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

                        Quarterly or Transitional Report

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

                                   Form 10-QSB

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

                    For the quarterly period ended June 30, 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)

                                  June 30, 2000
<TABLE>
<CAPTION>

Assets

<S>                                                                          <C>
   Cash and cash equivalents                                                 $  658
   Receivables and deposits                                                     200
   Restricted escrows                                                           235
   Other assets                                                                 229
   Investment in joint venture                                                   67
   Investment properties:
       Land                                                  $  4,120
       Buildings and related personal property                 21,840
                                                               25,960
       Less accumulated depreciation                          (12,521)       13,439
                                                                           $ 14,828

Liabilities and Partners' (Deficit) Capital
Liabilities

   Accounts payable                                                          $  115
   Tenant security deposit liabilities                                           81
   Accrued property taxes                                                       246
   Other liabilities                                                            141
   Mortgage notes payable                                                    11,714
   Distribution payable                                                         169

Partners' (Deficit) Capital

   General partners                                           $  (700)
   Limited partners (26,776 units issued and
      outstanding)                                              3,062         2,362
                                                                           $ 14,828
</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        Six Months Ended
                                            June 30,                 June 30,
                                       2000          1999        2000        1999
Revenues:
<S>                                   <C>          <C>          <C>         <C>
  Rental income                       $ 1,199      $ 1,194      $ 2,406     $ 2,349
  Other income                             72           51          125         115
     Total revenues                     1,271        1,245        2,531       2,464

Expenses:
  Operating                               448          453          910         934
  General and administrative               67           41          104          98
  Depreciation                            243          220          498         455
  Interest                                246          248          492         497
  Property taxes                           96          109          191         217
     Total expenses                     1,100        1,071        2,195       2,201

Income before equity in income
  of joint venture                        171          174          336         263
Equity in income of joint venture          24           17           40          56

Net income                             $  195        $ 191        $ 376       $ 319

Net income allocated to
  general partners (3%)                 $   6          $ 6         $ 11        $ 10
Net income allocated to
  limited partners (97%)                  189          185          365         309
                                       $  195        $ 191        $ 376       $ 319
Net income per limited
  partnership unit                    $  7.06       $ 6.91      $ 13.63     $ 11.54

Distributions per limited
  partnership unit                    $ 40.41       $ 4.52      $ 40.41     $  4.52
</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

Distributions paid to partners            --         (33)      (1,082)      (1,115)

Net income for the six months
   ended June 30, 2000                    --          11          365          376

Partners' (deficit) capital
   at June 30, 2000                   26,776      $ (700)     $ 3,062      $ 2,362
</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>

                                                                  Six Months Ended
                                                                       June 30,

                                                                  2000         1999
Cash flows from operating activities:

<S>                                                              <C>          <C>
  Net income                                                     $  376       $  319
  Adjustments to reconcile net income to net cash
   provided by operating activities:
   Depreciation                                                     498          455
   Amortization of discounts and loan costs                          40           39
   Equity in income of joint venture                                (40)         (56)
   Change in accounts:
      Receivables and deposits                                      160          153
      Other assets                                                  (13)         (44)
      Accounts payable                                              (28)          16
      Tenant security deposit liabilities                            (3)           7
      Accrued property taxes                                       (155)        (148)
      Other liabilities                                             (19)         (21)
       Net cash provided by operating activities                    816          720

Cash flows from investing activities:

  Property improvements and replacements                           (435)        (239)
  Net (deposits to) withdrawals from restricted escrows             (78)          52
  Distributions from joint venture                                   83           79
       Net cash used in investing activities                       (430)        (108)

Cash flows from financing activities:

  Payments on mortgage notes payable                                (77)         (71)
  Distributions to partners                                      (1,326)        (125)
       Net cash used in financing activities                     (1,403)        (196)

Net (decrease) increase in cash and cash equivalents             (1,017)         416

Cash and cash equivalents at beginning of period                  1,675          920
Cash and cash equivalents at end of period                       $  658      $ 1,336

Supplemental disclosure of cash flow information:
  Cash paid for interest                                         $  451       $ 458

</TABLE>

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

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

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

            See Accompanying Notes to Consolidated Financial Statements

<PAGE>

e)
                         DAVIDSON INCOME REAL ESTATE, L.P.

                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

Note A - Basis of Presentation

The accompanying  unaudited consolidated financial statements of Davidson Income
Real Estate,  L.P. (the  "Partnership"  or  "Registrant")  have been prepared in
accordance with generally accepted  accounting  principles for interim financial
information  and  with the  instructions  to Form  10-QSB  and  Item  310(b)  of
Regulation  S-B.  Accordingly,  they do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements.  In the opinion of Davidson Diversified  Properties,  Inc.
(the  "Managing  General  Partner"),   all  adjustments  (consisting  of  normal
recurring  accruals)  considered  necessary  for a fair  presentation  have been
included.  Operating  results for the three and six month periods ended June 30,
2000  and  1999,  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 six
months ended June 30, 2000 and 1999:

                                                                  2000      1999
                                                                  (in thousands)

 Property management fees (included in operating expenses)        $127      $124
 Reimbursement for services of affiliates (included in
   general and administrative and operating expenses)               50        43

<PAGE>

During the six months ended June 30, 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  $127,000 and
$124,000 for the six months ended June 30, 2000 and 1999, respectively.

An  affiliate  of  the  Managing  General  Partner  received  reimbursements  of
accountable  administrative  expenses  amounting  to  approximately  $50,000 and
$43,000 for the six months ended June 30, 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 9,930.50 limited partnership units in the
Partnership representing approximately 37.09% 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.  In this  regard,  on July 24, 2000,  an  affiliate of AIMCO  commenced a
tender offer to purchase any and all of the remaining  partnership interests for
a  purchase  price of  $409.00.  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 six months ended June 30, 2000, of the
Sterling Crest Joint Venture is as follows (in thousands):

        Total assets                                           $ 7,497
        Total liabilities                                       (6,131)
        Total venture's equity                                 $ 1,366


Summary  statements of operations  information for the six months ended June 30,
2000 and 1999 of the Sterling Crest Joint Venture is as follows (in thousands):

                                            2000                 1999

        Total revenues                     $ 1,255             $ 1,305
        Total expenses                      (1,027)             (1,000)
                                           $   228             $   305

<PAGE>


The Partnership received distributions of approximately $83,000 and $79,000 from
the  joint  venture  during  the six  months  ended  June  30,  2000  and  1999,
respectively.  For the six months ended June 30, 2000 and 1999, the  Partnership
recognized  equity in the income of the joint venture of  approximately  $40,000
and $56,000, respectively.

The Partnership received distributions of approximately $50,000 and $79,000 from
the  joint  venture  during  the  three  months  ended  June 30,  2000 and 1999,
respectively. For the three months ended June 30, 2000 and 1999, the Partnership
recognized  equity in the income of the joint venture of  approximately  $24,000
and $17,000, respectively.

Note E - Distributions

The Partnership paid a cash distribution from operations, which was declared and
accrued at December 31, 1999, of approximately  $380,000 of which  approximately
$369,000 ($13.78 per limited partnership unit) was paid to the limited partners.
In May 2000, the Partnership  declared and paid a distribution of  approximately
$840,000  (approximately  $815,000 to the limited partners or $30.44 per limited
partnership  unit) from  operations.  In June 2000, the  Partnership  declared a
distribution of approximately  $275,000  (approximately  $267,000 to the limited
partners or $9.97 per limited  partnership unit) from operations.  Approximately
$106,000 of this  distribution  was paid to affiliates  of the Managing  General
Partner. The remaining $169,000 was paid subsequent to June 30, 2000.

During  the  six  months  ended  June  30,1999,   the  Partnership   distributed
approximately $125,000 of which approximately $121,000  (approximately $4.52 per
limited partnership unit) was paid to the limited partners from operations.

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 the 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 and six month periods ended June 30, 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>

   Three Months Ended June 30, 2000     Residential    Other      Totals

Rental income                             $ 1,199       $  --     $ 1,199
Other income                                   68           4          72
Interest expense                              246          --         246
Depreciation                                  243          --         243
General and administrative expense             --          67          67
Equity in income of joint venture              --          24          24
Segment profit (loss)                         234         (39)        195


    Six Months Ended June 30, 2000      Residential    Other      Totals

Rental income                             $ 2,406       $  --     $ 2,406
Other income                                  113          12         125
Interest expense                              492          --         492
Depreciation                                  498          --         498
General and administrative expense             --         104         104
Equity in income of joint venture              --          40          40
Segment profit (loss)                         428         (52)        376
Total assets                               14,452         376      14,828
Capital expenditures for investment
  properties                                  192          --         192


    Three Months Ended June 30, 1999     Residential     Other      Totals

Rental income                             $ 1,194       $   --    $ 1,194
Other income                                   45            6         51
Interest expense                              248           --        248
Depreciation                                  220           --        220
General and administrative expense             --           41         41
Equity in income of joint venture              --           17         17
Segment profit (loss)                         209          (18)       191

<PAGE>

    Six Months Ended June 30, 1999      Residential     Other      Totals

Rental income                             $ 2,349       $   --    $ 2,349
Other income                                  102           13        115
Interest expense                              497           --        497
Depreciation                                  455           --        455
General and administrative expense             --           98         98
Equity in income of joint venture              --           56         56
Segment profit (loss)                         348          (29)       319
Total assets                               14,933          879     15,812
Capital expenditures for investment
  properties                                  239           --        239

Note G - Legal Proceedings

In March 1998, several putative unit holders of limited partnership units of the
Partnership  commenced an action  entitled  Rosalie  Nuanes,  et al. v. Insignia
Financial  Group,  Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs  named as defendants,  among others,
the  Partnership,  its Managing  General Partner and several of their affiliated
partnerships  and corporate  entities.  The action  purports to assert claims on
behalf of a class of limited  partners and derivatively on behalf of a number of
limited  partnerships  (including  the  Partnership)  which are named as nominal
defendants,  challenging 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; the management of 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 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 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. The Court will entertain applications for lead
counsel which must be filed by August 4, 2000. The Court has scheduled a hearing
on August 21, 2000 to address the issue of appointing lead counsel. 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 six
months ended June 30, 2000 and 1999:

                                                  Average Occupancy

      Property                                     2000       1999

      Northsprings Apartments                       96%        97%
         Atlanta, Georgia
      Lakeside Apartments                           92%        94%
         Charlotte, North Carolina
      Bexley House Apartments                       95%        91%
         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 six months  ended  June 30,  2000,  was
approximately  $376,000 compared to approximately $319,000 for the corresponding
period in 1999.  The  Partnership's  net income for the three month period ended
June 30, 2000 was approximately  $195,000 compared to approximately $191,000 for
the  corresponding  period in 1999. The increase in net income for the six month
period  ended June 30, 2000 is  primarily  attributable  to an increase in total
revenues and a decrease in total expenses  partially offset by a decrease in the
equity in income of the joint venture.  The increase in net income for the three
month period  ending June 30, 2000 is primarily  attributable  to an increase in
total revenues and the equity in income of the joint venture partially offset by
increased  total  expenses.  Total  revenues  for both the  three  and six month
periods  increased as a result of increases in rental and other  income.  Rental
income increased primarily as a result of an increase in average rental rates at
all the Partnership's  investment  properties and increased  occupancy at Bexley
House Apartments, which more than offset the decrease in occupancy at all of the
other  properties.  Other  income  increased  for both the  three  and six month
periods  primarily due to an increase in interest  income due to higher  average
cash balances in interest  bearing  accounts and an increase in late charges and
cable television  income at Covington Point  Apartments and ancillary  telephone
income  at  Bexley  House,  Northsprings,  and  Lakeside  Apartments.  This  was
partially offset by a decrease in lease cancellation fees primarily at Covington
Pointe Apartments.

<PAGE>

The  decrease in total  expenses for the six month period ended June 30, 2000 is
primarily  attributable  to  decreases  in  operating  and property tax expenses
partially  offset by increases in  depreciation  and general and  administrative
expenses.  Total  expenses  increased  for the three month period ended June 30,
2000  primarily  due to increased  depreciation  and general and  administrative
expenses.  Operating expenses decreased  primarily due to decreased  maintenance
expense at all properties, with the exception of Covington Pointe, and decreased
salary expense at  Northsprings,  in addition to decreased  referral fees at all
the  properties.  Partially  offsetting  these  decreases are  increased  salary
expenses at  Covington  Pointe and  increased  sewer  expenses at  Northsprings.
Property  tax  expenses  decreased  primarily  for both the  three and six month
periods due to a decrease at Covington  Pointe  Apartments  due to the timing of
the  receipt  of the tax bill which  affected  the  amount of the  property  tax
accrual. Depreciation expense for both the three and six month periods increased
due to an increase in depreciable assets over the past year.

General and  administrative  expenses increased for both the three and six month
periods  due to an  increase  in  professional  fees and an  increase in general
partner  reimbursements  partially offset by a decrease in legal fees associated
with the  settlement of the Everest  Lawsuit  settled  during 1999.  Included in
general and  administrative  expenses for the six months ended June 30, 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.

Partially offsetting the increase in overall net income for the six months ended
June 30, 2000, was a decrease in equity in income of the joint venture  property
from  approximately  $56,000 at June 30, 1999, to approximately  $40,000 at June
30, 2000. The Partnership  owns a 17.5% interest in Sterling Crest Joint Venture
(the  "Joint  Venture").  Equity in  income  from the  joint  venture  decreased
primarily due to reduced rental revenue and increased  operating expenses of the
joint venture property.  Rental revenues  decreased due to reduced occupancy and
increased  concession costs at Brighton Crest.  Operating expenses increased due
to increased advertising and utility costs.

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

Liquidity and Capital Resources

At June 30, 2000, the Partnership had cash and cash equivalents of approximately
$658,000 compared to approximately  $1,336,000 at June 30, 1999. The decrease in
cash and cash  equivalents  for the six  months  ended  June 30,  2000  from the
Partnership's year ended December 31, 1999, was approximately  $1,017,000.  This
decrease is due to approximately $1,403,000 of cash used in financing activities
and approximately $430,000 of cash used by investing activities partially offset
by approximately $816,000 of cash provided by operating activities. Cash used in
financing  activities  consisted 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
primarily 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.

<PAGE>

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 six months
ended June 30, 2000, the Partnership completed  approximately $27,000 of capital
improvements  at  Northsprings   Apartments,   consisting   primarily  of  sewer
replacements,  appliance and floor covering replacements, plumbing upgrades, and
interior decorating. These improvements were funded from operating cash flow.

Lakeside Apartments

Approximately  $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 six months
ended June 30, 2000, the Partnership completed approximately $86,000 of budgeted
and unbudgeted capital improvements at Lakeside Apartments, consisting primarily
of sewer  replacements,  carpet and vinyl  replacements,  office equipment,  and
structural  and  building   upgrades.   These   improvements  were  funded  from
replacement reserves and operating cash flow.

Bexley House Apartments

Approximately  $38,000 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 six months ended June
30,  2000,  the  Partnership  completed  approximately  $41,000 of budgeted  and
unbudgeted capital improvements at Bexley House, consisting primarily of heating
system replacements,  appliance and floor covering replacement, air conditioning
replacements,  and cabinet  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  six  months  ended  June  30,  2000,  the
Partnership completed  approximately $38,000 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  $11,714,000,  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.

The Partnership paid a cash distribution from operations, which was declared and
accrued at December 31, 1999, of approximately  $380,000 of which  approximately
$369,000 ($13.78 per limited partnership unit) was paid to the limited partners.
In May 2000, the Partnership  declared and paid a distribution of  approximately
$840,000  (approximately  $815,000 to the limited partners or $30.44 per limited
partnership  unit) from  operations.  In June 2000, the  Partnership  declared a
distribution of approximately  $275,000  (approximately  $267,000 to the limited
partners or $9.97 per limited  partnership unit) from operations.  Approximately
$106,000 of this  distribution  was paid to affiliates  of the Managing  General
Partner. The remaining $169,000 was paid subsequent to June 30, 2000. During the
six  months  ended  June  30,1999,  the  Partnership  distributed  approximately
$125,000  of which  approximately  $121,000  (approximately  $4.52  per  limited
partnership  unit)  was  paid  to the  limited  partners  from  operations.  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,  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 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; the management of 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 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 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. The Court will entertain applications for lead
counsel which must be filed by August 4, 2000. The Court has scheduled a hearing
on August 21, 2000 to address the issue of appointing lead counsel. 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 June 30, 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: