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



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

                                   Form 10-QSB

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

                 For the quarterly period ended September 30, 2000


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


                For the transition period from _________to _________

                         Commission file number 0-14483


                     Davidson Diversified Real Estate II, L.P.
         (Exact name of small business issuer as specified in its charter)



           Delaware                                              62-1207077
(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)

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


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


<PAGE>



                         PART I - FINANCIAL INFORMATION


ITEM 1.     FINANCIAL STATEMENTS

a)

                    Davidson Diversified Real Estate II, L.P.

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

                               September 30, 2000

<TABLE>
<CAPTION>

Assets
<S>                                                                          <C>
   Cash and cash equivalents                                                 $   930
   Receivables and deposits, net of $179
       for doubtful accounts                                                     368
   Restricted escrows                                                            428
   Other assets                                                                  372
   Investment properties:
      Land                                                    $ 2,603
      Buildings and related personal property                   38,823
                                                                41,426
      Less accumulated depreciation                            (22,858)       18,568
                                                                            $ 20,666

Liabilities and Partners' Deficit

Liabilities
   Accounts payable                                                          $   174
   Tenant security deposit liabilities                                           144
   Accrued property taxes                                                        612
   Other liabilities                                                             695
   Due to Managing General Partner                                             1,113
   Mortgage notes payable                                                     23,649

Partners' Deficit
   General partners                                            $  (549)
   Limited partners (1,224.25 units issued and
      outstanding)                                              (5,172)       (5,721)
                                                                            $ 20,666
</TABLE>

            See Accompanying Notes to Consolidated Financial Statements

<PAGE>

b)

                    Davidson Diversified Real Estate II, L.P.

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

<TABLE>
<CAPTION>

                                          Three Months Ended        Nine Months Ended
                                            September 30,             September 30,
                                           2000        1999         2000         1999
Revenues:                                           (Restated)                (Restated)
<S>                                      <C>           <C>         <C>          <C>
  Rental income                          $  1,648      $ 1,883     $ 5,099      $ 5,711
  Other income                                139         120          390          405
       Total revenues                       1,787       2,003        5,489        6,116

Expenses:
  Operating                                   924         895        2,883        2,738
  General and administrative                  140          85          276          248
  Depreciation                                472         393        1,432        1,257
  Interest                                    433         515        1,513        1,539
  Property taxes                               90         159          294          474
       Total expenses                       2,059       2,047        6,398        6,256

Loss from continuing operations              (272)        (44)        (909)        (140)
Loss from discontinued operation               --         (57)          --         (123)
Impairment loss on discontinued
  operations                                   --        (660)          --         (660)

Net loss                                  $ (272)     $ (761)      $  (909)      $ (923)

Net loss allocated to general
  partners (2%)                            $  (5)      $ (15)      $   (18)       $ (18)
Net loss allocated to limited
  partners (98%)                            (267)       (746)        (891)         (905)

                                          $ (272)     $ (761)      $ (909)      $  (923)
Per limited partnership unit:
  Loss from continuing operations       $(218.10)   $ (35.12)    $(727.79)     $(111.90)
  Loss from discontinued operation            --      (45.74)          --        (98.84)
  Impairment loss on discontinued
   operations                                 --     (528.49)          --       (528.49)

Net loss                                $(218.10)   $(609.35)    $(727.79)     $(739.23)
</TABLE>

            See Accompanying Notes to Consolidated Financial Statements

<PAGE>
c)

                    Davidson Diversified Real Estate II, L.P.

               CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
                                   (Unaudited)
                          (in thousands, except unit data)

<TABLE>
<CAPTION>


                                     Limited
                                     Partnership     General      Limited
                                        Units        Partners    Partners     Total

<S>                                   <C>              <C>        <C>        <C>
Original capital contributions        1,224.25         $   1      $24,485    $24,486

Partners' deficit at
   December 31, 1999                  1,224.25        $ (531)     $(4,281)   $(4,812)

Net loss for the nine months
   ended September 30, 2000                 --           (18)        (891)      (909)

Partners' deficit at
   September 30, 2000                 1,224.25        $ (549)     $(5,172)   $(5,721)
</TABLE>

            See Accompanying Notes to Consolidated Financial Statements

<PAGE>

d)

                    Davidson Diversified Real Estate II, L.P.

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

<TABLE>
<CAPTION>

                                                                  Nine Months Ended
                                                                    September 30,
                                                                   2000        1999
Cash flows from operating activities:
<S>                                                               <C>         <C>
  Net loss                                                        $ (909)     $ (923)
  Adjustments to reconcile net loss to net cash
   provided by operating activities:
     Depreciation                                                   1,432      1,511
     Amortization of discounts, loan costs and leasing
      commissions                                                     169        180
     Impairment loss on discontinued operations                        --        660
     Loss on disposal of property                                      20         --
     Change in accounts:
      Receivables and deposits                                        212         75
      Other assets                                                    (60)       (76)
      Accounts payable                                               (220)       274
      Tenant security deposit liabilities                             (23)        (7)
      Accrued property taxes                                           13        (10)
      Other liabilities                                                28         95

         Net cash provided by operating activities                    662      1,779

Cash flows from investing activities:
  Property improvements and replacements                           (1,263)      (842)
  Net withdrawals from restricted escrows                              84         70

         Net cash used in investing activities                     (1,179)      (772)

Cash flows from financing activities:
  Advances from Managing General Partner                              611         --
  Payments on mortgage notes payable                                 (562)      (591)

         Net cash provided by (used in) financing activities           49       (591)

Net (decrease) increase in cash and cash equivalents                 (468)       416
Cash and cash equivalents at beginning of period                    1,398        971

Cash and cash equivalents at end of period                         $  930    $ 1,387

Supplemental disclosure of cash flow information:
  Cash paid for interest                                          $ 1,446    $ 1,491

Supplemental disclosures of non-cash activity:
  At  December  31,  1999,   there  were   approximately   $91,000  of  property
  improvements and replacements in accounts payable.
</TABLE>

            See Accompanying Notes to Consolidated Financial Statements

<PAGE>
e)

                    Davidson Diversified Real Estate II, L.P.

                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


Note A - Basis of Presentation

The  accompanying   unaudited  consolidated  financial  statements  of  Davidson
Diversified Real Estate II, L.P. (the  "Partnership" or "Registrant")  have been
prepared in accordance with generally accepted accounting principles for interim
financial  information and with the  instructions to Form 10-QSB and Item 310(b)
of Regulation S-B.  Accordingly,  they do not include all of the information and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements.  In the opinion of Davidson Diversified  Properties,  Inc.
(the  "Managing  General  Partner"),   all  adjustments  (consisting  of  normal
recurring  accruals)  considered  necessary  for a fair  presentation  have been
included. Operating results for the three and nine month periods ended September
30, 2000 are not necessarily  indicative of the results that may be expected for
the year  ending  December  31,  2000.  For  further  information,  refer to the
consolidated   financial  statements  and  footnotes  thereto  included  in  the
Partnership's  Annual  Report on Form 10-KSB for the fiscal year ended  December
31, 1999.

Principles of Consolidation:

The  Registrant's   financial   statements  include  all  the  accounts  of  the
Partnership and its four 99.9% owned partnerships.  The managing general partner
of the  consolidated  partnerships  is  Davidson  Diversified  Properties,  Inc.
Davidson Diversified  Properties,  Inc. may be removed as the general partner of
the  consolidated  partnerships by the Registrant;  therefore,  the consolidated
partnerships are controlled and consolidated by the Registrant.  All significant
interpartnership balances have been eliminated.

Reclassifications:

Certain  reclassifications have been made to the 1999 balances to conform to the
2000 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 Insignia Properties Trust
merged into Apartment  Investment and Management Company  ("AIMCO"),  a publicly
traded real estate investment trust, with AIMCO being the surviving  corporation
(the "Insignia Merger").  As a result, AIMCO acquired 100% ownership interest in
the Managing General Partner. The Managing General Partner does not believe that
this  transaction  has had or will have a  material  effect on the  affairs  and
operations of the Partnership.

Note C - Transactions with Affiliated Parties

The  Partnership  has no employees  and is  dependent  on the  Managing  General
Partner  and  its  affiliates  for  the  management  and  administration  of all
Partnership  activities.  The  Partnership  Agreement  provides  for (i) certain
payments to affiliates for services and (ii)  reimbursement  of certain expenses
incurred by affiliates on behalf of the Partnership.  The following amounts were
paid or accrued to the Managing  General  Partner and its affiliates  during the
nine months ended September 30, 2000 and 1999:

                                                         2000       1999
                                                          (in thousands)
         Property management fees (included in
           operating expenses)                           $ 278     $  308
         Reimbursement for services of affiliates
           (included in operating and general
           and administrative expenses and
           investment properties)                          234        173
         Due to Managing General Partner                 1,113         --

During the nine months  ended  September  30, 2000 and 1999,  affiliates  of the
Managing  General Partner were entitled to receive 5% of gross receipts from all
of the Registrant's  residential  properties for providing  property  management
services.  The Registrant  paid to such  affiliates  approximately  $278,000 and
$308,000 for the nine months ended September 30, 2000 and 1999, respectively.

An  affiliate  of  the  Managing   General   Partner  was  entitled  to  receive
reimbursement of accountable  administrative expenses amounting to approximately
$234,000 and $173,000  for the nine months  ended  September  30, 2000 and 1999,
respectively.  A portion of both the  current  fees and the prior year fees were
not able to be paid  due to the  Partnership's  cash  flow.  Accordingly,  as of
September  30,  2000,  a  liability  of  approximately  $290,000  exists  and is
reflected in other liabilities.

In accordance with the Partnership  Agreement,  the Managing General Partner has
loaned  the  Partnership  funds  to  cover  operational   expenses  required  at
Greensprings  Manor  Apartments.  These loans were made in  accordance  with the
terms of the  Partnership  Agreement.  At September 30, 2000,  the amount of the
outstanding  loans  was  approximately  $1,113,000  and  is  included  in due to
Managing  General  Partner.  Interest  is  charged  at the  prime  rate plus 1%.
Interest expense was  approximately  $68,000 for the nine months ended September
30, 2000 and is included in interest expense.

In addition to its  indirect  ownership of the general  partner  interest in the
Partnership,  AIMCO and its affiliates  currently own 506.50 limited partnership
units in the Partnership representing 41.372% of the outstanding units. A number
of these  units were  acquired  pursuant  to tender  offers made by AIMCO or its
affiliates.  It is possible that AIMCO or its  affiliates  will make one or more
additional offers to acquire  additional  limited  partnership  interests in the
Partnership  for cash or in exchange for units in the operating  partnership  of
AIMCO. Under the Partnership  Agreement,  unitholders  holding a majority of the
Units are  entitled to take action with  respect to a variety of matters,  which
would  include  without   limitation,   voting  on  certain  amendments  to  the
Partnership  Agreement and voting to remove the Managing General  Partner.  As a
result of its  ownership  of 41.372%  of the  outstanding  units,  AIMCO is in a
position to  significantly  influence all voting  decisions  with respect to the
Registrant. When voting on matters, AIMCO would in all likelihood vote the Units
it acquired  in a manner  favorable  to the  interest  of the  Managing  General
Partner because of their affiliation with the Managing General Partner.

Note D - Discontinued Operations

Shoppes at River Rock was the only commercial  property owned by the Partnership
and represented one segment of the Partnership's operations.  Due to the sale of
the property on December 30, 1999,  the results of the  commercial  segment have
been  shown as loss from  discontinued  operation  for the three and nine  month
periods ended September 30, 1999 and  accordingly,  the statements of operations
have been restated to reflect this presentation.  Revenues of this property were
approximately  $211,000  and  $639,000  for the  three  and  nine  months  ended
September  30,  1999.  During the three  months ended  September  30,  1999,  an
impairment  loss of  approximately  $660,000  was  recorded in  accordance  with
Statement  of  Financial  Accounting  Standards  No.  121,  "Accounting  for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". As
a result of the  impairment  loss and loss  from  discontinued  operations,  the
Partnership  recognized a total loss of approximately  $717,000 and $783,000 for
the three and nine months ended September 30, 1999.

Note E - Segment Reporting

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

The  Partnership  had  two  reportable  segments:   residential  properties  and
commercial properties.  The Partnership's  residential property segment consists
of four apartment complexes, one each located in Ohio, Kentucky,  Tennessee, and
Indiana.  The  Partnership  rents  apartment units to tenants for terms that are
typically twelve months or less. The commercial  property segment consisted of a
shopping center located in Tennessee,  which was sold on December 30, 1999. As a
result  of the sale of the  commercial  property  during  1999,  the  commercial
segment is shown as discontinued operations.

Measurement of segment profit and loss:

The  Partnership  evaluates  performance  based on segment  profit (loss) before
depreciation.  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 enterprise's reportable segment:

The  Partnership's  reportable  segment  consists of investment  properties that
offer different products and services.  The reportable segments are each managed
separately  because they  provide  distinct  services  with  different  types of
products and customers.

Segment  information  for the three and nine month periods  ended  September 30,
2000  and 1999 is  shown  in the  tables  below.  The  "Other"  column  includes
Partnership administration related items and income and expense not allocated to
the reportable segment (in thousands).
<TABLE>
<CAPTION>

              Three Months Ended
              September 30, 2000                 Residential      Other      Totals

<S>                                                <C>            <C>        <C>
Rental income                                      $ 1,648        $   --     $ 1,648
Other income                                           134             5         139
Interest expense                                       433            --         433
Depreciation                                           472            --         472
General and administrative expense                      --           140         140
Segment loss                                          (137)         (135)       (272)


               Nine Months Ended
              September 30, 2000                 Residential      Other       Totals

Rental income                                      $ 5,099         $  --     $ 5,099
Other income                                           365            25         390
Interest expense                                     1,503            10       1,513
Depreciation                                         1,432            --       1,432
General and administrative expense                      --           276         276
Segment loss                                          (648)         (261)       (909)
Total assets                                        20,274           392      20,666
Capital expenditures for investment
  properties                                         1,172            --       1,172


       Three Months Ended
        September 30,1999          Residential    Commercial       Other      Totals
                                                (discontinued)              (Restated)
Rental income                        $ 1,883         $   --          $ --     $ 1,883
Other income                             116             --             4         120
Interest expense                         515             --            --         515
Depreciation                             393             --            --         393
General and administrative
  expense                                 --             --            85          85
Loss from discontinued
  operations                              --            (57)           --         (57)
Impairment loss on discontinued
  operations                              --           (660)           --        (660)
Segment profit (loss)                     37           (717)          (81)       (761)


        Nine Months Ended
        September 30,1999          Residential    Commercial      Other       Totals
                                                (discontinued)              (Restated)
Rental income                        $ 5,711         $   --         $ --     $ 5,711
Other income                             393             --           12         405
Interest expense                       1,539             --           --       1,539
Depreciation                           1,257             --           --       1,257
General and administrative
  expense                                 --             --          248         248
Loss from discontinued
  operations                              --           (123)          --        (123)
Impairment loss on discontinued
  operations                              --           (660)           --       (660)
Segment profit (loss)                     96           (783)        (236)       (923)
Total assets                          21,113          2,632          599      24,344
Capital expenditures for
  investment properties                  831             11           --         842
</TABLE>

Note F - Legal Proceedings

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

Pending the ruling on such  demurrers,  settlement  negotiations  commenced.  On
November 2, 1999,  the parties  executed and filed a Stipulation  of Settlement,
settling claims,  subject to final court approval,  on behalf of the Partnership
and all limited  partners  who owned  units as of November 3, 1999.  Preliminary
approval of the settlement  was obtained on November 3, 1999 from the Court,  at
which time the Court set a final approval  hearing for December 10, 1999.  Prior
to the December 10, 1999 hearing,  the Court received various  objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement.  On
December 14, 1999, the Managing  General  Partner and its affiliates  terminated
the  proposed  settlement.  In  February  2000,  counsel  for some of the  named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated  the  settlement.  On June  27,  2000,  the  Court  entered  an order
disqualifying them from the case. The Court is considering applications for lead
counsel and has  currently  scheduled a hearing on the matter for  November  20,
2000. The Managing  General  Partner does not anticipate  that costs  associated
with this case will be material to the Partnership's overall operations.

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


<PAGE>
ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION

The  matters  discussed  in this Form  10-QSB  contain  certain  forward-looking
statements  and  involve  risks and  uncertainties  (including  changing  market
conditions,   competitive  and  regulatory   matters,   etc.)  detailed  in  the
disclosures  contained in this Form 10-QSB and 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.

The Partnership's investment properties consist of four apartment complexes. The
following table sets forth the average  occupancy of the properties for the nine
months ended September 30, 2000 and 1999:

                                                 Average Occupancy
                                                 2000        1999
         Big Walnut Apartments
            Columbus,  Ohio                       92%         92%
         LaFontenay I & II Apartments
            Louisville, Kentucky                  93%         92%
         The Trails Apartments
            Nashville, Tennessee                  96%         95%
         Greensprings Manor Apartments
            Indianapolis, Indiana (1)             52%         91%

(1)   The  Managing  General  Partner  attributes  the  decrease in occupancy at
      Greensprings  Manor  Apartments  to  construction  at  the  property.  The
      property is currently undergoing a major renovation project to enhance the
      appearance of the property to attract additional tenants. At September 30,
      2000, 35% of the units cannot be rented due to the construction.

Results of Operations

The Registrant's net loss for the three and nine months ended September 30, 2000
was approximately $272,000 and $909,000, respectively, as compared to a net loss
for the three and nine months ended September 30, 1999 of approximately $761,000
and $923,000, respectively. The decrease in the net loss is partially due to the
loss from discontinued operations and impairment loss on discontinued operations
recognized during the three and nine months ended September 30, 1999. Shoppes at
River  Rock was the  only  commercial  property  owned  by the  Partnership  and
represented one segment of the Partnership's operations.  Due to the sale of the
property on December 30, 1999, the results of the  commercial  segment have been
shown as loss from  discontinued  operation for the three and nine month periods
ended September 30, 1999 and accordingly, the statements of operations have been
restated  to  reflect  this   presentation.   Revenues  of  this  property  were
approximately  $211,000  and  $639,000  for the  three  and  nine  months  ended
September  30,  1999.  During the three  months ended  September  30,  1999,  an
impairment  loss of  approximately  $660,000  was  recorded in  accordance  with
Statement  of  Financial  Accounting  Standards  No.  121,  "Accounting  for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". As
a result of the  impairment  loss and loss  from  discontinued  operations,  the
Partnership  recognized a total loss of approximately  $717,000 and $783,000 for
the three and nine months ended September 30, 1999.

The Registrant's  loss from continuing  operations for the three and nine months
ended September 30, 2000 was approximately $272,000 and $909,000,  respectively,
as compared  to loss from  continuing  operations  for the three and nine months
ended September 30, 1999 of  approximately  $44,000 and $140,000,  respectively.
The increase in loss from  continuing  operations is primarily due to a decrease
in total revenues and an increase in total expenses.

Total  revenues  decreased  primarily due to a decrease in rental income for the
three and nine month  periods and a decrease in other  income for the nine month
period.  Rental  income  decreased  primarily  due to a decrease in occupancy at
Greensprings Manor Apartments as discussed above. This decrease in rental income
was  partially  offset by an increase in occupancy  at two of the  Partnership's
investment  properties,  and an increase in average  rental rates at all four of
the  properties.  Other income  decreased  due to a decrease in utility and late
charges at Greensprings Manor Apartments.

Total expenses  increased  primarily due to increases in operating,  general and
administrative,  and  depreciation  expenses  partially  offset by  decreases in
interest and property tax expenses.  Operating expenses increased  primarily due
to an increase in security  patrol  expense at  Greensprings  Manor  Apartments.
General and administrative expense increased primarily due to an increase in the
cost of  services  included in the  management  reimbursements  to the  Managing
General Partner as allowed under the Partnership Agreement partially offset by a
decrease in legal fees resulting  from the settlement of outstanding  litigation
in 1999, as previously disclosed.  Depreciation expense increased due to capital
improvements  placed  into  service  during the prior  twelve  months.  Interest
expense  decreased  primarily  due to a  portion  of the  interest  on the  debt
encumbering Greensprings Manor Apartments being capitalized. This is a result of
the extensive rehabilitation that is to occur during 2001 which has affected the
property's  ability to rent 35% of the total  apartment  units  (see  discussion
below).  Property  tax  expense  decreased  primarily  due to a decrease  in the
assessed value of  Greensprings  Manor  Apartments and a tax refund  received at
LaFontenay I & II Apartments.

Also  included in general  and  administrative  expenses  during the nine months
ended  September 30, 2000 and 1999, are costs  associated with the quarterly and
annual  communications  with  investors and  regulatory  agencies and the annual
audit required by the Partnership Agreement.

As part of the ongoing  business plan of the  Partnership,  the Managing General
Partner monitors the rental market  environment of the 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  September  30,  2000,  the  Partnership  had cash and  cash  equivalents  of
approximately $930,000 as compared to approximately  $1,387,000 at September 30,
1999. Cash and cash equivalents  decreased  approximately  $468,000 for the nine
months ended September 30, 2000 from the Partnership's  year end,  primarily due
to  approximately  $1,179,000  of cash used in  investing  activities  which was
partially  offset  by  approximately  $662,000  of cash  provided  by  operating
activities and approximately  $49,000 of cash provided by financing  activities.
Cash  used in  investing  activities  consisted  of  property  improvements  and
replacements partially offset by net withdrawals from escrow accounts maintained
by the  mortgage  lender.  Cash  provided by financing  activities  consisted of
advances from the Managing General Partner  substantially  offset by 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 various  properties  to  adequately  maintain  the
physical  assets and other operating needs of the Partnership and to comply with
Federal,   state,   and  local  legal  and  regulatory   requirements.   Capital
improvements planned for each of the Registrant's properties are detailed below.

Big Walnut Apartments: The property has budgeted, but is not limited to, capital
improvements of approximately $747,000 during the current year which consists of
floor  covering and appliance  replacements,  roof  replacements,  swimming pool
improvements  and other property  enhancements.  The  Partnership  has completed
approximately  $675,000 in budgeted and unbudgeted  capital  expenditures at Big
Walnut  Apartments  as of  September  30,  2000  consisting  primarily  of  roof
replacements,  parking lot and swimming pool improvements,  electrical upgrades,
building  improvements,  and appliance and floor  covering  replacements.  These
improvements were funded primarily from operating cash flow.

LaFontenay I & II Apartments:  The property has budgeted, but is not limited to,
capital  improvements  of  approximately  $95,000  during the current year which
consists of floor  covering and  appliance  replacement,  air  conditioning  and
heating replacements.  The Partnership has completed  approximately  $167,000 in
budgeted and nonbudgeted capital expenditures at LaFontenay I & II Apartments as
of September 30, 2000, consisting primarily of plumbing improvements,  appliance
and  floor  covering  replacements,   and  heating  and  air  conditioning  unit
replacements. These improvements were funded primarily from operating cash flow.

The  Trails:  The  property  has  budgeted,  but  is  not  limited  to,  capital
improvements of approximately  $71,000 during the current year which consists of
floor covering and appliance  replacements,  and air conditioning  upgrades. The
Partnership  has completed  approximately  $106,000 in budgeted and  nonbudgeted
capital  expenditures  at  The  Trails  Apartments  as of  September  30,  2000,
consisting primarily of swimming pool improvements,  gutter replacements,  major
landscaping,  and appliance and floor covering replacements.  These improvements
were funded primarily from operating cash flow.

Greensprings  Manor:  The property has budgeted,  but is not limited to, capital
improvements of approximately $144,000 during the current year which consists of
floor covering and appliance replacements, cabinet replacements, and heating and
air  conditioning  improvements.  The  Partnership  has completed  approximately
$224,000 in budgeted and nonbudgeted capital  expenditures at Greensprings Manor
Apartments  as of September  30, 2000,  consisting  primarily of floor  covering
replacements, appliances, and capitalized interest (see discussion above). These
improvements  were funded  primarily  from  property  operations.  The  Managing
General  Partner is currently  attempting to refinance the mortgage  encumbering
this property.  If the Managing  General  Partner is  successful,  a significant
portion of the proceeds will be used to fund the rehabilitation  project that is
planned  for this  property.  This  project is  expected  to cost  approximately
$7,500,000 and is  expected  to occur  during  the  year 2001  with  anticipated
completion in the first quarter of 2002.

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

The  Registrant's  current assets are thought to be sufficient for any near-term
needs  (exclusive  of capital  improvements)  of the  Registrant.  The  mortgage
indebtedness of approximately  $23,649,000,  net of discount,  is amortized over
two to nine years with required  balloon payments ranging from November 15, 2002
to December 1, 2009. The Managing General Partner will attempt to refinance such
indebtedness  and/or sell the properties  prior to such maturity  dates.  If the
property  cannot be refinanced or sold for a sufficient  amount,  the Registrant
will risk losing such properties through foreclosure.

No cash  distributions were made during the nine months ended September 30, 2000
or 1999. The Registrant's  distribution policy is reviewed on a quarterly basis.
Future cash  distributions  will depend on the levels of net cash generated from
operations,   the  availability  of  cash  reserves,  and  the  timing  of  debt
maturities,  refinancing and/or property sales.  Distributions may be restricted
by the  requirement to deposit net operating  income (as defined in the mortgage
note) into the reserve  account until the reserve account is funded in an amount
equal to a minimum of $400 and a maximum of $1,000  per  apartment  unit for Big
Walnut Apartments and Greensprings Manor Apartments for a total of approximately
$330,000 to $825,000.  The reserve  account  balance at  September  30, 2000 was
approximately $419,000. There can be no assurance,  however, that the Registrant
will  generate   sufficient   funds  from   operations   after  planned  capital
expenditures  to permit  distributions  to its partners  during the remainder of
2000 or subsequent periods.


<PAGE>


                           PART II - OTHER INFORMATION


ITEM 1.     LEGAL PROCEEDINGS

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

Pending the ruling on such  demurrers,  settlement  negotiations  commenced.  On
November 2, 1999,  the parties  executed and filed a Stipulation  of Settlement,
settling claims,  subject to final court approval,  on behalf of the Partnership
and all limited  partners  who owned  units as of November 3, 1999.  Preliminary
approval of the settlement  was obtained on November 3, 1999 from the Court,  at
which time the Court set a final approval  hearing for December 10, 1999.  Prior
to the December 10, 1999 hearing,  the Court received various  objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement.  On
December 14, 1999, the Managing  General  Partner and its affiliates  terminated
the  proposed  settlement.  In  February  2000,  counsel  for some of the  named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated  the  settlement.  On June  27,  2000,  the  Court  entered  an order
disqualifying them from the case. The Court is considering applications for lead
counsel and has  currently  scheduled a hearing on the matter for  November  20,
2000. The Managing  General  Partner does not anticipate  that costs  associated
with this case will be material to the Partnership's overall operations.

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

            a)    Exhibits

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

            b)    Reports on Form 8-K:

                  None filed during the quarter ended September 30, 2000.


<PAGE>


                                   SIGNATURES



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



                                    DAVIDSON DIVERSIFIED REAL ESTATE II, L.P.


                                    By:   Davidson Diversified Properties, Inc.
                                          Its Managing General Partner


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


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


                                    Date: