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



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

                                   Form 10-QSB

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

                   For the quarterly period ended March 31, 2001


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


                For the transition period from _________to _________

                         Commission file number 0-14530


                         DAVIDSON INCOME REAL ESTATE, L.P.
         (Exact name of small business issuer as specified in its charter)



         Delaware                                           62-1242144
(State or other jurisdiction of                          (I.R.S. Employer
 incorporation or organization)                         Identification No.)

                          55 Beattie Place, PO Box 1089
                        Greenville, South Carolina 29602
                      (Address of principal executive offices)

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


Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act  during the  preceding  12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days. Yes X No___



<PAGE>



                         PART I - FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

a)

                         DAVIDSON INCOME REAL ESTATE, L.P.

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

                                 March 31, 2001

<TABLE>
<CAPTION>


Assets
<S>                                                                          <C>
   Cash and cash equivalents                                                 $  468
   Receivables and deposits                                                     140
   Restricted escrows                                                           254
   Other assets                                                                 260
   Investment in joint venture                                                   76
   Investment properties:
       Land                                                  $ 4,120
       Buildings and related personal property                 22,284
                                                               26,404
       Less accumulated depreciation                          (13,314)       13,090
                                                                           $ 14,288
Liabilities and Partners' (Deficit) Capital
Liabilities
   Accounts payable                                                          $ 90
   Tenant security deposit liabilities                                           69
   Accrued property taxes                                                       165
   Other liabilities                                                            254
   Mortgage notes payable                                                    12,867

Partners' (Deficit) Capital
   General partners                                           $ (746)
   Limited partners (26,776 units issued and
      outstanding)                                              1,589           843
                                                                           $ 14,288


            See Accompanying Notes to Consolidated Financial Statements

</TABLE>

<PAGE>

b)

                         DAVIDSON INCOME REAL ESTATE, L.P.

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

<TABLE>
<CAPTION>

                                                               Three Months Ended
                                                                    March 31,
                                                               2001          2000
Revenues:
<S>                                                           <C>           <C>
   Rental income                                              $1,168        $1,207
   Other income                                                   63            53
      Total revenues                                           1,231         1,260

Expenses:
   Operating                                                     552           462
   General and administrative                                     58            37
   Depreciation                                                  267           255
   Interest                                                      259           246
   Property taxes                                                116            95
      Total expenses                                           1,252         1,095

(Loss) income before equity in income of joint venture           (21)          165
Equity in income of joint venture                                 29            16

Net income                                                      $ 8          $ 181

Net income allocated to general partners (3%)                  $ --           $ 5
Net income allocated to limited partners (97%)                     8           176

                                                                $ 8          $ 181

Net income per limited partnership unit                       $ 0.30        $ 6.57

Distributions per limited partnership unit                    $ 6.76         $ --

            See Accompanying Notes to Consolidated Financial Statements

</TABLE>

<PAGE>


c)

                         DAVIDSON INCOME REAL ESTATE, L.P.

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



                                     Limited
                                   Partnership   General      Limited
                                      Units      Partners    Partners       Total

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

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

Distributions to partners                 --          (6)        (181)        (187)

Net income for the three months
   ended March 31, 2001                   --          --            8            8

Partners' (deficit) capital
   at March 31, 2001                  26,776      $ (746)     $ 1,589       $ 843


            See Accompanying Notes to Consolidated Financial Statements

</TABLE>

<PAGE>

d)

                         DAVIDSON INCOME REAL ESTATE, L.P.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                          (in thousands, except unit data)

<TABLE>
<CAPTION>

                                                                 Three Months Ended
                                                                       March 31,
                                                                  2001        2000
Cash flows from operating activities:
<S>                                                               <C>         <C>
  Net income                                                      $ 8         $ 181
  Adjustments to reconcile net income to net cash
   provided by operating activities:
   Depreciation                                                     267         255
   Amortization of discounts and loan costs                          16          21
   Equity in income of joint venture                                (29)        (16)
   Change in accounts:
      Receivables and deposits                                       59         172
      Other assets                                                  (54)        (35)
      Accounts payable                                              (30)        (44)
      Tenant security deposit liabilities                            (3)         (4)
      Accrued property taxes                                       (107)       (197)
      Other liabilities                                              43         (37)
       Net cash provided by operating activities                    170         296

Cash flows from investing activities:
  Property improvements and replacements                           (128)       (308)
  Net withdrawals from (deposits to) restricted escrows              22         (18)
  Distributions from joint venture                                   62          33
       Net cash used in investing activities                        (44)       (293)

Cash flows from financing activities:
  Payments on mortgage notes payable                                (37)        (39)
  Distributions to partners                                        (187)       (380)
  Loan costs paid                                                    (7)         --
       Net cash used in financing activities                       (231)       (419)

Net decrease in cash and cash equivalents                          (105)       (416)

Cash and cash equivalents at beginning of period                    573       1,675
Cash and cash equivalents at end of period                       $ 468       $1,259

Supplemental disclosure of cash flow information:
  Cash paid for interest                                         $ 230        $ 225


            See Accompanying Notes to Consolidated Financial Statements

</TABLE>

<PAGE>

e)

                         DAVIDSON INCOME REAL ESTATE, L.P.

                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


Note A - Basis of Presentation

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

Principles of Consolidation

The  consolidated  financial  statements  of the  Partnership  include  its 100%
ownership  interests  in the  following  partnerships:  Bexley  House,  L.P. and
Davidson IRE  Associates,  L.P. All significant  interpartnership  balances have
been eliminated.

Note B - Transactions with Affiliated Parties

The  Partnership  has no employees  and is  dependent  on the  Managing  General
Partner  and  its  affiliates  for  the  management  and  administration  of all
Partnership  activities.  The Partnership Agreement provides for (i) payments to
affiliates for services and (ii)  reimbursement of certain expenses  incurred by
affiliates on behalf of the  Partnership.  The following  transactions  with the
Managing  General  Partner and/or its affiliates  were incurred during the three
months ended March 31, 2001 and 2000:

                                                                  2001      2000
                                                                  (in thousands)
 Property management fees (included in operating expenses)        $ 64      $ 64
 Reimbursement for services of affiliates (included in
   general and administrative expense)                              56        21

During  the three  months  ended  March 31,  2001 and  2000,  affiliates  of the
Managing  General Partner were entitled to receive 5% of gross receipts from all
of  the  Partnership's   properties  as  compensation  for  providing   property
management  services.  The  Partnership  paid to such  affiliates  approximately
$64,000 for both the three months ended March 31, 2001 and 2000.

An  affiliate  of  the  Managing  General  Partner  received  reimbursements  of
accountable  administrative  expenses  amounting  to  approximately  $56,000 and
$21,000 for the three months ended March 31, 2001 and 2000, respectively.

In addition to its  indirect  ownership of the general  partner  interest in the
Partnership,  AIMCO and its affiliates  currently own 11,495 limited partnership
units in the Partnership  representing 42.93% of the outstanding units. A number
of these  units were  acquired  pursuant  to tender  offers made by AIMCO or its
affiliates.  It is possible that AIMCO or its  affiliates  will make one or more
additional offers to acquire  additional  limited  partnership  interests in the
Partnership  for cash or in exchange for units in the operating  partnership  of
AIMCO either through private  purchases or tender offers.  Under the Partnership
Agreement,  unitholders  holding a majority  of the Units are  entitled  to take
action  with  respect to a variety  of  matters,  which  would  include  without
limitation, voting on certain amendments to the Partnership Agreement and voting
to remove the Managing General  Partner.  As a result of its ownership of 42.93%
of the outstanding units, AIMCO is in a position to significantly  influence all
voting decisions with respect to the Registrant.  When voting on matters,  AIMCO
would in all likelihood vote the Units it acquired in a manner  favorable to the
interest of the Managing  General Partner  because of its  affiliation  with the
Managing General Partner.

Note C - Investment in Joint Venture

The  Partnership  owns a 17.5% interest in the Sterling Crest Joint Venture with
Davidson Growth Plus, L.P., an affiliate of the Managing General Partner,  which
owns the remaining  82.5% of the joint  venture.  In  connection  with the joint
venture's purchase of Phase I of Brighton Crest Apartments on June 30, 1987, the
Partnership  invested  approximately  $2,727,000 in the joint venture. The joint
venture purchased Phase II of Brighton Crest Apartments on December 15, 1987.

The Partnership received distributions of approximately $62,000 and $33,000 from
the  joint  venture  during  the three  months  ended  March 31,  2001 and 2000,
respectively.  For  the  three  months  ended  March  31,  2001  and  2000,  the
Partnership   recognized   equity  in  the  income  of  the  joint   venture  of
approximately $29,000 and $16,000, respectively.

Note D - Distributions

During the three  months  ended  March 31,  2001,  the  Partnership  paid a cash
distribution  from operations of approximately  $187,000 of which  approximately
$181,000 ($6.76 per limited  partnership unit) was paid to the limited partners.
This  distribution  consisted of cash from operations of approximately  $120,000
(approximately $116,000 to the limited partners or $4.33 per limited partnership
unit)  and  the  remaining   proceeds  from  the  refinancing  of  the  mortgage
encumbering  Bexley House  Apartments of  approximately  $67,000  (approximately
$65,000  to the  limited  partners  or  $2.43  per  limited  partnership  unit).
Subsequent to March 31, 2001, the  Partnership  declared and paid a distribution
from operations of approximately $123,000 (approximately $119,000 to the limited
partners or $4.44 per limited  partnership unit).  During the three months ended
March 31, 2000, the Partnership paid a cash  distribution  from operations which
was  declared and accrued at December 31,  1999,  of  approximately  $380,000 of
which  approximately  $368,000 ($13.74 per limited partnership unit) was paid to
the limited partners.

Note E - Segment Information

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

Note F - Legal Proceedings

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

Pending the ruling on such  demurrers,  settlement  negotiations  commenced.  On
November 2, 1999,  the parties  executed and filed a Stipulation  of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the  settlement  was obtained on November 3, 1999 from the Court,  at which time
the Court set a final  approval  hearing for  December  10,  1999.  Prior to the
December  10,  1999  hearing,  the  Court  received  various  objections  to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement.  On
December 14, 1999, the Managing  General  Partner and its affiliates  terminated
the  proposed  settlement.  In  February  2000,  counsel  for some of the  named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated  the  settlement.  On June  27,  2000,  the  Court  entered  an order
disqualifying  them  from the case and an  appeal  was  taken  from the order on
October 5, 2000. On December 4, 2000, the Court  appointed the law firm of Lieff
Cabraser  Heimann & Bernstein  LLP as new lead  counsel for  plaintiffs  and the
putative class.  Plaintiffs filed a third amended complaint on January 19, 2001.
On March 2, 2001,  the  Managing  General  Partner  and its  affiliates  filed a
demurrer to the third amended complaint.  The Court has also scheduled a hearing
on a motion for class  certification  for August 27, 2001.  Plaintiffs must file
their motion for class  certification  no later than June 15, 2001. The Managing
General Partner does not anticipate that costs associated with this case will be
material to the Partnership's overall operations.

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

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

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

The Partnership's investment properties consist of four apartment complexes. The
following table sets forth the average occupancy of the properties for the three
months ended March 31, 2001 and 2000:

                                                   Average Occupancy
      Property                                      2001       2000

      Northsprings Apartments                       85%        98%
         Atlanta, Georgia (1)
      Lakeside Apartments                           90%        92%
         Charlotte, North Carolina
      Bexley House Apartments                       93%        92%
         Columbus, Ohio
      Covington Pointe Apartments                   92%        90%
         Dallas, Texas

(1)   The  Managing  General  Partner  attributes  the  decrease in occupancy at
      Northsprings Apartments to strong competition in the area.

Results of Operations

The  Partnership's  net income for the three months  ended March 31,  2001,  was
approximately  $8,000 compared to approximately  $181,000 for the  corresponding
period  in 2000.  The  decrease  in net  income  for the three  month  period is
primarily  attributable to a decrease in total revenues and an increase in total
expenses partially offset by an increase in income from the joint venture. Total
revenues  decreased  due to a decrease in rental income  partially  offset by an
increase in other income.  Rental income  decreased due to a decrease in average
occupancy at Northsprings Apartments, as discussed above, partially offset by an
increase in average rental rate at all of the  Partnership's  properties  except
Bexley House Apartments.  Other income increased primarily due to an increase in
lease cancellation fees at Covington Pointe Apartments and Lakeside Apartments.

Total expenses increased due to an increase in operating,  interest and property
tax, general and  administrative and depreciation  expenses.  Operating expenses
increased  primarily due to an increase in property  expense.  Property  expense
increased due to an increase in employee  salaries and employee  related expense
at all of the Partnership's investment properties.

Interest  expense  increased  primarily due to the  refinancing  of the mortgage
encumbering  Bexley House Apartments on December 15, 2000,  replacing a mortgage
indebtedness of  approximately  $1,205,000 with a new mortgage of  approximately
$2,425,000.  Property tax expense  increased due to the timing of the receipt of
the tax bills for all the Partnership's investment properties which affected the
recording of the accrual at both March 31, 2001 and 2000, offset by a tax refund
received at Northsprings  Apartments during the period ending March 31, 2001 for
property  tax paid in a  previous  year.  General  and  administrative  expenses
increased due  primarily to an increase in the cost of services  included in the
management  reimbursements  to the Managing General Partner as allowed under the
Partnership  Agreement and to an increase in professional fees. Also included in
general and administrative expenses were costs associated with the quarterly and
annual  communications with the investors and regulatory agencies and the annual
audit required by the Partnership Agreement.  Depreciation expense increased due
to capital improvements placed into service during the prior twelve months.

Partially offsetting the decrease in net income for the three months ended March
31, 2001, was an increase in equity in income of the joint venture property from
approximately  $16,000 at March 31, 2000, to approximately  $29,000 at March 31,
2001. The Partnership owns a 17.5% interest in Sterling Crest Joint Venture (the
"Joint  Venture").  Equity  in  income  from the  joint  venture  increased  due
primarily to increased  rental  income and decreased  operating  expenses of the
joint venture.  Rental income  increased due to increased  occupancy.  Operating
expenses decreased due to a decrease in maintenance  expense partially offset by
an increase in interest expense.

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

Liquidity and Capital Resources

At  March  31,  2001,  the  Partnership   had  cash  and  cash   equivalents  of
approximately  $468,000 compared to approximately  $1,259,000 at March 31, 2000.
The decrease in cash and cash  equivalents  for the three months ended March 31,
2001 from the  Partnership's  year ended  December 31, 2000,  was  approximately
$105,000.  This  decrease  is due to  approximately  $231,000  of  cash  used in
financing  activities  and  approximately  $44,000  of cash  used  in  investing
activities  partially  offset by  approximately  $170,000  of cash  provided  by
operating  activities.  Cash used in financing activities consisted primarily of
distributions paid to the partners,  payments of principal made on the mortgages
encumbering  the  Partnership's  investment  properties and, to a lesser extent,
additional  loan costs paid in  relation  to the  refinancing  of the  mortgages
encumbering Bexley House Apartments,  as discussed below. Cash used in investing
activities consisted of property improvements and replacements  partially offset
by net withdrawals  from restricted  escrows  maintained by the mortgage lenders
and distributions received from the Partnership's joint venture. The Partnership
invests its working capital reserves in interest bearing accounts.

The sufficiency of existing  liquid assets to meet future  liquidity and capital
expenditure   requirements   is  directly   related  to  the  level  of  capital
expenditures  required at the investment  properties to adequately  maintain the
physical  assets and other operating needs of the Partnership and to comply with
Federal,   state,   and  local  legal  and  regulatory   requirements.   Capital
improvements planned for the Partnership's properties are detailed below.

Northsprings Apartments

Approximately  $46,000 is budgeted for capital improvements for the year 2001 at
Northsprings  Apartments  consisting  primarily of floor covering  replacements,
wall covering replacements, and appliance replacements.  During the three months
ended  March 31,  2001,  the  Partnership  completed  approximately  $41,000  of
budgeted capital improvements at Northsprings  Apartments,  consisting primarily
of cabinets,  countertops,  plumbing upgrades,  resurfacing,  and floor covering
replacements. These improvements were funded from operating cash flow.

Lakeside Apartments

Approximately $105,000 is budgeted for capital improvements for the year 2001 at
Lakeside Apartments consisting primarily of floor covering  replacements,  major
landscaping,  wall covering  replacements,  air conditioning unit  replacements,
appliance  replacements,  and other  structural  improvements.  During the three
months ended March 31, 2001, the Partnership completed  approximately $56,000 of
budgeted capital  improvements at Lakeside  Apartments,  consisting primarily of
floor covering replacements,  major landscaping,  appliances  replacements,  and
sewer and structural  upgrades.  These  improvements  were funded primarily from
replacement reserves.

Bexley House Apartments

Approximately  $40,000 is budgeted for capital improvements for the year 2001 at
Bexley House  Apartments  consisting  primarily of floor covering  replacements,
HVAC upgrades, and appliance  replacements.  During the three months ended March
31, 2001, the Partnership  completed  approximately  $5,000 of budgeted  capital
improvements at Bexley House,  consisting primarily of maintenance equipment and
elevator enhancements. These improvements were funded from operating cash flow.

Covington Pointe Apartments

Approximately  $52,000 is budgeted for capital improvements for the year 2001 at
Covington Pointe Apartments consisting primarily of floor covering replacements,
interior decoration, HVAC replacements,  and appliance replacements.  During the
three months  ended March 31,  2001,  the  Partnership  completed  approximately
$26,000  of  budgeted  capital  improvements  at  Covington  Pointe  Apartments,
consisting primarily of pool upgrades, floor covering replacements, and fixtures
upgrades. These improvements were funded primarily from operating cash flow.

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

On December 15, 2000, the Partnership refinanced the mortgage encumbering Bexley
House   Apartments.   The   refinancing   replaced   mortgage   indebtedness  of
approximately  $1,205,000  with a new mortgage of  $2,425,000.  The mortgage was
refinanced at a rate of 7.32%,  as compared to the prior rate of 7.60%,  and the
new mortgage  matures on January 1, 2021. The  Partnership  was also required to
establish  a  repair  escrow  of  approximately  $96,000  at  the  date  of  the
refinancing.   Capitalized   loan  costs  incurred  for  the  refinancing   were
approximately  $38,000 as of December  31,  2000.  During the three months ended
March 31, 2001, the Partnership  incurred additional loan costs of approximately
$7,000.

The Partnership's  current assets are thought to be sufficient for any near-term
needs  (exclusive  of capital  improvements)  of the  Partnership.  The mortgage
indebtedness of approximately  $12,867,000,  net of discounts, is amortized over
varying  periods.  The Managing General Partner will attempt to refinance and/or
sell the properties  prior to such maturity dates.  If the properties  cannot be
refinanced or sold for a sufficient amount, the Partnership may risk losing such
properties through foreclosure.

During the three  months  ended  March 31,  2001,  the  Partnership  paid a cash
distribution  from operations of approximately  $187,000 of which  approximately
$181,000 ($6.76 per limited  partnership unit) was paid to the limited partners.
This  distribution  consisted of cash from operations of approximately  $120,000
(approximately $116,000 to the limited partners or $4.33 per limited partnership
unit)  and  the  remaining   proceeds  from  the  refinancing  of  the  mortgage
encumbering  Bexley House  Apartments of  approximately  $67,000  (approximately
$65,000  to the  limited  partners  or  $2.43  per  limited  partnership  unit).
Subsequent to March 31, 2001, the  Partnership  declared and paid a distribution
from operations of approximately $123,000 (approximately $119,000 to the limited
partners or $4.44 per limited  partnership unit).  During the three months ended
March 31, 2000, the Partnership paid a cash  distribution  from operations which
was  declared and accrued at December 31,  1999,  of  approximately  $380,000 of
which  approximately  $368,000 ($13.74 per limited partnership unit) was paid to
the limited  partners.  The Partnership's  distribution  policy is reviewed on a
quarterly basis. Future cash distributions will depend on the levels of net cash
generated from operations,  the availability of cash reserves, and the timing of
debt maturities,  refinancings and/or property sales. There can be no assurance,
however,  that the Partnership  will generate  sufficient  funds from operations
after  required  capital  improvements  to permit further  distributions  to its
partners during the remainder of 2001 or subsequent  periods.  Distributions may
be restricted by the requirement to deposit net operating  income into a reserve
account until it is funded a minimum of $200 and a maximum of $400 per apartment
unit at Northsprings  Apartments and Covington Pointe  Apartments for a total of
approximately  $60,000 to $120,000.  At March 31, 2001, the maximum  balance was
attained.

In addition to its  indirect  ownership of the general  partner  interest in the
Partnership,  AIMCO and its affiliates  currently own 11,495 limited partnership
units in the Partnership  representing 42.93% of the outstanding units. A number
of these  units were  acquired  pursuant  to tender  offers made by AIMCO or its
affiliates.  It is possible that AIMCO or its  affiliates  will make one or more
additional offers to acquire  additional  limited  partnership  interests in the
Partnership  for cash or in exchange for units in the operating  partnership  of
AIMCO either through private  purchases or tender offers.  Under the Partnership
Agreement,  unitholders  holding a majority  of the Units are  entitled  to take
action  with  respect to a variety  of  matters,  which  would  include  without
limitation, voting on certain amendments to the Partnership Agreement and voting
to remove the Managing General  Partner.  As a result of its ownership of 42.93%
of the outstanding units, AIMCO is in a position to significantly  influence all
voting decisions with respect to the Registrant.  When voting on matters,  AIMCO
would in all likelihood vote the Units it acquired in a manner  favorable to the
interest of the Managing  General Partner  because of its  affiliation  with the
Managing General Partner.



<PAGE>


                           PART II - OTHER INFORMATION


ITEM 1.     LEGAL PROCEEDINGS

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

Pending the ruling on such  demurrers,  settlement  negotiations  commenced.  On
November 2, 1999,  the parties  executed and filed a Stipulation  of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the  settlement  was obtained on November 3, 1999 from the Court,  at which time
the Court set a final  approval  hearing for  December  10,  1999.  Prior to the
December  10,  1999  hearing,  the  Court  received  various  objections  to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement.  On
December 14, 1999, the Managing  General  Partner and its affiliates  terminated
the  proposed  settlement.  In  February  2000,  counsel  for some of the  named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated  the  settlement.  On June  27,  2000,  the  Court  entered  an order
disqualifying  them  from the case and an  appeal  was  taken  from the order on
October 5, 2000. On December 4, 2000, the Court  appointed the law firm of Lieff
Cabraser  Heimann & Bernstein  LLP as new lead  counsel for  plaintiffs  and the
putative class.  Plaintiffs filed a third amended complaint on January 19, 2001.
On March 2, 2001,  the  Managing  General  Partner  and its  affiliates  filed a
demurrer to the third amended complaint.  The Court has also scheduled a hearing
on a motion for class  certification  for August 27, 2001.  Plaintiffs must file
their motion for class  certification  no later than June 15, 2001. The Managing
General Partner does not anticipate that costs associated with this case will be
material to the Partnership's overall operations.

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

            a)    Exhibits:

                  None.

            b)    Reports on Form 8-K:

                  None filed during the quarter ended March 31, 2001.




<PAGE>



                                   SIGNATURES



In accordance with the  requirements of the Exchange Act, the Registrant  caused
this  report to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.



                                    DAVIDSON INCOME REAL ESTATE, L.P.


                                    By:   DAVIDSON DIVERSIFIED PROPERTIES, INC.
                                          Managing General Partner


                                    By:   /s/Patrick J. Foye
                                          Patrick J. Foye
                                          Executive Vice President


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


                                    Date: