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, 2000


[ ] 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, 2000
<TABLE>
<CAPTION>

Assets
<S>                                                                         <C>
   Cash and cash equivalents                                                $ 1,259
   Receivables and deposits                                                     188
   Restricted escrows                                                           175
   Other assets                                                                 265
   Investment in joint venture                                                   93
   Investment properties:
       Land                                                  $  4,120
       Buildings and related personal property                 21,713
                                                               25,833
       Less accumulated depreciation                          (12,278)       13,555
                                                                           $ 15,535

Liabilities and Partners' (Deficit) Capital
Liabilities
   Accounts payable                                                          $   99
   Tenant security deposit liabilities                                           80
   Accrued property taxes                                                       204
   Other liabilities                                                            123
   Mortgage notes payable                                                    11,747

Partners' (Deficit) Capital
   General partners                                           $  (673)
   Limited partners (26,776 units issued and
      outstanding)                                              3,955         3,282
                                                                           $ 15,535
</TABLE>

            See Accompanying Notes to Consolidated Financial Statements

<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,
                                                               2000          1999
Revenues:
<S>                                                           <C>           <C>
   Rental income                                              $1,207        $1,155
   Other income                                                   53            64
      Total revenues                                           1,260         1,219

Expenses:
   Operating                                                     462           481
   General and administrative                                     37            57
   Depreciation                                                  255           235
   Interest                                                      246           249
   Property taxes                                                 95           108
      Total expenses                                           1,095         1,130

Income before equity in income of joint venture                  165            89
Equity in income of joint venture                                 16            39

Net income                                                     $ 181         $ 128

Net income allocated to general partners (3%)                  $   5           $ 4
Net income allocated to limited partners (97%)                   176           124

                                                               $ 181         $ 128

Net income per limited partnership unit                       $ 6.57        $ 4.63
</TABLE>

            See Accompanying Notes to Consolidated Financial Statements

<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, 1999                  26,776      $ (678)     $ 3,779      $ 3,101

Net income for the three months
   ended March 31, 2000                   --           5          176          181

Partners' (deficit) capital
   at March 31, 2000                  26,776      $ (673)     $ 3,955      $ 3,282
</TABLE>

            See Accompanying Notes to Consolidated Financial Statements

<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,
                                                                  2000        1999
Cash flows from operating activities:
<S>                                                              <C>          <C>
  Net income                                                     $  181       $ 128
  Adjustments to reconcile net income to net cash
   provided by operating activities:
   Depreciation                                                     255         235
   Amortization of discounts and loan costs                          21          20
   Equity in income of joint venture                                (16)        (39)
   Change in accounts:
      Receivables and deposits                                      172         226
      Other assets                                                  (35)        (49)
      Accounts payable                                              (44)        (18)
      Tenant security deposit liabilities                            (4)          3
      Accrued property taxes                                       (197)       (206)
      Other liabilities                                             (37)          5
       Net cash provided by operating activities                    296         305

Cash flows from investing activities:
  Property improvements and replacements                           (308)        (64)
  Net (deposits to) withdrawals from restricted escrows             (18)         15
  Distributions from joint venture                                   33          --
       Net cash used in investing activities                       (293)        (49)

Cash flows from financing activities:
  Payments on mortgage notes payable                                (39)        (35)
  Distributions to partners                                        (380)         --
       Net cash used in financing activities                       (419)        (35)

Net (decrease) increase in cash and cash equivalents               (416)        221

Cash and cash equivalents at beginning of period                  1,675         920
Cash and cash equivalents at end of period                       $1,259      $1,141

Supplemental disclosure of cash flow information:
  Cash paid for interest                                         $  225       $ 229
</TABLE>

At  December  31,  1999 and  March  31,  2000,  accounts  payable  and  property
improvements  and  replacements  were  adjusted by  approximately  $243,000  for
non-cash activity.

            See Accompanying Notes to Consolidated Financial Statements

<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, 2000, are
not  necessarily  indicative  of the results that may be expected for the fiscal
year  ending  December  31,  2000.  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, 1999.

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 - Transfer of Control

Pursuant  to a series  of  transactions  which  closed  on  October  1, 1998 and
February 26, 1999,  Insignia Financial Group, Inc. and Insignia Properties Trust
merged into Apartment  Investment and Management Company  ("AIMCO"),  a publicly
traded real estate investment trust, with AIMCO being the surviving  corporation
(the "Insignia Merger").  As a result, AIMCO acquired 100% ownership interest in
the Managing General Partner. The Managing General Partner does not believe that
this  transaction  has had or will have a  material  effect on the  affairs  and
operations of the Partnership.

Note C - 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, 2000 and 1999:

                                                                  2000      1999
                                                                  (in thousands)

 Property management fees (included in operating expenses)        $ 64      $ 62
 Reimbursement for services of affiliates (included in
   general and administrative expense)                              21        32

<PAGE>

During  the three  months  ended  March 31,  2000 and  1999,  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  and  $62,000  for the  three  months  ended  March  31,  2000 and 1999,
respectively.

An  affiliate  of  the  Managing  General  Partner  received  reimbursements  of
accountable  administrative  expenses  amounting  to  approximately  $21,000 and
$32,000 for the three months ended March 31, 2000 and 1999, respectively.

On September 25, 1997, an affiliate of the Managing  General  Partner  purchased
Lehman Brothers' Class "D" subordinated bonds of SASCO, 1992-M1. These bonds are
secured  by 55  multi-family  apartment  mortgage  loan  pairs  held  in  Trust,
including Bexley House Apartments owned by the Partnership.

AIMCO and its affiliates currently own 9,843.50 limited partnership units in the
Partnership representing approximately 36.76% 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. Under the Partnership  Agreement,  unitholders  holding a majority of the
Units are  entitled to take action  with  respect to a variety of matters.  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
their affiliation with the Managing General Partner.

Note D - 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.

Summary balance sheet  information for the three months ended March 31, 2000, of
the Sterling Crest Joint Venture is as follows (in thousands):

        Total assets                                           $ 7,611
        Total liabilities                                       (6,074)
        Total venture's equity                                 $ 1,537

Summary  statements of operations  information  for the three months ended March
31,  2000 and  1999 of the  Sterling  Crest  Joint  Venture  is as  follows  (in
thousands):

                                             2000                1999

        Total revenues                      $ 608               $ 667
        Total expenses                       (505)               (445)
                                            $ 103               $ 222
<PAGE>

The Partnership received  distributions of approximately  $33,000 from the joint
venture during the three months ended March 31, 2000. The  Partnership  received
no distributions  from the joint venture during the three months ended March 31,
1999.  For the three  months  ended  March 31,  2000 and 1999,  the  Partnership
recognized  equity in the income of the joint venture of  approximately  $16,000
and $39,000, respectively.

Note E - Distributions

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.  There  were no
distributions paid or declared during the three months ended March 31, 1999.

Note F - Segment Information

Description  of the types of products  and  services  from which the  reportable
segment derives its revenues:

The  Partnership  has  one  reportable  segment:   residential  properties.  The
Partnership's residential property segment consists of four apartment complexes,
one each in Georgia,  North  Carolina,  Ohio and Texas.  The  Partnership  rents
apartment units to tenants for terms that are typically twelve months or less.

Measurement of segment profit or loss:

The  Partnership  evaluates  performance  based on segment  profit (loss) before
depreciation.  The accounting policies of the reportable segment are the same as
those of the  Partnership  as described in  Partnership's  Annual Report on Form
10-KSB for the year ended December 31, 1999.

Factors management used to identify the Partnership's reportable segment:

The  Partnership's  reportable  segment  consists of investment  properties that
offer similar products and services.  Although each of the investment properties
are  managed  separately,  they have been  aggregated  into one  segment as they
provide services with similar types of products and customers.

Segment information for the three months ended March 31, 2000 and 1999, is shown
in the  following  tables  below (in  thousands).  The "Other"  column  includes
Partnership administration related items and income and expense not allocated to
the reportable segment.

<PAGE>

                 2000                   Residential     Other     Totals

Rental income                             $ 1,207       $  --    $ 1,207
Other income                                   45           8         53
Interest expense                              246          --        246
Depreciation                                  255          --        255
General and administrative expense             --          37         37
Equity in income of joint venture              --          16         16
Segment profit (loss)                         194         (13)       181
Total assets                               15,037         498     15,535
Capital expenditures for investment
  properties                                   65          --         65


                 1999                   Residential     Other     Totals

Rental income                            $ 1,155        $  --    $ 1,155
Other income                                  57            7         64
Interest expense                             249           --        249
Depreciation                                 235           --        235
General and administrative expense            --           57         57
Equity in income of joint venture             --           39         39
Segment profit (loss)                        139          (11)       128
Total assets                              14,665        1,041     15,706
Capital expenditures for investment
  properties                                  64           --         64

Note G - Legal Proceedings

In March 1998, several putative unit holders of limited partnership units of the
Partnership  commenced an action  entitled  Rosalie  Nuanes,  et al. v. Insignia
Financial  Group,  Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs  named as defendants,  among others,
the  Partnership,  the 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  the  acquisition  by Insignia  Financial  Group,  Inc.
("Insignia")  and  entities  which  were,  at one time,  affiliates  of Insignia
("Insignia  Affiliates") of interests in certain general partner entities,  past
tender offers by Insignia  Affiliates to acquire limited  partnership units, the
management of partnerships  by Insignia  Affiliates and the Insignia Merger (see
"Note B - Transfer  of  Control").  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  have 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 final court
approval, on behalf of the Partnership and all limited partners who own units as
of November 3, 1999.  Preliminary  approval of the  settlement  was  obtained on
November 3, 1999 from the Superior Court of the State of  California,  County of
San Mateo, 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 class  plaintiffs'  counsel
to enter the settlement.  On December 14, 1999, the Managing General Partner and
its affiliates terminated the proposed settlement. Certain plaintiffs have filed
a motion to  disqualify  some of the  plaintiffs'  counsel  in the  action.  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.

<PAGE>

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

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

The Partnership's investment properties consist of four apartment complexes. The
following table sets forth the average occupancy of the properties for the three
months ended March 31, 2000 and 1999:

                                                  Average Occupancy

      Property                                     2000       1999

      Northsprings Apartments                       98%        97%
         Atlanta, Georgia
      Lakeside Apartments                           92%        94%
         Charlotte, North Carolina
      Bexley House Apartments                       92%        87%
         Columbus, Ohio
      Covington Pointe Apartments                   90%        93%
         Dallas, Texas

The  Managing  General  Partner  attributes  the increase in occupancy at Bexley
House to  increased  marketing  efforts.  The decrease in occupancy at Covington
Pointe was due to a change in demographics in the area.

Results of Operations

The  Partnership's  net income for the three months  ended March 31,  2000,  was
approximately  $181,000 compared to approximately $128,000 for the corresponding
period  in 1999.  The  increase  in net  income  for the three  month  period is
primarily  attributable to an increase in total revenues and a decrease in total
expenses partially offset by a decrease in income from the joint venture.  Total
revenues  increased as a result of an increase in rental income partially offset
by a decrease in other income.  Rental income increased primarily as a result of
an  increase  in  average  rental  rates  at all  the  Partnership's  investment
properties  except  Covington  Pointe  Apartments  and  increased  occupancy  at
Northsprings Apartments and Bexley House Apartments,  which more than offset the
decrease in occupancy at Lakeside  Apartments and Covington  Pointe  Apartments.
Other income decreased  primarily due to a decrease in lease  cancellation  fees
primarily at Covington Pointe Apartments.

The  decrease  in total  expenses  is  primarily  attributable  to a decrease in
operating, general and administrative and property tax expenses partially offset
by an increase in  depreciation  expense.  The decrease in operating  expense is
primarily  due to a decrease in referral  fees at Covington  Pointe  Apartments,
maintenance   salaries  at  Northsprings   Apartments,   and  interior  building
improvements  at all of the  Partnership's  investment  properties.  General and
administrative  expenses  decreased due to a decrease in  reimbursements  to the
Managing  General  Partner and a decrease in legal fees due to the settlement in
1999 of a lawsuit. Included in general and administrative expenses for the three
months  ended  March 31, 2000 and 1999,  are  management  reimbursements  to the
Managing General Partner allowed under the Partnership  Agreement.  In addition,
costs associated with the quarterly and annual communications with the investors
and  regulatory  agencies  and the  annual  audit  required  by the  Partnership
Agreement are also included.  Property tax expense decreased  primarily due to a
decrease at Covington Pointe Apartments due to a reduction in the assessed value
of the property.  Depreciation  expense increased  primarily at Covington Pointe
Apartments due to a large increase in depreciable assets over the past year.

Partially  offsetting  the  increase in overall net income for the three  months
ended March 31,  2000,  was a decrease in equity in income of the joint  venture
property from approximately  $39,000 at March 31, 1999, to approximately $16,000
at March 31, 2000. The Partnership owns a 17.5% interest in Sterling Crest Joint
Venture (the "Joint Venture"). Equity in income from the joint venture decreased
due primarily to reduced rental revenue and increased  operating expenses of the
joint venture.  Rental revenues decreased due to reduced occupancy and increased
concession  costs  at  Brighton  Crest.  Operating  expenses  increased  due  to
increased advertising, utility costs, and interior painting expenses.

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,  2000,  the  Partnership   had  cash  and  cash   equivalents  of
approximately $1,259,000 compared to approximately $1,141,000 at March 31, 1999.
The decrease in cash and cash  equivalents  for the three months ended March 31,
2000 from the  Partnership's  year ended  December 31, 1999,  was  approximately
$416,000.  This  decrease  is due to  approximately  $419,000  of  cash  used in
financing  activities  and  approximately  $293,000  of cash  used by  investing
activities  partially  offset by  approximately  $296,000  of cash  provided  by
operating  activities.  Cash used in financing activities consisted primarily of
distributions  paid  to the  partners  and,  to a  lesser  extent,  payments  of
principal  made  on  the  mortgages  encumbering  the  Partnership's  investment
properties. Cash used in investing activities consisted of property improvements
and  replacements  and, to a lesser extent,  net deposits to restricted  escrows
maintained by the mortgage lenders  partially  offset by distributions  received
from the  Partnership's  joint  venture.  The  Partnership  invests  its working
capital reserves in money market 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  $53,000 is budgeted for capital improvements for the year 2000 at
Northsprings  Apartments  consisting  primarily of carpet and vinyl replacement,
wall covering replacement,  and appliance replacements.  During the three months
ended  March 31,  2000,  the  Partnership  completed  approximately  $22,000  of
budgeted capital improvements at Northsprings  Apartments,  consisting primarily
of  sewer  replacements,  plumbing  upgrades,  interior  decorating,  and  floor
covering replacements. These improvements were funded from operating cash flow.

Lakeside Apartments

Approximatley  $60,000 is budgeted for capital improvements for the year 2000 at
Lakeside Apartments  consisting primarily of floor covering  replacement,  major
landscaping,  wall covering  replacement,  air conditioning  unit  replacements,
appliance  replacements,  and other  structural  improvements.  During the three
months ended March 31, 2000, the Partnership completed  approximately $22,000 of
budgeted capital  improvements at Lakeside  Apartments,  consisting primarily of
floor  covering  replacements,  drapes and mini blind  replacements,  structural
upgrades and roof  replacement.  These  improvements  were funded primarily from
replacement reserves.

Bexley House Apartments

Approximately  $30,000 is budgeted for capital improvements for the year 2000 at
Bexley House Apartments  consisting  primarily of carpet and vinyl  replacement,
heating  upgrades,  and  appliance  replacements.  During the three months ended
March 31, 2000,  the  Partnership  completed  approximately  $14,000 of budgeted
capital  improvements at Bexley House,  consisting primarily of carpet and vinyl
replacement,  appliance  replacements,  electrical upgrades,  plumbing upgrades,
equipment and heating system  replacements.  These improvements were funded from
operating cash flow.

Covington Pointe Apartments

Approximately  $97,000 is budgeted for capital improvements for the year 2000 at
Covington   Pointe   Apartments   consisting   primarily  of  carpet  and  vinyl
replacement,  interior  decoration,  air  conditioning  unit  replacements,  and
appliance  replacements.  During the three  months  ended  March 31,  2000,  the
Partnership  completed  approximately $7,000 of budgeted capital improvements at
Covington Pointe Apartments,  consisting primarily of pool upgrades,  carpet and
vinyl  replacement,  appliance  replacement and plumbing  fixture  replacements.
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.

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  $11,747,000,  net of discounts, is amortized over
varying periods with balloon payments of  approximately  $1,097,000 due November
2002 and  approximately  $10,181,000 due October and November 2003. The Managing
General  Partner  will attempt to refinance  such  indebtedness  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,  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.  There  were no
distributions paid or declared during the three months ended March 31, 1999. 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 2000 or subsequent periods.

<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,  the 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  the  acquisition  by Insignia  Financial  Group,  Inc.
("Insignia")  and  entities  which  were,  at one time,  affiliates  of Insignia
("Insignia  Affiliates") of interests in certain general partner entities,  past
tender offers by Insignia  Affiliates to acquire limited  partnership units, the
management of partnerships  by Insignia  Affiliates and the Insignia Merger (see
"Part 1 - Financial Information, Item 1. Financial Statements, Note B - Transfer
of  Control").  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 have 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 final court approval, on
behalf of the Partnership and all limited  partners who own units as of November
3, 1999. Preliminary approval of the settlement was obtained on November 3, 1999
from the  Superior  Court of the State of  California,  County of San Mateo,  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 class  plaintiffs'  counsel  to  enter  the
settlement.  On  December  14,  1999,  the  Managing  General  Partner  and  its
affiliates  terminated the proposed settlement.  Certain plaintiffs have filed a
motion to disqualify some of the plaintiffs' counsel in the action. 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:

                  Exhibit 27, Financial Data Schedule, is filed as an exhibit to
                  this report.

            b)    Reports on Form 8-K:

                  None filed during the quarter ended March 31, 2000.

<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: