DAVIDSON INCOME REAL ESTATE LP, 10KSB, 1999-03-29

DAVIDSON INCOME REAL ESTATE LP
10KSB, 1999-03-29
REAL ESTATE

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FORM 10-KSB--ANNUAL OR TRANSITIONAL REPORT UNDER
SECTION 13 OR 15(D)

FORM 10-KSB

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [No Fee Required]

For the fiscal year ended December 31, 1998

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [No Fee Required]
For the transition period to

Commission file number 0-14530

DAVIDSON INCOME REAL ESTATE, L.P.
(Name of small business issuer in its charter)

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

55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices) (Zip Code)

Issuer's telephone number (864) 239-1000

Securities registered under Section 12(b) of the Exchange Act:
None

Securities registered under Section 12(g) of the Exchange Act:

Units of Limited Partnership Interest
(Title of class)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 during the past 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

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]

State issuer's revenues for its most recent fiscal year. $4,637,000

State the aggregate market value of the voting partnership interests held by
non-affiliates computed by reference to the price at which the partnership
interests were sold, or the average bid and asked prices of such partnership
interests, as of a specified date within the past 60 days. No market exists for
the limited partnership interests of the Registrant, and, therefore, no
aggregate market value can be determined.

DOCUMENTS INCORPORATED BY REFERENCE
None

PART I

ITEM 1. DESCRIPTION OF BUSINESS

Davidson Income Real Estate, L.P. (the "Registrant" or "Partnership") is a
Delaware limited partnership organized in April 1985. The general partners of
the Registrant are Davidson Diversified Properties, Inc., a Tennessee
corporation ("Managing General Partner"), David W. Talley and James T. Gunn
(collectively, "Individual General Partners") (collectively, the "General
Partners"). The Registrant is engaged in the business of operating and holding
real properties for investment. The Registrant continues to own and operate
four residential apartment complexes and a joint venture interest in an entity
which owns one residential property. The Managing General Partner is a
subsidiary of Apartment Investment and Management Company ("AIMCO"). The
Partnership Agreement provides that the Partnership is to terminate on December
31, 2010, unless terminated prior to such date.

The offering of the Registrant's limited partnership units ("Units") commenced
on July 26, 1985, and terminated on May 30, 1986. The Registrant received gross
proceeds from the offering of $26,776,000 and net proceeds of $25,700,160. All
of the net proceeds of the offering were invested in the Registrant's four
residential properties and in a 17.5% joint venture interest which owns one
residential property. See "Item 2. Description of Properties," for a
description of the Registrant's properties.

Both the income and expenses of operating the properties owned by the
Partnership are subject to factors outside of the Partnership's control, such as
oversupply of similar properties resulting from overbuilding, increases in
unemployment or population shifts, reduced availability of permanent mortgage
funds, changes in zoning laws, or changes in patterns or needs of users. In
addition, there are risks inherent in owning and operating residential
properties because such properties are susceptible to the impact of economic and
other conditions outside of the control of the Partnership.

A further description of the Partnership's business is included in "Management's
Discussion and Analysis or Plan of Operation" included in "Item 6" of this form
10-KSB.

The Registrant has no employees. Management and administrative services are
provided by the Managing General Partner and by agents retained by the Managing
General Partner.

The business in which the Partnership is engaged is highly competitive. There
are other residential properties within the market area of the Partnership's
properties. The number and quality of competitive properties, including those
which may be managed by an affiliate of the Managing General Partner in such
market area could have a material effect on the rental market for the apartments
at the Partnership's properties and the rents that may be charged for such
apartments. While the Managing General Partner and its affiliates are a
significant factor in the United States in the apartment industry, competition
for apartments is local. In addition, various limited partnerships have been
formed by the Managing General Partner and/or affiliates to engage in business
which may be competitive with the Partnership.

There have been, and it is possible there may be other, Federal, state and local
legislation and regulations enacted relating to the protection of the
environment. The Partnership is unable to predict the extent, if any, to which
such new legislation or regulations might occur and the degree to which such
existing or new legislation or regulations might adversely affect the properties
owned by the Partnership.

The Partnership monitors its properties for evidence of pollutants, toxins and
other dangerous substances, including the presence of asbestos. In certain
cases environmental testing has been performed, which resulted in no material
adverse conditions or liabilities. In no case has the Partnership received
notice that it is a potentially responsible party with respect to an
environmental clean up site.

Transfers of Control

Prior to February 25, 1998 the Managing General Partner was a wholly-owned
subsidiary of MAE GP Corporation ("MAE GP"), which was wholly owned by
Metropolitan Asset Enhancement, L.P. Effective February 25, 1998, MAE GP was
merged into Insignia Properties Trust ("IPT"), thus the Managing General Partner
became a wholly-owned subsidiary of IPT.

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

ITEM 2. DESCRIPTION OF PROPERTIES

The following tables set forth the Partnership's investments in properties:

Date of
Property Purchase Type of Ownership Use

Northsprings Apartments 11/13/85 Fee ownership subject Apartment
Atlanta, Georgia to first and second 120 units
mortgages. (1)

Lakeside Apartments 05/20/86 Fee ownership subject Apartment
Charlotte, North Carolina to first mortgage. 216 units

Bexley House Apartments 09/30/86 Fee ownership subject Apartment
Columbus, Ohio to first and second 64 units
mortgages.(1)

Covington Pointe 03/10/87 Fee ownership subject Apartment
Apartments to first and second 180 units
Dallas, Texas mortgages. (1)

Brighton Crest Apartments Phase I Registrant has a 17.5% Apartment
Marietta, Georgia 06/30/87 interest in the joint 320 units
venture which has fee
Phase II ownership subject to
12/15/87 first and second
mortgages.

(1) Property is held by a limited partnership in which the Partnership owns a
100% interest.

SCHEDULE OF PROPERTIES:

Set forth below for each of the Partnership's properties is the gross carrying
value, accumulated depreciation, depreciable life, method of depreciation and
Federal tax basis.

Gross

Carrying Accumulated Federal

Property Value Depreciation Rate Method Tax Basis

(in thousands) (in thousands)

Northsprings $ 4,850 $ 2,346 5-25 yrs S/L $ 3,530

Lakeside 6,522 3,079 5-25 yrs S/L 4,536

Bexley House 3,823 1,729 5-25 yrs S/L 2,717

Covington Pointe 9,485 3,901 5-25 yrs S/L 6,531

$24,680 $11,055 $17,314

See "Note A" to the consolidated financial statements included in "Item 7.
Financial Statements" for a description of the Partnership's depreciation
policy.

SCHEDULE OF PROPERTY INDEBTEDNESS:

The following table sets forth certain information relating to the loans
encumbering the Partnership's properties.

Principal Principal

Balance At Stated Balance

December 31, Interest Period Maturity Due At

Property 1998 Rate Amortized Date Maturity (2)

(in thousands) (in thousands)

Northsprings

1st mortgage $ 1,861 7.83% 28.67 yrs 10/15/03 $ 1,701

2nd mortgage 61 7.83% (1) 10/15/03 61

Lakeside

1st mortgage 4,100 7.33% (1) 11/01/03 4,100

Bexley House

1st mortgage 1,250 7.60% 21.40 yrs 11/15/02 1,052

2nd mortgage 45 7.60% (1) 11/15/02 45

Covington Pointe

1st mortgage 4,559 7.83% 28.67 yrs 10/15/03 4,169

2nd mortgage 150 7.83% (1) 10/15/03 150

Total 12,026

Less unamortized

discounts (125)

$11,901 $11,278

(1) Payments consist of interest only.
(2) See "Note D" of the consolidated financial statements in "Item 7. Financial
Statements" for information with respect to the Partnership's ability to
prepay these loans and other specific loan terms.

SCHEDULE OF RENTAL RATE AND OCCUPANCY:

Average annual rental rate and occupancy for 1998 and 1997 for each property.

Average Annual Average

Rental Rates Per Unit Occupancy

Property 1998 1997 1998 1997

Northsprings (1) $ 9,823 $ 9,489 96% 92%

Lakeside 6,550 6,376 94% 93%

Bexley House 11,784 11,335 91% 93%

Covington Pointe (2) 9,547 9,361 83% 92%

(1) The increase in occupancy at Northsprings Apartments is attributable to
stronger marketing efforts and recent improvements to enhance the
appearance of the property.

(2) Occupancy decreased at Covington Pointe Apartments as a result of direct
competition of newer complexes in the Dallas area, as well as needed
exterior enhancements which are planned for 1999.

As noted under "Item 1. Description of Business," the real estate industry is
highly competitive. All of the properties of the Partnership are subject to
competition from other residential apartment complexes in the area. The
Managing General Partner believes that all of the properties are adequately
insured. Each property is an apartment complex which leases units for lease
terms of one year or less. No tenant leases 10% or more of the available
rental space. All of the properties are in good physical condition, subject to
normal depreciation and deterioration as is typical for assets of this type and
age.

SCHEDULE OF REAL ESTATE TAXES AND RATES:

Real estate taxes and rates in 1998 for each property were:

1998 1998

Billing Rate

(in thousands)

Northsprings $ 71 3.95

Lakeside 76 1.28

Bexley House 92 8.74

Covington Pointe 192 2.54

CAPITAL IMPROVEMENTS:

Covington Pointe Apartments

During 1998, the Partnership completed approximately $96,000 of capital
improvements at Covington Pointe Apartments consisting primarily of clubhouse
renovations and floor covering. These improvements were funded from operating
cash flow. Based on a report received from an independent third party
consultant analyzing necessary exterior improvements and estimates made by the
Managing General Partner on interior improvements, it is estimated that the
property requires approximately $318,000 of capital improvements over the near
term. Capital improvements budgeted for 1999 include, but are not limited to,
parking lot repairs, carpet replacement, structural improvements, exterior
painting and fence replacement, which are expected to cost approximately
$318,000.

Northsprings Apartments

In 1998, the Partnership completed approximately $110,000 of capital
improvements at Northsprings Apartments consisting primarily of stairwells and
replacement of floor covering. These improvements were funded from operating
cash flow. Based on a report received from an independent third party
consultant analyzing necessary exterior improvements and estimates made by the
Managing General Partner on interior improvements, it is estimated that the
property requires approximately $318,000 of capital improvements over the near
term. Capital improvements budgeted for 1999 include, but are not limited to,
building improvements, carpet replacement and enhancement of recreational
facilities, which are expected to cost approximately $101,000.

Lakeside Apartments

In 1998, the Partnership completed approximately $83,000 of capital improvements
at Lakeside Apartments consisting primarily of floor covering and replacement.
These improvements were funded from operating cash flow and replacement
reserves. Based on a report received from an independent third party consultant
analyzing necessary exterior improvements and estimates made by the Managing
General Partner on interior improvements, it is estimated that the property
requires approximately $150,000 of capital improvements over the near term.
Capital improvements budgeted for 1999 include, but are not limited to,
landscaping improvements, roof replacement, parking lot improvements and carpet
replacement, which are expected to cost approximately $233,000.

Bexley House Apartments

In 1998, the Partnership completed approximately $105,000 of capital
improvements at Bexley House Apartments consisting primarily of building
improvements and floor covering replacement. These improvements were funded
from operating cash flow. Based on a report received from an independent third
party consultant analyzing necessary exterior improvements and estimates made by
the Managing General Partner on interior improvements, it is estimated that the
property requires approximately $150,000 of capital improvements over the near
term. Capital improvements budgeted for 1999 include, but are not limited to,
interior and exterior building improvements which are expected to cost
approximately $98,000.

The capital improvements planned for 1999 at the Partnership's properties will
be made only to the extent of cash available from operations and Partnership
reserves.

ITEM 3. 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 complaint 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 and entities which were, at
the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain
general partner entities, past tender offers by Insignia Affiliates as well as a
recently announced agreement between Insignia and AIMCO. The complaint seeks
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 during February 1999. No
ruling on such demurrers has been received. The Managing General Partner does
not anticipate that costs associated with this case, if any, will be material to
the Partnership's overall operations.

On July 30, 1998, certain entities claiming to own limited partnership interests
in certain limited partnerships whose general partners were, at the time,
affiliates of Insignia filed a complaint entitled Everest Properties, LLC, et.
al. v. Insignia Financial Group, Inc., et. al. in the Superior Court of the
State of California, County of Los Angeles. The action involves 44 real estate
limited partnerships (including the Partnership) in which the plaintiffs
allegedly own interests and which Insignia Affiliates allegedly manage or
control (the "Subject Partnerships"). This case was settled on March 3, 1999.
The Partnership is responsible for a portion of the settlement costs. The
expense will not have a material effect on the Partnership's net income.

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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the fourth quarter of 1998, no matter was submitted to a vote of security
holders through the solicitation of proxies or otherwise.

PART II

ITEM 5. MARKET FOR PARTNERSHIP EQUITY AND RELATED PARTNER MATTERS

As of December 31, 1998, there are 2,988 holders of record owning an aggregate
of 26,776 units. Affiliates of the Managing General Partner owned 4,867 Units
or 18.177% as of December 31, 1998. No public trading has developed for the
Units, and it is not anticipated that such a market will develop in the future.

During the years ended December 31, 1998 and 1997, distributions of
approximately $400,000 ($14.49 per limited partnership unit) and $377,000
($13.56 per limited partnership unit) were paid from operations, respectively.
Future cash distributions will depend on the levels of net cash generated from
operations, refinancing and/or property sales and the availability of cash
reserves. The Partnership's distribution policy will be reviewed on a quarterly
basis. There can be no assurance, however, that the Partnership will generate
sufficient funds from operations after required capital expenditures to permit
any additional distributions to its partners in 1999 or subsequent periods.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The matters discussed in this Form 10-KSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the disclosure
contained in this Form 10-KSB and the other filings with the Securities and
Exchange Commission made by the Registrant from time to time. The discussion of
the Registrant'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 Registrant's business and results of operation. 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.

This item should be read in conjunction with the consolidated financial
statements and other items contained elsewhere in this report.

Results of Operations

The Partnership's net income for the year ended December 31, 1998 was
approximately $36,000 as compared to a net loss of approximately $77,000 for the
year ended December 31, 1997. The increase in net income was primarily due to a
decrease in expenses which more than offset a slight decrease in revenues.
Expenses decreased primarily due to a decrease in operating expenses. Partially
offsetting the decrease in operating expenses were increases primarily in
property tax and general and administrative expenses. Rental income decreased
primarily due to the decrease in occupancy at Covington Pointe despite an
increase in average rental rate at all of the Partnership's investment
properties in 1998. Operating expenses decreased primarily due to the
completion of an extensive restoration project at Lakeside Apartments in 1997
which included major landscaping, interior and exterior painting, parking lot
repairs, gutter repairs and balcony restorations. Property tax expense
increased due to a prior year tax refund at Covington Pointe combined with an
increase in the assessed value at the property. Additionally, general and
administrative expenses increased due to an increase in general partner
reimbursements and other administrative costs. Included in general and
administrative expenses at both December 31, 1998 and 1997 are management
reimbursements to the Managing General Partner allowed under the Partnership
Agreement. In addition, costs associated with the quarterly and annual
communications with investors and regulatory agencies and the annual audit
required by the Partnership Agreement are also included.

Also contributing to the increase in net income for 1998 was an increase in
equity in income of the joint venture property. The Partnership owns a 17.5%
interest in Sterling Crest Joint Venture (the "Joint Venture"). Equity in the
income of the joint venture increased for the year ended December 31, 1998 as a
result of an increase in the income of the Joint Venture's investment property,
Brighton Crest. This increase is primarily attributable to an increase in
rental income due to an increase in occupancy. In addition, operating expenses
at Brighton Crest decreased due to major repairs and maintenance at the property
consisting of parking lot and roof repairs, and exterior painting which were
completed in 1997.

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
expense. 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 December 31, 1998, the Partnership had cash and cash equivalents of
approximately $920,000 compared to approximately $776,000 at December 31, 1997.
The increase in cash and cash equivalents is due to approximately $936,000 of
cash provided by operating activities, which was partially offset by
approximately $259,000 of cash used in investing activities and approximately
$533,000 of cash used in financing activities. Cash used in investing activities
consisted of capital improvements which were partially offset by net withdrawals
from restricted escrows and distributions from the Joint Venture. Cash used in
financing activities consisted primarily of distributions to partners and, to a
lesser extent, payments of principal made on the mortgages encumbering the
Partnership's properties. 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 properties to adequately maintain the physical
assets and other operating needs of the Partnership and to comply with Federal,
state, and local legal and regulatory requirements. The Partnership has
budgeted approximately $750,000 in capital improvements for the Partnership's
properties in 1999. Budgeted capital improvements at Covington Pointe
Apartments include, but are not limited to, parking lot repairs, carpet
replacement, structural improvements, exterior painting, and fence replacement.
Budgeted capital improvements at Northsprings Apartments include, but are not
limited to, building improvements, carpet replacement and enhancement of
recreational facilities. Budgeted capital improvements at Lakeside Apartments
include, but are not limited to, landscaping improvements, roof replacement,
parking lot improvements, and carpet replacement. Budgeted capital improvements
at Bexley House Apartments include, but are not limited to, interior and
exterior building improvements. The 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 $11,901,000, 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 November 2003. 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 will risk losing such properties through foreclosure.

Cash distributions from operations of approximately $400,000 and $377,000 were
paid during the year ended December 31, 1998 and 1997, respectively. The
Partnership's distribution policy will be reviewed on a quarterly basis. There
can be no assurance, however, that the Partnership will generate sufficient
funds from operations after required capital expenditures to permit further
distributions to its partners in 1999 or subsequent periods.

Year 2000 Compliance

General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems

The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Partnership
is dependent upon the Managing General Partner and its affiliates for management
and administrative services ("Managing Agent"). Any of the computer programs or
hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.

Over the past two years, the Managing Agent has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Managing Agent presently believes that with modifications or
replacements of existing software and certain hardware, the Year 2000 issue can
be mitigated. However, if such modifications and replacements are not made or
not completed in time, the Year 2000 issue could have a material impact on the
operations of the Partnership.

The Managing Agent's plan to resolve Year 2000 issues involves four Phases:
assessment, remediation, testing, and implementation. To date, the Managing
Agent has fully completed its assessment of all the information systems that
could be significantly affected by the Year 2000, and has begun the remediation,
testing and implementation phases on both hardware and software systems.
Assessments are continuing in regards to embedded systems. The status of each
is detailed below.

Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase

Computer Hardware:

During 1997 and 1998, the Managing Agent identified all of the computer systems
at risk and formulated a plan to repair or replace each of the affected systems.
In August 1998, the mainframe system used by the Managing Agent became fully
functional. In addition to the mainframe, PC-based network servers and routers
and desktop PCs were analyzed for compliance. The Managing Agent has begun to
replace each of the non-compliant network connections and desktop PCs and, as of
December 31, 1998, had completed approximately 75% of this effort.

The total cost to the Managing Agent to replace the PC-based network servers,
routers and desktop PCs is expected to be approximately $1.5 million of which
$1.3 million has been incurred to date. The remaining network connections and
desktop PCs are expected to be upgraded to Year 2000 compliant systems by March
31, 1999.

Computer software:

The Managing Agent utilizes a combination of off-the-shelf, commercially
available software programs as well as custom-written programs that are designed
to fit specific needs. Both of these types of programs were studied, and
implementation plans written and executed with the intent of repairing or
replacing any non-compliant software programs.

During 1998, the Managing Agent began converting the existing property
management and rent collection systems to its management properties Year 2000
compliant systems. The estimated additional costs to convert such systems at
all properties, is $200,000, and the implementation and the testing process is
expected to be completed by March 31, 1999.
The final software area is the office software and server operating systems.
The Managing Agent has upgraded all non-compliant office software systems on
each PC and has upgraded 80% of the server operating systems. The remaining
server operating systems are planned to be upgraded to be Year 2000 compliant by
March 31, 1999.

Operating Equipment:

The Managing Agent has operating equipment, primarily at the property sites,
which needed to be evaluated for Year 2000 compliance. In September 1997, the
Managing Agent began taking a census and inventory of embedded systems
(including those devices that use time to control systems and machines at
specific properties, for example elevators, heating, ventilating, and air
conditioning systems, security and alarm systems, etc.).

The Managing Agent has chosen to focus its attention mainly upon security
systems, elevators, heating, ventilating and air conditioning systems, telephone
systems and switches, and sprinkler systems. While this area is the most
difficult to fully research adequately, management has not yet found any major
non-compliance issues that put the Managing Agent at risk financially or
operationally. The Managing Agent intends to have a third-party conduct an
audit of these systems and report their findings by March 31, 1999.

Any of the above operating equipment that has been found to be non-compliant to
date has been replaced or repaired. To date, these have consisted only of
security systems and phone systems. As of December 31, 1998 the Managing Agent
has evaluated approximately 86% of the operating equipment for the Year 2000
compliance.

The total cost incurred for all properties managed by the Managing Agent as of
December 31, 1998 to replace or repair the operating equipment was approximately
$400,000. The Managing Agent estimates the cost to replace or repair any
remaining operating equipment is approximately $325,000, which is expected to be
completed by April 30, 1999.

The Managing Agent continues to have "awareness campaigns" throughout the
organization designed to raise awareness and report any possible compliance
issues regarding operating equipment within our enterprise.

Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000

The Managing Agent continues to conduct surveys of its banking and other vendor
relationships to assess risks regarding their Year 2000 readiness. The Managing
Agent has banking relationships with three major financial institutions, all of
which have indicated their compliance efforts will be complete before May 1999.
The Managing Agent has updated data transmission standards with two of the three
financial institutions. The Managing Agent's contingency plan in this regard is
to move accounts from any institution that cannot be certified Year 2000
compliant by June 1, 1999.

The Partnership does not rely heavily on any single vendor for goods and
services, and does not have significant suppliers and subcontractors who share
information systems (external agent). To date the Partnership is not aware of
any external agent with a Year 2000 compliance issue that would materially
impact the Partnership's results of operations, liquidity, or capital resources.
However, the Partnership has no means of ensuring that external agents will be
Year 2000 compliant.

The Managing Agent does not believe that the inability of external agents to
complete their Year 2000 remediation process in a timely manner will have a
material impact on the financial position or results of operations of the
Partnership. However, the effect of non-compliance by external agents is not
readily determinable.

Costs to Address Year 2000

The total cost of the Year 2000 project to the Managing Agent is estimated at
$3.5 million and is being funded from operating cash flows. To date, the
Managing Agent has incurred approximately $2.8 million ($0.6 million expensed
and $2.2 million capitalized for new systems and equipment) related to all
phases of the Year 2000 project. Of the total remaining project costs,
approximately $0.5 million is attributable to the purchase of new software and
operating equipment, which will be capitalized. The remaining $0.2 million
relates to repair of hardware and software and will be expensed as incurred.
The Partnership's portion of these costs are not material.

Risks Associated with the Year 2000

The Managing Agent believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Managing Agent has not
yet completed all necessary phases of the Year 2000 program. In the event that
the Managing Agent does not complete any additional phases, certain worst case
scenarios could occur. The worst case scenarios could include elevators,
security and heating, ventilating and air conditioning systems that read
incorrect dates and operate with incorrect schedules (e.g., elevators will
operate on Monday as if it were Sunday). Although such a change would be
annoying to residents, it is not business critical.

In addition, disruptions in the economy generally resulting from Year 2000
issues could also adversely affect the Partnership. The Partnership could be
subject to litigation for, among other things, computer system failures,
equipment shutdowns or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.

Contingency Plans Associated with the Year 2000

The Managing Agent has contingency plans for certain critical applications and
is working on such plans for others. These contingency plans involve, among
other actions, manual workarounds and selecting new relationships for such
activities as banking relationships and elevator operating systems.

ITEM 7. FINANCIAL STATEMENTS

DAVIDSON INCOME REAL ESTATE, L.P.

LIST OF CONSOLIDATED FINANCIAL STATEMENTS

Report of Ernst & Young LLP, Independent Auditors

Consolidated Balance Sheet - December 31, 1998

Consolidated Statements of Operations - Years ended December 31, 1998 and 1997

Consolidated Statements of Changes in Partners' Capital (Deficit) - Years ended
December 31, 1998 and 1997

Consolidated Statements of Cash Flows - Years ended December 31, 1998 and 1997

Notes to Consolidated Financial Statements

Report of Ernst & Young LLP, Independent Auditors

To the Partners
Davidson Income Real Estate, L.P.

We have audited the accompanying consolidated balance sheet of Davidson Income
Real Estate, L.P. as of December 31, 1998, and the related consolidated
statements of operations, changes in partners' capital (deficit) and cash flows
for each of the two years in the period ended December 31, 1998. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
Partnership's management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Davidson Income Real Estate, L.P. at December 31, 1998, and the consolidated
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.

/s/ERNST & YOUNG LLP

Greenville, South Carolina
March 3, 1999

DAVIDSON INCOME REAL ESTATE, L.P.

CONSOLIDATED BALANCE SHEET
(in thousands, except unit data)

December 31, 1998

Assets

Cash and cash equivalents $ 920

Receivables and deposits 488

Restricted escrows 312

Other assets 262

Investment properties (Notes D and G):

Land $ 4,120

Buildings and related personal property 20,560

24,680

Less accumulated depreciation (11,055) 13,625

Investment in joint venture 216

$ 15,823

Liabilities and Partners' Capital (Deficit)

Liabilities

Accounts payable $ 51

Tenant security deposit liabilities 82

Accrued property taxes 371

Other liabilities 125

Mortgage notes payable (Notes D and G) 11,901

Partners' Capital (Deficit)

General partners' $ (672)

Limited partners' (26,776 units

issued and outstanding) 3,965 3,293

$ 15,823

See Accompanying Notes to Consolidated Financial Statements

DAVIDSON INCOME REAL ESTATE, L.P.

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

Years Ended December 31,

1998 1997

Revenues:

Rental income $ 4,427 $ 4,451

Other income 210 217

Total revenues 4,637 4,668

Expenses:

Operating 2,107 2,291

General and administrative 226 179

Depreciation 906 894

Interest 1,002 1,016

Property taxes 443 409

Total expenses 4,684 4,789

Equity in income of joint venture 83 44

Net income (loss) $ 36 $ (77)

Net income (loss) allocated to general partners (3%) $ 1 $ (2)

Net income (loss) allocated to limited partners (97%) 35 (75)

$ 36 $ (77)

Net income (loss) per limited partnership unit $ 1.31 $ (2.80)

Distributions per limited partnership unit $ 14.49 $ 13.56

See Accompanying Notes to Consolidated Financial Statements

DAVIDSON INCOME REAL ESTATE, L.P.

CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(in thousands, except unit data)

Limited

Partnership General Limited

Units Partners Partners Total

Original capital contributions 26,776 $ 1 $26,776 $26,777

Partners' (deficit) capital

at December 31, 1996 26,776 $ (645) $ 4,756 $ 4,111

Distributions to partners -- (14) (363) (377)

Net loss for the year ended

December 31, 1997 -- (2) (75) (77)

Partners' (deficit) capital

at December 31, 1997 26,776 (661) 4,318 3,657

Distributions to partners -- (12) (388) (400)

Net income for the year ended

December 31, 1998 -- 1 35 36

Partners' (deficit) capital

at December 31, 1998 26,776 $ (672) $ 3,965 $ 3,293

See Accompanying Notes to Consolidated Financial Statements

DAVIDSON INCOME REAL ESTATE, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

Years Ended December 31,

1998 1997

Cash flows from operating activities:

Net income (loss) $ 36 $ (77)

Adjustments to reconcile net income (loss)

to net cash provided by operating activities:

Depreciation 906 894

Amortization of discounts and loan costs 78 83

Equity in income of joint venture (83) (44)

Change in accounts:

Receivables and deposits (45) (50)

Other assets 16 (16)

Accounts payable (70) 58

Tenant security deposit liabilities (11) (8)

Accrued property taxes 99 (25)

Other liabilities 10 17

Net cash provided by operating activities 936 832

Cash flows from investing activities:

Property improvements and replacements (393) (374)

Net withdrawals from restricted escrows 3 95

Distributions from joint venture 131 71

Net cash used in investing activities (259) (208)

Cash flows from financing activities:

Payments on mortgage notes payable (133) (124)

Distributions to partners (400) (377)

Loan costs paid -- (2)

Net cash used in financing activities (533) (503)

Net increase in cash and cash equivalents 144 121

Cash and cash equivalents at beginning of year 776 655

Cash and cash equivalents at end of year $ 920 $ 776

Supplemental disclosure of cash flow information:

Cash paid for interest $ 924 $ 934

See Accompanying Notes to Consolidated Financial Statements

DAVIDSON INCOME REAL ESTATE, L.P.

Notes to Consolidated Financial Statements

December 31, 1998

NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Organization: Davidson Income Real Estate, L.P. (the "Partnership" or
"Registrant") is a Delaware limited partnership organized in April 1985, to
acquire and operate residential real estate properties. The general partners of
the Registrant are Davidson Diversified Properties, Inc., a Tennessee
corporation ("Managing General Partner"), David W. Talley and James T. Gunn
(collectively, "Individual General Partners") (collectively, the "General
Partners"). The Partnership owns and operates four apartment properties located
in the Mid-West, South and Southeast and owns a joint venture interest in an
entity which owns one residential property. The Managing General Partner is a
subsidiary of Apartment Investment and Management Company ("AIMCO") (See "Note
B - Transfer of Control"). The directors and officers of the Managing General
Partners also serve as executive officers of AIMCO. The Partnership Agreement
provides that the Partnership is to terminate on December 31, 2010, unless
terminated prior to such date.

Principles of Consolidation: For the year ended December 31, 1997, the
consolidated financial statements of the Partnership included all of the
accounts of the Partnership, Bexley House, L.P., and Davidson IRE Associates,
L.P. The Partnership owned 99.99% of Bexley House, L.P., and 99.99% of Davidson
IRE Associates, L.P. The Partnership could remove the general partner of both
Bexley House, L.P., and Davidson IRE Associates, L.P.; therefore, the
consolidated partnerships were controlled and consolidated by the Partnership.
Effective for 1998, the Partnership's ownership changed to 100% of each of these
partnerships. All significant interpartnership balances have been eliminated.

Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Allocations to Partners: Net income (loss) of the Partnership and taxable
income (loss) are allocated 97% to the limited partners and 3% to the General
Partners, except for such amounts which are allocated prior to the Partnership
meeting the minimum close requirements as defined in the Partnership Agreement.
Distributions of available cash from operations are allocated 97% to the limited
partners and 3% to the General Partners. Cash from sales or refinancing are
allocated 97% to limited partners and 3% to General Partners until the limited
partners have received an amount of cumulative distributions from sales or
refinancings that equal original invested capital plus an amount which, when
added to the prior distributions to limited partners, will equal 12% per annum
cumulative noncompounded on adjusted invested capital, as defined in the
Partnership Agreement. Thereafter, upon payment to an affiliate of the General
Partners certain real estate commissions and incentive fees as described in the
Partnership Agreement, remaining cash from sales or refinancings are allocated
97% to partners and 3% to General Partners. In connection with the liquidation
of the Partnership, cash from sales or refinancings and any remaining working
capital reserves shall be allocated among, and distributed to, the partners in
proportion to, and to the extent of, their positive capital account balances.

Restricted Escrows:

Capital Improvement Reserve - At the time of the refinancing of Lakeside
Apartments' mortgage note payable, approximately $198,000 of the proceeds were
designated for a "capital improvement reserve" for certain capital improvements.
At December 31, 1998, approximately $101,000 remained in escrow for 1999 capital
improvements of which any excess funds will be returned for property operations.

Reserve Account - In addition to the capital improvement reserve for
Lakeside Apartments, general reserve accounts were established with the
refinancing and financing proceeds for the properties involved. These funds
were established to cover necessary repairs and replacements of existing
improvements, debt services, out-of-pocket expenses incurred for ordinary and
necessary administrative tasks, and payments of real property taxes and
insurance premiums. The Partnership was required to deposit net operating
income (as defined in the mortgage notes) from the properties to the respective
reserve accounts until the reserve accounts equaled $400 per apartment unit or
$48,000 for Northsprings and $72,000 for Covington Pointe and $1,000 per
apartment unit or $64,000 for Bexley House. At December 31, 1998, the account
balances were approximately $57,000, $82,000 and $72,000, respectively, which
includes interest earned on these funds.

Escrows for Taxes: These escrows are held by the Partnership for Bexley House,
Covington Pointe, Northsprings and Lakeside. The funds which total
approximately $380,000 are included in receivables and deposits.

Investment Properties: Investment properties, which consist of four apartment
complexes, are stated at cost. Acquisition fees are capitalized as a cost of
real estate. The Partnership records impairment losses on long-lived assets
used in operations when events and circumstances indicate that the assets might
be impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amounts of those assets. No adjustments for
impairment of value were recorded in the years ended December 31, 1998 or 1997.

Depreciation: Depreciation is calculated by the straight-line method over the
estimated lives of the investment properties and related personal property. For
Federal income tax purposes, the accelerated cost recovery method is used (1)
for real property over 18 years for additions after March 15, 1984, and before
May 9, 1985, and 19 years for additions after May 8, 1985, and before January 1,
1987, and (2) for personal property over 5 years for additions prior to January
1, 1987. As a result of the Tax Reform Act of 1986, for additions after
December 31, 1986, the modified accelerated cost recovery method is used for
depreciation of (1) real property additions over 27 1/2 years, and (2) personal
property additions over 7 years.

Cash and Cash Equivalents: Includes cash on hand and in banks, money market
funds and certificates of deposit with original maturities less than 90 days.
At certain times, the amount of cash deposited at a bank may exceed the limit on
insured deposits.

Tenant Security Deposits: The Partnership requires security deposits from
lessees for the duration of the lease and such deposits are included in
receivables and deposits. Deposits are refunded when the tenant vacates,
provided the tenant has not damaged the space and is current on its rental
payments.

Loan Costs: Loan costs of approximately $499,000, less accumulated amortization
of approximately $246,000 are included in other assets and are being amortized
on a straight-line basis over the lives of the loans.

Leases: The Partnership generally leases apartment units for twelve-month terms
or less. The Partnership recognizes income as earned on leases. The Managing
General Partner finds it necessary to offer rental concessions during
particularly slow months or in response to heavy competition from other similar
complexes in the area. Concessions are charged against rental income as
incurred.

Joint Venture: The Partnership accounts for its investment in the Sterling
Crest Joint Venture using the equity method of accounting (see "Note C" for
further discussion).

Segment Reporting: In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 131, Disclosure about
Segments of an Enterprise and Related Information ("Statement 131"), which is
effective for years beginning after December 15, 1997. Statement 131
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
(see "Note J" for required disclosures).

Advertising: The Partnership expenses the costs of advertising as incurred.
Advertising expense, included in operating expenses, was approximately $135,000
and $122,000 for the years ended December 31, 1998 and 1997, respectively.

Fair Value of Financial Instruments: The Partnership believes that the carrying
amount of its financial instruments (except for long term debt) approximates
their fair value due to the short term maturity of these instruments. The fair
value of the Partnership's long term debt, after discounting the scheduled loan
payments to maturity based on borrowing rates currently available to the
Partnership, approximates its carrying amount.

Income Taxes: No provision has been made in the consolidated financial
statements for Federal income taxes because, under current law, no Federal
income taxes are paid directly by the Partnership. The unit holders are
responsible for their respective shares of Partnership net income or loss. The
Partnership reports certain transactions differently for tax than for financial
statement purposes.

Reclassifications: Certain reclassifications have been made to the 1997
balances to conform to the 1998 presentation.

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 IPT merged into AIMCO,
with AIMCO being the surviving corporation (the "Insignia Merger"). As a
result, AIMCO ultimately acquired a 100% ownership interest in Insignia
Properties Trust ("IPT"), the sole shareholder of the Managing General Partner.
The Managing General Partner does not believe that this transaction will have
a material effect on the affairs and operations of the Partnership.

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.

Summary financial information for the Sterling Crest Joint Venture is as follows
(in thousands):

December 31,1998

Total assets $ 8,619

Total liabilities (6,309)

Total venture's equity $ 2,310

Years Ended

December 31,

1998 1997

Total revenues $ 2,500 $ 2,555

Total expenses (2,064) (2,304)

$ 436 $ 251

In 1998 and 1997, the Partnership received distributions of approximately
$131,000 and $71,000, respectively from the joint venture. In 1998 and 1997,
the Partnership recognized equity in the income of the joint venture of
approximately $83,000 and $44,000, respectively.

NOTE D - MORTGAGE NOTES PAYABLE

The principle terms of the mortgage notes payable are as follows:

Principal Monthly Principal

Balance At Payment Stated Balance

December 31, Including Interest Maturity Due At

Property 1998 Interest Rate Date Maturity

(in thousands) (in thousands)

Northsprings

1st mortgage $ 1,861 $ 14 7.83% 10/15/03 $ 1,701

2nd mortgage 61 (a) 7.83% 10/15/03 61

Lakeside 4,100 25 7.33% 11/01/03 4,100

Bexley House

1st mortgage 1,250 12 7.60% 11/15/02 1,052

2nd mortgage 45 (a) 7.60% 11/15/02 45

Covington Pointe

1st mortgage 4,559 35 7.83% 10/15/03 4,169

2nd mortgage 150 1 7.83% 10/15/03 150

Total 12,026

Less unamortized

discounts (125)

$11,901 $11,278

(a) Monthly payment is less than $1,000

The mortgage notes payable are non-recourse and are secured by pledge of the
respective apartment properties and by pledge of revenues from the respective
apartment properties. Certain of the notes require prepayment penalties if
repaid prior to maturity and prohibit resale of the properties subject to
existing indebtedness.

The Partnership exercised interest rate buy-down options reducing the stated
rate from 8.76% to 7.60% for Bexley House and 8.13% to 7.83% for Northsprings
and Covington Pointe. The fees for the interest rate reductions were
approximately $243,000 and are being amortized as loan discounts using the
effective interest method over the lives of the loans. The discount fees are
reflected as a reduction of the mortgage notes payable and increase the
effective rate of the debt to 8.76% for Bexley House and 8.13% for Northsprings
and Covington Pointe. Approximately $2,000 in additional loan costs were paid
during 1997 in connection with the 1996 refinancing of Lakeside Apartments.

Scheduled principal payments of mortgage notes payable subsequent to December
31, 1998, are as follows (in thousands):

1999 $ 145

2000 156

2001 168

2002 1,275

2003 10,282

$12,026

NOTE E - INCOME TAXES

The Partnership has received a ruling from the Internal Revenue Service that it
will be classified as a partnership for Federal income tax purposes.
Accordingly, no provision for income taxes is made in the consolidated financial
statements of the Partnership. Taxable income or loss of the Partnership is
reported in the income tax returns of its partners.

The following is a reconciliation of reported net income (loss) and Federal
taxable loss (in thousands, except unit data):

1998 1997

Net income (loss) as reported $ 36 $ (77)

Add (deduct):

Depreciation differences 28 (198)

Equity in joint venture (11) (7)

Prepaid rents 4 49

Miscellaneous 6 15

Federal taxable income (loss) $ 63 $ (218)

Federal taxable income (loss)

per limited partnership unit $ 2.29 $(7.90)

The following is a reconciliation between the Partnership's reported amounts and
Federal tax basis of net assets and liabilities (in thousands) as of December
31, 1998:

Net assets as reported $ 3,293

Land and buildings 3,187

Accumulated depreciation 502

Syndication 3,809

Other 930

Net assets - Federal tax basis $11,721

NOTE F - RELATED PARTY TRANSACTIONS

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 certain payments
to affiliates for services and as 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 years
ended December 31, 1998 and 1997:

1998 1997

(in thousands)

Property management fees (included in operating

expenses) $235 $233

Reimbursement for services of affiliates

(included in operating and general and

administrative expenses) (1) 133 124

(1) Included in "Reimbursements for services of affiliates" for the years ended
December 31, 1998 and 1997, is approximately $8,000 and $19,000,
respectively, in reimbursements for construction oversight costs.

During the years ended December 31, 1998 and 1997, 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 $235,000 and
$233,000 for the years ended December 31, 1998 and 1997, respectively.

An affiliate of the Managing General Partner received reimbursements of
accountable administrative expenses amounting to approximately $133,000 and
$124,000 for the years ended December 31, 1998 and 1997, respectively.

For the period of January 1, 1997 to August 31, 1997, the Partnership insured
its properties under a master policy through an agency affiliated with the
Managing General Partner with an insurer unaffiliated with the Managing General
Partner. An affiliate of the Managing General Partner acquired, in the
acquisition of a business, certain financial obligations from an insurance
agency which was later acquired by the agent who placed the master policy. The
agent assumed the financial obligations to the affiliate of the Managing General
Partner who received payments on these obligations from the agent. The amount
of the Partnership's insurance premiums accruing to the benefit of the affiliate
of the Managing General Partner by virtue of the agent's obligations is not
significant.

The Partnership distributed cash from operations of approximately $12,000 and
$14,000 to the General Partners during the years ended December 31, 1998 and
1997, respectively.

On September 26, 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.

On August 27, 1998, an affiliate of the Managing General Partner (the
"Purchaser") commenced a tender offer for limited partnership interests in the
Partnership. The Purchaser offered to purchase up to 9,000 of the outstanding
units of limited partnership interest in the Partnership at $375 per Unit, net
to the seller in cash. As a result of the tender offer, the Purchaser acquired
3,840 of the outstanding limited partner units of the Partnership. As of
December 31, 1998, affiliates of the Managing General Partner owned 18.177%
(4,867 units) of the outstanding limited partnership interests.

NOTE G - REAL ESTATE AND ACCUMULATED DEPRECIATION

Initial Cost

To Partnership

(in thousands)

Net Cost

Buildings Capitalized

and Related (Written Down)

Personal Subsequent to

Description Encumbrances Land Property Acquisition

(in thousands) (in thousands)

Northsprings $ 1,922 $ 736 $ 4,196 $ (82)

Atlanta, Georgia

Lakeside 4,100 1,259 5,791 (528)

Charlotte, North Carolina

Bexley House 1,295 647 3,067 109

Columbus, Ohio

Covington Pointe 4,709 1,935 7,041 509

Dallas, Texas

Totals $12,026 $ 4,577 $20,095 $ 8

Gross Amount At Which Carried

At December 31, 1998

(in thousands)

Buildings

And

Personal Accumulated Date of Date Depreciable

Description Land Property Total Depreciation Construction Acquired Life-Years

(in thousands)

Northsprings $ 597 $ 4,253 $ 4,850 $ 2,346 1969 11/85 5-25

Atlanta,

Georgia

Lakeside 1,046 5,476 6,522 3,079 1980 05/86 5-25

Charlotte,

North Carolina

Bexley House 542 3,281 3,823 1,729 1972 09/86 5-25

Columbus, Ohio

Covington Pointe 1,935 7,550 9,485 3,901 1982 03/87 5-25

Dallas, Texas

Totals $ 4,120 $20,560 $24,680 $11,055

</TABLE>

Reconciliation of Real Estate and Accumulated Depreciation:

Years Ended December 31,

1998 1997

(in thousands)

Real Estate

Balance at beginning of year $24,287 $23,913

Property improvements 393 374

Balance at end of year $24,680 $24,287

Accumulated Depreciation

Balance at beginning of year $10,149 $ 9,255

Additions charged to expense 906 894

Balance at end of year $11,055 $10,149

The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1998 and 1997, is approximately $27,867,000 and $27,471,000,
respectively. Accumulated depreciation for Federal income tax purposes at
December 31, 1998 and 1997, is approximately $10,553,000 and $9,675,000,
respectively.

NOTE H - COMMITMENTS AND CONTINGENCIES

The Partnership Agreement provides for payment of a fee to the Managing General
Partner for managing the affairs of the Partnership. The fee is 2% of adjusted
cash from operations, as defined in the partnership agreement. The fee is
payable only after the Partnership has distributed, to all limited partners,
adjusted cash from operations in any year equal to 10% of their adjusted
invested capital as defined in the partnership agreement. No fees were payable
for the years ended December 31, 1998 and 1997.

NOTE I - DISTRIBUTIONS

The Partnership distributed cash from operations of approximately $400,000
during the year ended December 31, 1998. During the year ended December 31,
1997, the Partnership distributed cash from operations of approximately
$377,000. Distributions of cash from operations per limited partnership unit
were $14.49 and $13.56 for 1998 and 1997, respectively.

NOTE J - SEGMENT INFORMATION

Description of the types of products and services from which the reportable
segment derives its revenues: As defined by SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information", the Partnership has one
reportable segment: residential properties. The Partnership's residential
property segment consists of four apartment complexes in four states in the
United States. The Partnership rents apartment units to people for terms that
are typically twelve months or less.

Measurement of segment profit or loss: The Partnership evaluates performance
based on net income. The accounting policies of the reportable segment are the
same as those described in the summary of significant accounting policies.

Factors management used to identify the Partnership's reportable segments: 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 years 1998 and 1997 is shown in the tables below (in
thousands). The "Other" column includes partnership administration related
items and income and expense not allocated to the reportable segment.

1998
Residential Other Totals
Rental income $ 4,427 $ -- $ 4,427
Other income 187 23 210
Interest expense 1,002 -- 1,002
Depreciation 906 -- 906
General and administrative expense -- 226 226
Equity in income of joint venture -- 83 83
Segment profit (loss) 156 (120) 36
Total assets 14,949 874 15,823
Capital expenditures for investment
properties 393 -- 393

1997
Residential Other Totals
Rental income $ 4,451 $ -- $ 4,451
Other income 196 21 217
Interest expense 1,016 -- 1,016
Depreciation 894 -- 894
General and administrative expense -- 179 179
Equity in income of joint venture -- 44 44
Segment profit (loss) 37 (114) (77)
Total assets 15,456 813 16,269
Capital expenditures for investment
properties 374 -- 374

NOTE K - LEGAL PROCEEDINGS

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 8.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES

None.

PART III

ITEM 9.DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT

Davidson Income Real Estate, L.P. (the "Registrant" or "Partnership") has no
officers or directors. Davidson Diversified Properties, Inc. (the "Managing
General Partner") manages and controls the Partnership and has general
responsibility and authority in all matters affecting its business. The
Managing General Partner is a subsidiary of Apartment Investment and Management
Company ("AIMCO").

The names of the directors and executive officers of the Managing General
Partner, their ages and the nature of all positions presently held by them are
set forth below.

Name Age Position

Patrick J. Foye 41 Executive Vice President and Director

Timothy R. Garrick 42 Vice President - Accounting and Director

Patrick J. Foye has been Executive Vice President and Director of the Managing
General Partner since October 1, 1998. Mr. Foye has served as Executive Vice
President of AIMCO since May 1998. Prior to joining AIMCO, Mr. Foye was a
partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to
1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow
offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long
Island Power Authority and serves as a member of the New York State
Privatization Council. He received a B.A. from Fordham College and a J.D. from
Fordham University Law School.

Timothy R. Garrick has served as Vice President-Accounting of AIMCO and Vice
President-Accounting and Director of the Managing General Partner since October
1, 1998. Prior to that date, Mr. Garrick served as Vice President-Accounting
Services of Insignia Financial Group since June of 1997. From 1992 until June
of 1997, Mr. Garrick served as Vice President of Partnership Accounting and from
1990 to 1992 as an Asset Manager for Insignia Financial Group. From 1984 to
1990, Mr. Garrick served in various capacities with U.S. Shelter Corporation.
From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney.
Mr. Garrick received his B.S. Degree from the University of South Carolina and
is a Certified Public Accountant.

ITEM 10. EXECUTIVE COMPENSATION

The Registrant did not pay remuneration to officers or directors of the Managing
General Partner during 1998 or 1997. However, reimbursements and other payments
have been made to the Partnership's Managing General Partner and its affiliates,
as described in "Item 12" below.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

As of December 31, 1998, the only persons or entities known by the Registrant to
be the beneficial owner of more than 5 percent of the Units of the Registrant is
set forth below:

Entity Number of Units of Total

Insignia Properties LP (1) 563 2.103%
AIMCO Properties LP (2) 464 1.733%
Cooper River Properties (1) 3,840 14.341%

Hospital Corporation of America 3,000 11.204%
201 West Main Street
Louisville, KY 40202

(1) Entity is indirectly ultimately owned by AIMCO. Its business address is 55
Beattie Place, Greenville, SC 29601.

(2) Entity is directly owned by AIMCO. Its business address is 1873 South
Bellaire Street, 17th floor, Denver, CO 80222.

As of December 31, 1998, no director or officer of the Managing General Partner
owns, nor do the directors or officers as a whole own more than 1% of the
Registrant's Units. No such director or officer had any right to acquire
beneficial ownership of additional Units of the Registrant.

On October 1, 1998, Insignia Financial Group, Inc. merged into AIMCO, a real
estate investment trust, whose Class A Common Shares are listed on the New York
Stock Exchange. As a result of such merger, AIMCO and AIMCO Properties, L.P., a
Delaware limited partnership and the operating partnership of AIMCO ("AIMCO OP")
acquired indirect control of the Managing General Partner. AIMCO and its
affiliates currently own 18.177% of the limited partnership interests in the
Partnership. AIMCO is presently considering whether it will engage in an
exchange offer for additional limited partnership interests in the Partnership.
There is a substantial likelihood that, within a short period of time, AIMCO OP
will offer to acquire limited partnership interests in the Partnership for cash
or preferred units or common units of limited partnership interests in AIMCO OP.
While such an exchange offer is possible, no definite plans exist as to when or
whether to commence such an exchange offer, or as to the terms of any such
exchange offer, and it is possible that none will occur.

A registration statement relating to these securities has been filed with the
Securities and Exchange Commission but has not yet become effective. These
securities may not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This Form 10-KSB shall not
constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any state in which such offer,
solicitation or sale would be unlawful prior to the registration or
qualification under the securities laws of any such state.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

(in thousands)

Property management fees $235 $233

Reimbursement for services of affiliates (1) 133 124

During the years ended December 31, 1998 and 1997, 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 $235,000 and $233,000 for the
years ended December 31, 1998 and 1997, respectively.

The Partnership distributed cash from operations of approximately $12,000 and
$14,000 to the general partner during the years ended December 31, 1998 and
1997, respectively.

The Partnership Agreement provides for the Managing General Partner to receive a
fee for managing the affairs of the Partnership. The fee is 2% of adjusted cash
from operations, as defined in the partnership agreement. The fee is payable
only after the Partnership has distributed to all limited partners, adjusted
cash from operations in any year equal to 10% of their adjusted invested capital
as defined in the partnership agreement. No fees were payable for the years
ended December 31, 1998 and 1997.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

See Exhibit Index contained herein.

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

(b) Reports on Form 8-K filed in the fourth quarter of fiscal year 1998.

Current Report on Form 8-K dated October 1, 1998 and filed October 16,
1998, disclosing change in control of Registrant from Insignia Financial
Group, Inc. to AIMCO.

SIGNATURES

In accordance with Section 13 or 15(d) 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.,
as Managing General Partner

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

By: /s/ Timothy R. Garrick
Timothy R. Garrick
Vice President - Accounting

Date: March 29, 1999

In accordance with the Exchange Act, this report has been signed below by the
following person on behalf of the Registrant and in the capacities and on the
date indicated.

/s/ Patrick J. Foye Executive Vice President Date: March 29, 1999
Patrick J. Foye and Director

/s/ Timothy R. Garrick Vice President - Accounting Date: March 29, 1999
Timothy R. Garrick and Director

EXHIBIT INDEX

Exhibit

2 Agreement and Plan of Merger, dated as of October 1, 1998, by and
between AIMCO and IPT, incorporated by reference to Exhibit 2.1 of the
Registrant's Current Report on Form 8-K dated October 1, 1998.

3 Agreement of Limited Partnership is incorporated by reference to Exhibit
A to the Prospectus of the Registrant dated July 26, 1985 as filed with
the Commission pursuant to Rule 424(b) under the Act.

3A Amendment to Partnership Agreement dated October 1, 1985 is incorporated
by reference to Exhibit 3A to the Registrant's Annual Report on Form 10-
K for the fiscal year ended December 31, 1987.

4 Certificate of Limited Partnership dated April 29, 1985 is incorporated
by reference to Exhibit 4 to the Registrant's Registration Statement on
Form S-11 dated May 7, 1985.

4A Certificate of Amendment to Certificate of Limited Partnership dated
July 16, 1985 is incorporated by reference to Exhibit 4B in Amendment
No. 1 to Registration Statement No. 2-97539, dated July 24, 1985.

10A Agent's Agreement dated July 1, 1985 between the Registrant and Harvey
Freeman & Sons, Inc., is incorporated by reference to Exhibit 10B in
Amendment No. 1 to Registration Statement No. 2-97539, dated July 24,
1985.

10B Agreement Among Agents dated July 1, 1985 by and among Harvey Freeman &
Sons, Inc., Harvey Freeman & Sons, Inc. of Arkansas, Harvey Freeman &
Sons, Inc. of Florida, Harvey Freeman & Sons, Inc. of Georgia, Harvey
Freeman & Sons, Inc. of Indiana, Harvey Freeman & Sons, Inc. of
Kentucky, Harvey Freeman & Sons, Inc. of Mississippi, Harvey Freeman &
Sons of Missouri, Inc., Harvey Freeman & Sons, Inc. of North Carolina,
Harvey Freeman & Sons, Inc. of Ohio and Harvey Freeman & Sons, Inc. of
South Carolina is incorporated by reference to Exhibit 10C in Amendment
No. 1 to Registration Statement No. 2-97539, dated July 24, 1985.

10C Acquisition and Disposition Services Agreement dated July 1, 1985
between the Registrant and Criswell Freeman Company is incorporated by
reference to Exhibit 10D in Amendment No. 1 to Registration Statement
No. 2-97539, dated July 24, 1985.

10D Contract for Sale of Real Estate for North Springs apartments dated
October 16, 1985 between James B. Miller, Karina Miller, Dahlis Winn,
Christine Abrams and William Lichirie, as Tenants in Common and
Tennessee Trust Company is incorporated by reference to Exhibit 10(a) to
the Registrant's Current Report on Form 8-K dated November 13, 1985.

10E Assignment of Contract for Sale of Real Estate for North Springs
Apartments dated November 12, 1985 between Tennessee Trust Company and
the Registrant is incorporated by reference to Exhibit 10(b) to the
Registrant's Current Report on Form 8-K dated November 13, 1985.

10F Promissory Note dated February 14, 1969 executed by Mt. Pleasant Plaza,
Inc., a Georgia corporation payable to The Fulton National Bank of
Atlanta, a corporation having its principal place of business in Fulton
County, Georgia, is incorporated by reference to Exhibit 10G to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1985.

10G Agreement dated December 24, 1969 between Massachusetts Mutual Life
Insurance Company, a Massachusetts corporation and Mt. Pleasant Plaza,
Inc., a corporation of the State of Georgia, is incorporated by
reference to Exhibit 10H to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1985.

10H Purchase Agreement for Lakeside Apartments dated April 4, 1986 between
Lakeside Apartments Venture, a North Carolina general partnership and
Tennessee Trust Company, a Tennessee corporation, is incorporated by
reference to Exhibit 10(a) to the Registrant's Current report on Form 8-
K dated May 20, 1986.

10I Assignment of Agreement dated May 16, 1986 between Tennessee Trust
Company, a Tennessee corporation, and the Registrant is incorporated by
reference to Exhibit 10(b) to the Registrant's Current Report on Form 8-
K dated May 20, 1986.

10J Deed of Trust Note dated June 13, 1989 executed by the Registrant
payable to John Hancock Variable Life Insurance Company relating to
Lakeside Apartments.

10K Deed of Trust and Security Agreement dated April 28, 1980 between
Lakeside Properties, Ltd., a North Carolina limited partnership, Gibson
L. Smith, Jr., Trustee and Continental Illinois National Bank and Trust
Company of Chicago is incorporated by reference to Exhibit 10(d) to the
Registrant's Current Report on Form 80-K dated May 20, 1986.

10L Contract for Sale of Real Estate for The Bexley House dated July 16,
1986 between Bexley House, Limited, an Ohio limited partnership and
Tennessee Trust company is incorporated by reference to Exhibit 10(a) to
the Registrant's Current Report on Form 8-K dated September 30, 1986.

10M Reinstatement and Amendment of Contract for Sale of Real Estate for The
Bexley House dated September 4, 1986 between Bexley House, Limited, an
Ohio limited partnership and Tennessee Trust Company, a Tennessee
corporation, is incorporated by reference to Exhibit 10(b) to the
Registrant's Current Report on Form 8-K dated September 30, 1986.

10N Amendment to Reinstated and Amended Contract for Sale of Real Estate for
The Bexley House dated September 19, 1986 between Bexley House, Limited,
an Ohio limited partnership and Tennessee Trust Company, a Tennessee
corporation, is incorporated by reference to Exhibit 10(c) to the
Registrant's Current Report on Form 80K dated September 30, 1986.

10O Assignment of Contract for Sale of Real Estate dated September 30, 1986
between Tennessee Trust company and the Registrant is incorporated by
reference to Exhibit 10(d) to the Registrant's Current Report on Form 8-
K dated September 30, 1986.

10P Limited Warranty Deed dated September 28, 1986 between Bexley House,
Ltd., an Ohio limited partnership and the Registrant is incorporated by
reference to Exhibit 10(e) to the Registrant's Current Report on Form 8-
K dated September 30, 1986.

10Q Contract for Sale of Real Estate for Covington Pointe Apartments dated
January 20, 1987 between F.G.M.C. Investment Corp., a Texas corporation
Tennessee Trust Company, a Tennessee corporation, is incorporated by
reference to Exhibit 10(a) to the Registrant's Current Report on Form 8-
K dated March 10, 1987.

10R Amendment to Contract for Purchase of Real Estate for Covington Pointe
Apartments dated January 23, 1987 between F.G.M.C. Investment Corp., a
Texas corporation Tennessee Trust Company, a Tennessee corporation, is
incorporated by reference to Exhibit 10(b) to the Registrant's Current
Report on Form 8-K dated March 10, 1987.

10S Assignment of Contract for Purchase of Real Estate for Covington Pointe
Apartments dated March 2, 1987 between Tennessee Trust Company and the
Registrant is incorporated by reference to Exhibit 10(c) to the
Registrant's Current Report on Form 8-K dated March 10,1987.

10T Contract for Purchase of Real Estate for Phase I of Sterling Crest
Apartments dated March 10, 1987 between Sterling Crest Development
Partners, Ltd., a Georgia limited partnership, and Tennessee Trust
Company, a Tennessee corporation, is incorporated by reference to
Exhibit 10(d) to the Registrant's Current Report on Form 8-K dated
March 10, 1987.

10U Mortgage Note dated March 23, 1987 executed by the Registrant payable to
BancOhio National Bank, relating to The Bexley House, is incorporated by
reference to Exhibit a(1) to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1987.

10V Open-End Mortgage, Assignment of Rents and Security Agreement dated
March 23, 1987 executed by the Registrant in favor of BancOhio National
Bank relating to The Bexley House, is incorporated by reference to
Exhibit a(2) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1987.

10W Mortgage Note dated March 23, 1987 executed by the Registrant payable to
BancOhio National Bank, relating to The Bexley House, is incorporated by
reference to Exhibit a(3) to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1987.

10X Open-End Mortgage, Assignment of Rents and Security Agreement dated
March 23, 1987 executed by the Registrant in favor of BancOhio National
Bank relating to The Bexley House, is incorporated by reference to
Exhibit a(4) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1987.

10Y Sterling Crest Joint Venture Agreement dated June 29, 1987 between the
Registrant and Freeman Georgia Ventures, Inc. is incorporated by
reference to Exhibit 10(b) to the Registrant's Current Report on Form 8-
K dated June 30, 1987.

10Z Assignment of Contract for Purchase of Real Estate for Phase I of
Sterling Crest Apartments dated June 29, 1987 is incorporated by
reference to Exhibit 10(c) to the Registrant's Current Report on Form 8-
K dated June 30, 1987.

10AA Warranty Deed dated June 30, 1987 between Sterling Crest Development
Partners, Ltd. and Sterling Crest Joint Venture, is incorporated by
reference to Exhibit 10(d) to the Registrant's Current Report on Form 8-
K dated June 30, 1987.

10BB Sub-Management Agreement dated June 30, 1987 between Harvey Freeman &
Sons, Inc. and Sterling Property Management Company, is incorporated by
reference to Exhibit 10(k) to the Registrant's Current Report on Form 8-
K dated June 30, 1987.

10CC Property Management Agreement dated June 30, 1987 between Sterling Crest
Joint Venture and Harvey Freemen & Sons, Inc., is incorporated by
reference to Exhibit 10(l) to the Registrant's Current Report on Form 8-
K dated June 30, 1987.

10DD Contract for Purchase of Real Estate for Phase II of Sterling Crest
Apartments dated March 10, 1987 between Sterling Crest Development
Partners, Ltd. and Tennessee Trust Company is incorporated by reference
to Exhibit 10(a) to the Registrant's Report on Form 8 dated December 29,
1987.

10EE Tri-Party Agreement dated May 22, 1987 among North Carolina Federal
Savings & Loan Association, Sterling Crest Development Partners, Ltd.
and Tennessee Trust Company relating to Sterling Crest Apartments, is
incorporated by reference to Exhibit 10(b) to the Registrant's Report on
Form 8 dated December 29, 1987.

10FF Assignment of Contract for Purchase of Real Estate and Tri-Party
Agreement dated November 4, 1987 between Tennessee Trust Company and
Sterling Crest Joint Venture relating to Sterling Crest Apartments, is
incorporated by reference to Exhibit 10(c) to the Registrant's Report on
Form 8 dated December 29, 1987.

10GG Amended and Restated Sterling Crest Joint Venture Joint Venture
Agreement dated June 29, 1987 among the Registrant, Freeman Georgia
Ventures, Inc., and Freeman Growth Plus, L.P., is incorporated by
reference to Exhibit 10(d) to the Registrant's Report on Form 8 dated
December 29, 1987.

10HH Memorandum of Understanding among SEC Realty Corp., Tennessee
Properties, L.P., Freeman Mortgage Corporation, J. Richard Freeman, W.
Criswell Freeman and Jacques-Miller Properties, Inc. is incorporated by
reference to Exhibit 10MM to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1988.

10II Partnership Administration and Consultation Agreement among Freeman
Properties, Inc., Freeman Diversified Properties, Inc., residual
Equities Limited and Jacques-Miller Properties, Inc. is incorporated by
reference to Exhibit 10NN to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1988.

10JJ Termination Agreement, dated December 31, 1991 among Jacques-Miller,
Inc., Jacques-Miller Property Management, Davidson Diversified
Properties, Inc., and Supar, Inc.

10KK Assignment of Limited Partnership Interest of Freeman Equities, Limited,
dated December 31, 1991 between Davidson Diversified Properties, Inc.
and Insignia Jacques-Miller, L.P.

10LL Assignment of General Partner Interests of Freeman Equities, Limited,
dated December 31, 1991 between Davidson Diversified Properties, Inc.
and MAE GP Corporation.

10MM Stock certificate, dated December 31, 1991 showing ownership of 1,000
shares of Davidson Diversified Properties, Inc. by MAE GP Corporation.

10NN Contracts related to refinancing of debt:

(a) First Deeds of Trust and Security Agreements dated October 28, 1992 between
Bexley House, L.P. and First Commonwealth Realty Credit Corporation, a
Virginia Corporation, securing Bexley House Apartments is incorporated by
reference to Exhibit 10NN (a) to the Registrant's Annual Report on Form 10-
KSB for the fiscal year ended December 31, 1992.

(b) Seconds Deeds of Trust and Security Agreements dated October 28, 1992
between Bexley House, L.P. and First Commonwealth Realty Credit
Corporation, a Virginia Corporation, securing Bexley House Apartments is
incorporated by reference to Exhibit 10NN (b) to the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1992.

(c) First Assignments of Leases and Rents dated October 28, 1992 between Bexley
House, L.P. and First Commonwealth Realty Credit Corporation, a Virginia
Corporation, securing Bexley House Apartments is incorporated by reference
to Exhibit 10NN (c) to the Registrant's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1992.

(d) Second Assignments of Leases and Rents dated October 28, 1992 between
Bexley House, L.P. and First Commonwealth Realty Credit Corporation, a
Virginia Corporation, securing Bexley House Apartments is incorporated by
reference to Exhibit 10NN (d) to the Registrant's Annual Report on Form 10-
KSB for the fiscal year ended December 31, 1992.

(e) First Deeds of Trust Notes dated October 28, 1992 between Bexley House,
L.P. and First Commonwealth Realty Credit Corporation, relating to Bexley
House Apartments is incorporated by reference to Exhibit 10NN (e) to the
Registrant's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1992.

(f) Second Deeds of Trust Notes dated October 28, 1992 between Bexley House,
L.P. and First Commonwealth Realty Credit Corporation, relating to Bexley
House Apartments is incorporated by reference to Exhibit 10NN (f) to the
Registrant's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1992.

10OO Contracts related to refinancing of debt:

(a) First Deeds of Trust and Security Agreements dated September 30, 1993
between Davidson IRE Associates, L.P. and Lexington Mortgage Company,
a Virginia Corporation, securing Northsprings Apartments is
incorporated by reference to Exhibit 10oo (a) to the Registrant's
Quarterly Report on Form 10-QSB for the quarter ended September 30,
1993.

(b) Second Deeds of Trust and Security Agreements dated September 30, 1993
between Davidson IRE Associates, L.P. and Lexington Mortgage Company,
a Virginia Corporation, securing Northsprings Apartments is
incorporated by reference to Exhibit 10oo (b) to the Registrant's
Quarterly Report on Form 10-QSB for the quarter ended September 30,
1993.

(c) First Assignments of Leases and Rents dated September 30, 1993 between
Davidson IRE Associates, L.P. and Lexington Mortgage Company, a
Virginia Corporation, securing Northsprings Apartments is incorporated
by reference to Exhibit 10OO (c) to the Registrant's Quarterly Report
on Form 10-QSB for the quarter ended September 30, 1993.

(d) Second Assignments of Leases and Rents dated September 30, 1993
between Davidson IRE Associates, L.P. and Lexington Mortgage Company,
a Virginia Corporation, securing Northsprings Apartments is
incorporated by reference to Exhibit 10OO (d) to the Registrant's
Quarterly Report on Form 10-QSB for the quarter ended September 30,
1993.

(e) First Deeds of Trust Notes dated September 30, 1993 between Davidson
IRE Associates, L.P. and Lexington Mortgage Company, relating to
Northsprings Apartments is incorporated by reference to Exhibit 10OO
(e) to the Registrant's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1993.

(f) Second Deeds of Trust Notes dated September 30, 1993 between Davidson
IRE Associates, L.P. and Lexington Mortgage Company, relating to
Northsprings Apartments is incorporated by reference to Exhibit 10OO
(f) to the Registrant's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1993.

10PP Contracts related to refinancing of debt:

(a) First Deeds of Trust and Security Agreements dated September 30, 1993
between Davidson IRE Associates, L.P. and Lexington Mortgage Company,
a Virginia Corporation, securing Covington Pointe Apartments is
incorporated by reference to Exhibit 10PP (a) to the Registrant's
Quarterly Report on Form 10-QSB for the quarter ended September 30,
1993.

(b) Second Deeds of Trust and Security Agreements dated September 30, 1993
between Davidson IRE Associates, L.P. and Lexington Mortgage Company,
a Virginia Corporation, securing Covington Pointe Apartments is
incorporated by reference to Exhibit 10PP (b) to the Registrant's
Quarterly Report on Form 10-QSB for the quarter ended September 30,
1993.

(c) First Assignments of Leases and Rents dated September 30, 1993 between
Davidson IRE Associates, L.P. and Lexington Mortgage Company, a
Virginia Corporation, securing Covington Pointe Apartments is
incorporated by reference to Exhibit 10PP (c) to the Registrant's
Quarterly Report on Form 10-QSB for the quarter ended September 30,
1993.

(d) Second Assignments of Leases and Rents dated September 30, 1993
between Davidson IRE Associates, L.P. and Lexington Mortgage Company,
a Virginia Corporation, securing Covington Pointe Apartments is
incorporated by reference to Exhibit 10PP (d) to the Registrant's
Quarterly Report on Form 10-QSB for the quarter ended September 30,
1993.

(e) First Deeds of Trust Notes dated September 30, 1993 between Davidson
IRE Associates, L.P. and Lexington Mortgage Company, relating to
Covington Pointe Apartments is incorporated by reference to Exhibit
10PP (e) to the Registrant's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1993.

(f) Second Deeds of Trust Notes dated September 30, 1993 between Davidson
IRE Associates, L.P. and Lexington Mortgage Company, relating to
Covington Pointe Apartments is incorporated by reference to Exhibit
10PP (f) to the Registrant's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1993.

(g) Multifamily Note dated November 1, 1996, between "Davidson Income Real
Estate L.P." and Lehman Brothers Holdings, Inc. d/b/a Lehman Capital,
A Division of Lehman Brothers Holdings, Inc.

10QQ Contracts related to refinancing of debt:

(a) Multifamily Note dated July 1, 1996, between Davidson Income Real
Estate, L.P., a Delaware limited partnership and Lehman Brothers
Holdings, Inc. d/b/a Lehman Capital, a Division of Lehman Brothers
Holdings, Inc.

(b) Rider To Multifamily Note dated July 1, 1996, between Davidson Income
Real Estate, L.P., a Delaware limited partnership and Lehman Brothers
Holdings, Inc. d/b/a Lehman Capital, a Division of Lehman Brothers
Holdings, Inc.

16 Letter from the Registrant's former independent accountant regarding its
concurrence with the statements made by the Registrant is incorporated
by reference to the exhibit filed with Form 8-K dated September 30,
1992.

27 Financial Data Schedule.

99A Agreement of Limited Partnership for Davidson IRE GP Limited Partnership
between Davidson Diversified Properties, Inc. and Davidson Income Real
Estate, L.P. entered into on September 15, 1993 is incorporated by
reference to Exhibit 99A to the Registrant's Quarterly Report on Form
10-QSB for the quarter ended September 30, 1993.

99B Agreement of Limited Partnership for Davidson IRE Associates, L.P.
between Davidson IRE GP Limited Partnership and Davidson Income Real
Estate, L.P is incorporated by reference to Exhibit 99B to the
Registrant's Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1993.

99C Agreement of Limited Partnership for Bexley House L.P. between Davidson
Income GP Limited Partnership and Davidson Income Real Estate, L.P.
entered into on October 13, 1992 is incorporated by reference to Exhibit
99C to the Registrant's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1992.

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Davidson
Income Real Estate, L.P. 1998 Year-End 10-KSB and is qualified in its entirety
by reference to such 10-KSB filing.
</LEGEND>
<CIK> 0000768598
<NAME> DAVIDSON INCOME REAL ESTATE, L.P.
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 920
<SECURITIES> 0
<RECEIVABLES> 488
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 24,680
<DEPRECIATION> (11,055)
<TOTAL-ASSETS> 15,823
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 11,901
0
0
<COMMON> 0
<OTHER-SE> 3,293
<TOTAL-LIABILITY-AND-EQUITY> 15,823
<SALES> 0
<TOTAL-REVENUES> 4,637
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,684
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,002
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36
<EPS-PRIMARY> 1.31<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>

</TABLE>