Monthly  Deposit" required to be made each month during the term of the
Loan is set forth below:

Amount of Monthly Deposit Period

$6,426.00  January 1, 2004  through  the date that all  amounts  due and payable
under the Note and Security Instrument have been paid in full.

(d) Lender  shall  deposit any  Initial  Deposit and each  Monthly  Deposit,  as
received, in an interest-bearing account (the "Replacement Reserve") which meets
the standards  for  custodial  accounts as required by Lender from time to time.
(The Initial  Deposit,  if any, the Monthly  Deposits and all other funds in the
Replacement Reserve are referred to collectively as the "Replacement  Reserve".)
Lender or a  designated  representative  of Lender  shall have the sole right to
make  withdrawals  from  such  account.  All  interest  earned  on  funds in the
Replacement  Reserve  shall  be  added  to and  become  part of the  Replacement
Reserve.  Lender  shall not be  responsible  for any losses  resulting  from the
investment of the  Replacement  Reserve or for  obtaining any specific  level or
percentage  of earnings on such  investment.  If  applicable  law  requires  and
provided  that no  default  or Event of  Default  exists  under  any of the Loan
Documents,  Lender shall pay to Borrower the interest  earned on the Replacement
Reserve once each year.

(e) On the date of this Agreement Lender has agreed to partially  reduce,  defer
or fully  waive  Borrower's  obligation  to make full  Monthly  Deposits  to the
Replacement  Reserve  specified in Section  1(c) and (d) above.  Notwithstanding
Sections 1(c) and (d) above,  Borrower shall be required to deposit the "Reduced
Monthly Deposit" each month during the term of the Loan as set forth below:

Amount of Monthly Deposit Period

$0.00  January 1, 2004  through the date that all amounts due and payable  under
the Note and Security Instrument have been paid in full.

In the event that (i) at any time  during the Loan term Lender  shall  determine
that the Property is not being  maintained in accordance  with the  requirements
set forth in the  Security  Instrument,  or (ii) a default  or Event of  Default
otherwise occurs under this Agreement or any of the other Loan Documents,  then,
upon the earlier of the (x) the date specified by Lender in written notice given
to Borrower by Lender or a designated representative of Lender, or (y) the first
day of the first  calendar  month after a default or Event of Default under this
Agreement or any of the Loan Documents,  Borrower shall commence making the full
Monthly Deposits  specified in Section 1(c) of this Agreement or in such written
notice,  beginning on such date and continuing on the first day of each calendar
month thereafter during the remaining term of the Loan.

2. Loans with Terms Over 10 Years.  If the Loan term exceeds 10 years,  then, no
earlier  than the 6th  month and no later  than the 9th month of the year  which
commences on the 10th  anniversary  of the date of this  Agreement (and the 20th
anniversary of the date of this Agreement if the Loan term exceeds 20 years),  a
physical  needs  assessment  shall be performed on the Property by Lender at the
expense  of  Borrower,  which  expense  may be  paid  of out of the  Replacement
Reserve. If determined  necessary by Lender,  after review of the physical needs
assessment,  Borrower's required Monthly Deposits to the Replacement Reserve set
forth above shall be adjusted  for the  remaining  Loan term so that the Monthly
Deposits will create a Replacement Reserve that will in Lender's  determination,
be sufficient to meet required Replacements (defined below).

3. Replacement Reserve is Additional Security.

(a) Borrower  assigns to Lender the Replacement  Reserve as additional  security
for all of the  Borrower's  obligations  under  the  Loan  Documents;  provided,
however,  Lender  shall  make  disbursements  from the  Replacement  Reserve  in
accordance with the terms of this Agreement.

(b) Except as  otherwise  provided in Sections  4(f) and 6.1 of this  Agreement,
Lender  shall make  disbursements  from the  Replacement  Reserve  to  reimburse
Borrower for the costs of those items  listed on Exhibit A (the  "Replacements")
in accordance with the provisions of Section 4. Lender shall not be obligated to
make  disbursements  from the Replacement  Reserve to reimburse Borrower for the
costs of  routine  maintenance  to the  Property  or for  costs  which are to be
reimbursed from funds deposited with Lender pursuant to a Completion/Repair  and
Security Agreement or any similar agreement.

4. Disbursements from Replacement Reserve.

(a) Upon written request from Borrower and  satisfaction of the requirements set
forth in Sections 4 and 5 of this  Agreement,  Lender shall disburse to Borrower
amounts from the  Replacement  Reserve  necessary to reimburse  Borrower for the
actual approved costs of the Replacements. Lender shall not be obligated to make
disbursements  from the Replacement  Reserve to reimburse Borrower for the costs
of routine  maintenance  to the Property or for costs which are to be reimbursed
from funds  deposited with Lender pursuant to a  Completion/Repair  and Security
Agreement  or any similar  agreement.  In no event shall  Lender be obligated to
disburse  funds  from the  Replacement  Reserve if a default or Event of Default
exists under this Agreement or any of the other Loan Documents.

(b) Each request for  disbursement  from the  Replacement  Reserve shall be in a
form  specified  or  approved  by Lender  and  shall  include  (i) the  specific
Replacements  for which the  disbursement  is  requested,  (ii) the quantity and
price of each item  purchased,  if the  Replacement  includes  the  purchase  or
replacement of specific items, (iii) the price of all materials (grouped by type
or category) used in any  Replacement  other than the purchase or replacement of
specific  items,  and (iv) the cost of all  contracted  labor or other  services
applicable to each  Replacement for which such request for disbursement is made.
With each request,  Borrower shall certify that all Replacements  have been made
in accordance  with all  applicable  laws,  ordinances,  and  regulations of any
governmental  office or authority having  jurisdiction  over the Property.  Each
request for  disbursement  shall  include  copies of  invoices  for all items or
materials  purchased and all contracted  labor or services  provided and, unless
Lender has agreed to issue joint checks  pursuant to Section 4(d) in  connection
with a particular Replacement,  each request shall include evidence satisfactory
to Lender of payment of all such amounts.

(c) Each request for  disbursement  from the  Replacement  Reserve shall be made
only after  completion of the Replacement  for which  disbursement is requested.
Borrower shall provide Lender evidence  satisfactory to Lender in its reasonable
judgment, of completion.

(d) If the cost of a Replacement exceeds $2,500.00 and the contractor performing
the Replacement  requires  periodic  payments pursuant to the terms of a written
contract,  Lender at its discretion may approve in writing periodic payments for
work  performed  under  such  contract.  A request  for  reimbursement  from the
Replacement  Reserve may be made after completion of a portion of the work under
such contract,  provided (i) such contract  requires  payment upon completion of
such portion of work,  (ii) the  materials  for which the request is made are on
site at the  Property  and are  properly  secured or have been  installed in the
Property,  (iii) all other  conditions in this Agreement for  disbursement  have
been satisfied, (iv) funds remaining in the Replacement Reserve are, in Lender's
judgment,  sufficient to complete such  Replacement  and the other  Replacements
when required and (v) if required by Lender,  each  contractor or  subcontractor
receiving  payments  under  such  contract  shall  provide a waiver of lien with
respect to amounts which have been paid to that contractor or subcontractor.

(e)  Borrower  shall not make a request for  disbursement  from the  Replacement
Reserve more  frequently than once in any quarter and (except in connection with
the final  disbursement) the total cost of all Replacements in any request shall
not be less than $5,000.00.

(f) In the event Borrower requests a disbursement  from the Replacement  Reserve
to reimburse  Borrower for labor or materials  for  replacements  other than the
Replacements  specified  on Exhibit A,  Borrower  shall  disclose  in writing to
Lender  why  funds in the  Replacement  Reserve  should  be used to pay for such
replacements.  If  Lender  determines  that  such  replacements  are of the type
intended to be covered by this Agreement,  the costs for such  replacements  are
reasonable,  and all other conditions for disbursement under this Agreement have
been met,  Lender may at its  discretion  disburse  funds  from the  Replacement
Reserve.

5. Performance of Replacements.

5.1   Workmanlike Completion

(a)  Borrower  shall make each  Replacement  when  required in order to keep the
Property in good order and repair and in a good marketable condition and to keep
the Property or any portion thereof from deteriorating.  Borrower shall complete
all  Replacements  in a good  and  workmanlike  manner  as soon  as  practicable
following the commencement of making each such Replacement.

(b) Lender  shall have the right to approve  all  contracts  or work orders with
materialmen, mechanics, suppliers, subcontractors,  contractors or other parties
providing labor or materials in connection with the Replacements.  Upon Lender's
request, Borrower shall assign any contract or subcontract to Lender.

(c) In the event Lender  determines in its sole  discretion that any Replacement
is not being  performed or completed in a workmanlike or timely  manner,  Lender
shall  have  the  option  to  withhold   disbursement  for  such  unsatisfactory
Replacement,  and may proceed  under  existing  contracts or contract with third
parties to complete such Replacement and to apply the Replacement Reserve toward
the  labor  and  materials  necessary  to  complete  such  Replacement,  without
providing  any  prior  notice  to  Borrower  and to  exercise  any and all other
remedies available to Lender upon a default or Event of Default.

(d)  If at any  time  during  the  term  of the  Loan,  Lender  determines  that
replacements  not listed on Exhibit A are advisable to keep the Property in good
order and repair and in a good marketable condition, or to prevent deterioration
of the Property (the "Additional Replacements") Lender may send Borrower written
notice of the need for  making  such  Additional  Replacements.  Borrower  shall
promptly commence making such Additional Replacements in accordance with all the
requirements  of the Security  Instrument.  Reimbursement  from the  Replacement
Reserve for such  Additional  Replacements  shall not be made unless  Lender has
determined  to do so  pursuant  to  Section  4(f).  Except  for  Section  4, all
references in this  Agreement to  "Replacements"  shall include the  "Additional
Replacements."

(e) In order to  facilitate  Lender's  completion  or  making  the  Replacements
pursuant  to Sections  5(c) and (d) above,  Lender is granted the right to enter
onto the Property  and perform any and all work and labor  necessary to complete
or make the  Replacements  and employ  watchmen  to protect  the  Property  from
damage.  All sums so expended by Lender shall be deemed to have been advanced to
Borrower  and secured by the  Security  Instrument.  For this  purpose  Borrower
constitutes and appoints Lender its true and lawful  attorney-in-fact  with full
power of substitution  to complete or undertake the  Replacements in the name of
Borrower.  Borrower empowers said  attorney-in-fact  as follows:  (i) to use any
funds in the  Replacement  Reserve for the purpose of making or  completing  the
Replacements;  (ii) to make  such  additions,  changes  and  corrections  to the
Replacements  as shall be necessary  or desirable to complete the  Replacements;
(iii)  to  employ  such  contractors,  subcontractors,  agents,  architects  and
inspectors  as shall be  required  for such  purposes;  (iv) to pay,  settle  or
compromise  all existing  bills and claims which are or may become liens against
the  Property,  or as may be necessary or desirable  for the  completion  of the
Replacements, or for the clearance of title; (v) to execute all applications and
certificates  in the  name  of  Borrower  which  may be  required  by any of the
contract  documents;  (vi) to prosecute and defend all actions or proceedings in
connection with the Property or the  rehabilitation  and repair of the Property;
and (vii) to do any and every act which  Borrower  might do in its own behalf to
fulfill the terms of this Agreement.

It is further understood and agreed that this power of attorney,  which shall be
deemed to be a power  coupled  with an  interest,  cannot be  revoked.  Borrower
specifically agrees that all power granted to Lender under this Agreement may be
assigned by it to its successors or assigns as holder of the Note.

(f)  Nothing  in this  Section 5 shall  make  Lender  responsible  for making or
completing the  Replacements,  require Lender to expend funds in addition to the
Replacement  Reserve to make or complete  any  Replacement,  obligate  Lender to
proceed  with the  Replacements,  or  obligate  Lender to demand  from  Borrower
additional sums to make or complete any Replacement.

5.2   Entry Onto Property; Inspections.

(a)  Borrower  shall permit  Lender or Lender's  representatives  (including  an
independent  person  such as an  engineer,  architect,  or  inspector)  or third
parties making Replacements pursuant to Section 5.1 of this Agreement,  to enter
onto the Mortgaged  Property during normal business hours (subject to the rights
of tenants under their leases) to inspect the progress of any  Replacements  and
all materials being used in connection therewith,  to examine all plans and shop
drawings relating to such Replacements which are or may be kept at the Property,
and to complete any replacements  made pursuant to Section 5.1.  Borrower agrees
to cause all contractors and subcontractors  reasonably to cooperate with Lender
or Lender's  representatives or such other persons described above in connection
with inspections described in this Section 5.2 or the completion of Replacements
pursuant to Section 5.1. (b) Lender may inspect the Property in connection  with
any Replacement prior to disbursing funds from the Replacement Reserve.  Lender,
at  Borrower's  expense,  also  may  require  an  inspection  by an  appropriate
independent  qualified   professional  selected  by  Lender  and  a  copy  of  a
certificate of completion by an independent qualified professional acceptable to
Lender prior to the  disbursement of any amounts from the  Replacement  Reserve.
Borrower shall pay Lender a reasonable  inspection fee not exceeding $300.00 for
each such inspection.

5.3   Lien-Free Completion.

(a)  Borrower  covenants  and  agrees  that  each  of the  Replacements  and all
materials,  equipment,  fixtures,  or any other  item  comprising  a part of any
Replacement shall be constructed,  installed or completed,  as applicable,  free
and clear of all  mechanic's,  materialman's  or other  liens  (except for those
liens existing on the date of this Agreement which have been approved in writing
by Lender).

(b) Prior to each disbursement from the Replacement Reserve,  Lender may require
Borrower to provide  Lender with a search of title to the Property  effective to
the date of the release,  which search shows that no mechanic's or materialmen's
liens or other liens of any nature have been placed  against the Property  since
the  date  this  Agreement  (other  than  liens  which  Borrower  is  diligently
contesting in good faith and which have been bonded off to the  satisfaction  of
Lender)  and that title to the  Property  is free and clear of all liens  (other
than the lien of the Security Instrument and any other liens previously approved
in writing by the Lender, if any).

(c) In addition, as a condition to any disbursement, Lender may require Borrower
to obtain from each contractor, subcontractor, or materialman an acknowledgement
of payment and release of lien for work  performed and materials  supplied.  Any
such acknowledgement and release shall conform to the requirements of applicable
law and  shall  cover  all work  performed  and  materials  supplied  (including
equipment and fixtures) for the Property by that  contractor,  subcontractor  or
materialman through the date covered by the current  reimbursement  request (or,
in the event that payment to such contractor, subcontractor or materialmen is to
be made by a joint  check,  the release of lien shall be  effective  through the
date covered by the previous release of funds request.)

5.4   Compliance with Laws and Insurance Requirements.

(a) All Replacements  shall comply with all applicable laws,  ordinances,  rules
and regulations of all governmental  authorities  having  jurisdiction  over the
Property and applicable insurance  requirements  including,  without limitation,
applicable building codes, special use permits,  environmental regulations,  and
requirements of insurance underwriters.

(b) In  addition  to any  insurance  required  under  the  Security  Instrument,
Borrower shall provide or cause to be provided worker's compensation  insurance,
builder's risk, and public liability insurance and other insurance to the extent
required under applicable law in connection with a particular  Replacement.  All
such  policies  shall be in form and amount  satisfactory  to  Lender.  All such
policies  which can be endorsed  with  standard  mortgagee  clauses  making loss
payable to Lender or its assigns  shall be so  endorsed.  The  originals of such
policies shall be delivered to Lender.

6. Default.

6.1  Default  Under This  Agreement.  Borrower  shall be in  default  under this
Agreement if it fails to comply with any  provision of this  Agreement  and such
failure  is not  cured  within  10  days  after  notice  from  Lender.  Borrower
understands  that a default under this Agreement  shall be deemed to be an Event
of Default under the Security  Instrument,  and that in addition to the remedies
specified in this Agreement,  Lender shall be able to exercise all of its rights
and remedies under the Security Instrument upon an Event of Default.

6.2   Application of Replacement Reserve Upon Default.

(a) Upon the occurrence of a default under this Agreement or an Event of Default
under the Security Instrument, Borrower shall immediately lose all of its rights
to  receive  disbursements  from the  Replacement  Reserve  unless and until all
amounts  secured by the Security  Instrument  have been paid and the lien of the
Security  Instrument has been released by Lender. Upon any such default or Event
of Default, Lender may in its sole and absolute discretion,  use the Replacement
Reserve (or any portion  thereof) for any purpose,  including but not limited to
(i) repayment of any indebtedness secured by the Security Instrument,  including
but not limited to principal  prepayments and the prepayment  premium applicable
to such full or partial prepayment (as applicable); provided, however, that such
application of funds shall not cure or be deemed to cure any default or Event of
Default;  (ii)  reimbursement of Lender for all losses and expenses  (including,
without  limitation,  reasonable legal fees) suffered or incurred by Lender as a
result of such default or Event of Default;  (iii) completion of the Replacement
as  provided  in Section  5.1,  or for any other  repair or  replacement  to the
Property;  or (iv) payment of any amount  expended in exercising  (and exercise)
all rights and  remedies  available  to Lender at law or in equity or under this
Agreement or under any of the other Loan Documents.

(b) Nothing in this Agreement  shall obligate Lender to apply all or any portion
of the  Replacement  Reserve on  account  of any  default or Event of Default by
Borrower or to repayment of the indebtedness  secured by the Security Instrument
or in any specific order of priority.

7.  Borrower's  Other  Obligations.  Nothing  contained in this Agreement  shall
alter, impair or affect the obligations of Borrower,  or relieve Borrower of any
of its  obligations  to make  payments and perform all of its other  obligations
required under the Loan Documents.

8.  Remedies  Cumulative.  None of the rights  and  remedies  conferred  upon or
reserved to Lender under this Agreement is intended to be exclusive of any other
rights, and each and every right shall be cumulative and concurrent,  and may be
enforced separately, successively or together, and may be exercised from time to
time as often as may be deemed necessary Lender.

9.  Enforcement of Agreement.  This Agreement is executed by Borrower and Lender
for the benefit of Lender.  Borrower  understands  and agrees that in connection
with the anticipated  sale or assignment and delivery of the Loan to Fannie Mae,
this Agreement may be assigned to Fannie Mae.

10. Balance in the Replacement  Reserve. The insufficiency of any balance in the
Replacement  Reserve shall not abrogate the Borrower's  agreement to fulfill all
preservation and maintenance covenants in the Loan Documents.  In the event that
the balance of the Replacement  Reserve is less than the current  estimated cost
to make the  Replacements  required by the Lender,  Borrower  shall  deposit the
shortage  within 10 days of request by Lender.  In the event  Lender  determines
from time to time based on Lender's inspections,  that the amount of the Monthly
Deposit is  insufficient  to fund the cost of likely  Replacements  and  related
contingencies  that may arise during the remaining term of the Loan,  Lender may
require an  increase in the amount of the  Monthly  Deposits  upon 30 days prior
written notice to Borrower.

11.  Indemnification.  Borrower  agrees to  indemnify  Lender and to hold Lender
harmless  from  and  against  any  and  all  actions,  suits,  claims,  demands,
liabilities,  losses,  damages,  obligations  and costs and expenses  (including
litigation costs and reasonable attorneys' fees and expenses) arising from or in
any way connected  with the  performance of the  Replacements  or the holding or
investment of the Replacement Reserve. Borrower assigns to Lender all rights and
claims  Borrower  may have  against all persons or entities  supplying  labor or
materials in connection with the Replacements;  provided,  however,  that Lender
may not  pursue  any such  right or claim  unless a default  or Event of Default
exists under this Agreement or the Security Instrument.

12.  Determinations  by Lender.  In any  instance  in this  Agreement  where the
consent  or  approval  of  Lender  may be given  or is  required,  or where  any
determination,  judgment or  decision  is to be  rendered  by Lender  under this
Agreement,  the granting,  withholding or denial of such consent or approval and
the  rendering  of such  determination,  judgment or  decision  shall be made or
exercised by Lender (or its designated representative) at its discretion.

13.  Borrower's  Records.  Borrower  shall  furnish such  financial  statements,
invoices,  records,  papers and documents relating to the Property as Lender may
reasonably  require  from time to time to make the  determinations  permitted or
required to be made by Lender under this Agreement.

14. Fees and Expenses.

(a) In  addition to any other fees  payable by Borrower to Lender in  connection
with the Loan,  Borrower  shall  pay  Lender  an  annual  fee of $50.00  for its
services in administering the Replacement  Reserve and investing the Replacement
Reserve.  The  annual  fee  shall be due and  payable  by  Borrower  on the date
specified in a statement to Borrower regarding such fee.

(b) Borrower  shall pay within 10 days of request from Lender (i) all reasonable
costs and expenses incurred by Lender in connection with collecting, holding and
disbursing the  Replacement  Reserve  pursuant to this  Agreement,  and (ii) all
reasonable fees,  charges,  costs and expenses  incurred by Lender in connection
with  inspections  made by Lender or Lender's  representatives  in carrying  out
Lender's responsibility to make certain determinations under this Agreement.

15.  Completion  of  Replacements.  Lender's  approval  of  any  plans  for  any
Replacement,  release of funds from the Replacement  Reserve,  inspection of the
Property by Lender or Lender's agents, or other  acknowledgment of completion of
any  Replacement  in a manner  satisfactory  to  Lender  shall  not be deemed an
acknowledgment or warranty to any person that the Replacement has been completed
in  accordance  with  applicable  building,  zoning or other codes,  ordinances,
statutes, laws, regulations or requirements of any governmental agency.

16. Transfer of Property/Transfer of Interests in Borrower.  If a Transfer shall
occur or be contemplated,  which Transfer  requires the prior written consent of
Lender pursuant to the terms of the Security  Instrument,  Lender may review the
amount of the Replacement  Reserve,  the amount of the Monthly  Deposits and the
likely  repairs  and  replacements  required  by the  Property  and the  related
contingencies  which may arise during the remaining term of the Loan. Based upon
that  review,  Lender may  require  an  additional  deposit  to the  Replacement
Reserve, and/or an increase in the amount of the Monthly Deposits as a condition
to Lender's  consent to such Transfer.  In all events,  the transferee  shall be
required to assume Borrower's duties and obligations under this Agreement.

17.  Termination  of  Replacement  Reserve.  After  payment  in full of all sums
secured  by the  Security  Instrument  and  release by Lender of the lien of the
Security Instrument,  Lender shall disburse to Borrower all amounts remaining in
the Replacement Reserve.

18. Entire Agreement; Amendment and Waiver. This Agreement contains the complete
and entire  understanding of the parties with respect to the matters covered and
no change or amendment  shall be valid unless it is made in writing and executed
by the parties to this  Agreement.  No specific  waiver or  forbearance  for any
breach of any of the terms of this  Agreement  shall be  considered as a general
waiver of that or any other term of this  Agreement.  If any  provision  of this
Agreement is in conflict with any provision of the Security Instrument regarding
the  Replacement  Reserve,  the  provision  contained  in this  Agreement  shall
control.

19.  Notices.  All notices under this Agreement shall be given in writing to the
other  party  at the  address,  and  in the  manner,  provided  in the  Security
Instrument.

20.  Severability.  The  invalidity,  illegality,  or  unenforceability  of  any
provision  of this  Agreement  pursuant to judicial  decree shall not affect the
validity or  enforceability  of any other  provision of this  Agreement,  all of
which shall remain in full force and effect.

21.  Applicable  Law.  This  Agreement  shall be  governed by and  construed  in
accordance with the laws of the jurisdiction in which the Property is located.

22. Non-Recourse. This Agreement is being executed in connection with the making
of the Loan pursuant to the terms of the Note.  Borrower's  liability  hereunder
shall be limited to the extent provided in the Note.

23.  Capitalized  Terms.  Any  capitalized  terms used in this Agreement and not
specifically  defined herein,  shall have the meanings set forth in the Security
Instrument.

      ATTACHED   EXHIBITS.   The  following  Exhibits  are  attached  to  this
Agreement:

            -----
             X       Exhibit A     Schedule of Work
            -----

            -----
             X       Exhibit B     Modifications
            -----


      Borrower  and Lender have  executed  this  Agreement  on the date and year
first above written.


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<PAGE>


                                    BORROWER:

                                    DAVIDSON INCOME REAL ESTATE, L.P., a
                                       Delaware limited partnership

                                    By:   Davidson Diversified Properties,
                                             Inc., a Tennessee corporation,
                                             its managing general partner



                                          By: /s/Patti K. Fielding
                                             Patti K. Fielding
                                             Executive Vice President




<PAGE>


                                     LENDER:

                                    GMAC COMMERCIAL MORTGAGE CORPORATION, a
                                       California corporation



                                          By: /s/James J. Burton
                                       Name: James J. Burton
                                       Title: Senior Vice President