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, 2001


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


             For the transition period from _________to _________

                         Commission file number 0-14483


                  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, 2001
<TABLE>
<CAPTION>


Assets
<S>                                                                          <C>
   Cash and cash equivalents                                                 $   554
   Receivables and deposits                                                      317
   Restricted escrows                                                            233
   Other assets                                                                  737
   Investment properties:
      Land                                                    $  2,603
      Buildings and related personal property                   42,355
                                                                44,958
      Less accumulated depreciation                            (24,855)       20,103
                                                                            $ 21,944

Liabilities and Partners' Deficit

Liabilities
   Accounts payable                                                          $ 648
   Tenant security deposit liabilities                                           148
   Accrued property taxes                                                        543
   Other liabilities                                                             311
   Due to Managing General Partner                                             5,422
   Mortgage notes payable                                                     22,488

Partners' Deficit
   General partners                                            $ (587)
   Limited partners (1,224.25 units issued and
      outstanding)                                              (7,029)       (7,616)
                                                                            $ 21,944

         See Accompanying Notes to Consolidated Financial Statements

</TABLE>

<PAGE>

b)


                  Davidson Diversified Real Estate II, L.P.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
                     (in thousands, except per unit data)
<TABLE>
<CAPTION>

                                           Three Months Ended         Nine Months Ended
                                              September 30,             September 30,
                                            2001         2000         2001          2000
Revenues:
<S>                                       <C>          <C>           <C>          <C>
  Rental income                           $ 1,543      $ 1,648       $ 4,651      $ 5,099
  Other income                                 141          139           473          390
       Total revenues                        1,684        1,787         5,124        5,489

Expenses:
  Operating                                    872          929         2,522        2,888
  General and administrative                    97          135           304          271
  Depreciation                                 521          472         1,516        1,432
  Interest                                     511          433         1,555        1,513
  Property taxes                               129           90           294          294
       Total expenses                        2,130        2,059         6,191        6,398

Loss before extraordinary item                (446)        (272)       (1,067)        (909)
Extraordinary loss on early
  extinguishment of debt                        --           --          (554)          --

       Net loss                            $ (446)      $ (272)     $ (1,621)      $ (909)

Net loss allocated to general
  partners (2%)                             $ (9)        $ (5)        $ (32)       $ (18)
Net loss allocated to limited
  partners (98%)                              (437)        (267)       (1,589)        (891)

                                           $ (446)      $ (272)     $ (1,621)      $ (909)
Per limited partnership unit:
  Loss before extraordinary item          $(356.96)    $(218.10)    $ (854.40)    $(727.79)
  Extraordinary item                            --           --       (443.54)          --

Net loss                                  $(356.96)    $(218.10)   $(1,297.94)    $(727.79)

         See Accompanying Notes to Consolidated Financial Statements
</TABLE>

<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, 2000                  1,224.25        $ (555)     $(5,440)   $(5,995)

Net loss for the nine months
   ended September 30, 2001                 --           (32)      (1,589)    (1,621)

Partners' deficit at
   September 30, 2001                 1,224.25        $ (587)     $(7,029)   $(7,616)

         See Accompanying Notes to Consolidated Financial Statements

</TABLE>

<PAGE>

d)

                  Davidson Diversified Real Estate II, L.P.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                (in thousands)
<TABLE>
<CAPTION>

                                                                  Nine Months Ended
                                                                    September 30,
                                                                   2001        2000
Cash flows from operating activities:
<S>                                                               <C>         <C>
  Net loss                                                        $(1,621)    $ (909)
  Adjustments to reconcile net loss to net cash provided by
   operating activities:
     Depreciation                                                   1,516      1,432
     Amortization of discounts and loan costs                         219        169
     Extraordinary loss on early extinguishment of debt               554         --
     Loss on disposal of property                                      --         20
     Change in accounts:
      Receivables and deposits                                       (131)       212
      Other assets                                                    (59)       (60)
      Accounts payable                                                258       (220)
      Tenant security deposit liabilities                               6        (23)
      Accrued property taxes                                           55         13
      Other liabilities                                              (353)        28
         Net cash provided by operating activities                    444        662

Cash flows from investing activities:
  Property improvements and replacements                           (3,010)    (1,263)
  Net withdrawals from restricted escrows                             196         84
         Net cash used in investing activities                     (2,814)    (1,179)

Cash flows from financing activities:
  Advances from Managing General Partner                            3,867        611
  Payments on mortgage notes payable                                 (357)      (562)
  Proceeds from mortgage note payable                               6,924         --
  Repayment of mortgage note payable                               (7,812)        --
  Prepayment penalty                                                 (359)        --
  Loan costs paid                                                    (469)        --
         Net cash provided by financing activities                  1,794         49

Net decrease in cash and cash equivalents                            (576)      (468)
Cash and cash equivalents at beginning of period                    1,130      1,398

Cash and cash equivalents at end of period                         $ 554      $ 930

Supplemental disclosure of cash flow information:
  Cash paid for interest                                          $ 1,421    $ 1,446
Supplemental disclosure of non-cash activity:
  Property improvements and replacements in accounts payable       $ 25        $ --

At December 31, 1999, there were approximately  $91,000 of property improvements
and replacements in accounts payable.

         See Accompanying Notes to Consolidated Financial Statements

</TABLE>

<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, 2001 are not necessarily  indicative of the results that may be expected for
the fiscal year ending December 31, 2001. For further information,  refer to the
consolidated   financial  statements  and  footnotes  thereto  included  in  the
Partnership's  Annual  Report on Form 10-KSB for the fiscal year ended  December
31, 2000. The Managing  General Partner is an affiliate of Apartment  Investment
and  Management  Company  ("AIMCO"),  a publicly  traded real estate  investment
trust.

Principles of Consolidation

The  Registrant's   financial   statements  include  all  the  accounts  of  the
Partnership  and  its  three  99.9%  owned  partnerships  and one  wholly  owned
partnership.  The 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 2000 balances to conform to the
2001 presentation.

Note B - Transactions with Affiliated Parties

The  Partnership  has no employees  and is  dependent  on the  Managing  General
Partner  and  its  affiliates  for  the  management  and  administration  of all
Partnership  activities.  The  Partnership  Agreement  provides  for (i) 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, 2001 and 2000:

                                                         2001       2000
                                                          (in thousands)
         Property management fees (included in
           operating expenses)                           $ 263     $ 278
         Reimbursement for services of affiliates
           (included in general and administrative
           expenses and investment properties)             355        234
         Due to Managing General Partner                 5,422      1,113

During the nine months  ended  September  30, 2001 and 2000,  affiliates  of the
Managing  General Partner were entitled to receive 5% of gross receipts from all
of the Registrant's  properties for providing property management services.  The
Registrant paid to such affiliates  approximately  $263,000 and $278,000 for the
nine months ended September 30, 2001 and 2000, respectively.

An  affiliate  of  the  Managing   General   Partner  was  entitled  to  receive
reimbursement of accountable  administrative expenses amounting to approximately
$355,000 and $234,000  for the nine months  ended  September  30, 2001 and 2000,
respectively.  Included in reimbursements for services for the nine months ended
September   30,  2001  and  2000  are   approximately   $157,000   and  $36,000,
respectively, of construction service reimbursements.

In accordance with the Partnership  Agreement,  the Managing General Partner has
loaned the Partnership funds to cover operational  expenses and to assist in the
closing  of  the  refinancing  required  at  Reflections   Apartments  (formerly
Greensprings  Manor  Apartments).  At  September  30,  2001,  the  amount of the
outstanding  loans  and  accrued  interest  to cover  operational  expenses  was
approximately  $1,651,000  and the amount of the  outstanding  loan and  accrued
interest to assist the refinancing was approximately $3,771,000 and are included
in Due to Managing General  Partner.  Interest is charged at the prime rate plus
1%. Interest expense was approximately  $332,000 and $68,000 for the nine months
ended September 30, 2001 and 2000, respectively.

The  Partnership  accrued a real estate  commission due to the Managing  General
Partner of $48,000 upon the sale of Shoppes at River Rock during the year ending
December  31,  1999.  During the year ended  December  31,  2000,  approximately
$30,000 of this commission was paid to an outside party for brokerage  services.
Therefore, approximately $18,000 is accrued and included in other liabilities in
the accompanying  consolidated  balance sheet at September 30, 2001.  Payment of
this commission is subordinate to the limited partners  receiving their original
invested capital plus a cumulative  non-compounded  annual return of 8% on their
adjusted invested capital.

In addition to its  indirect  ownership of the general  partner  interest in the
Partnership,  AIMCO and its affiliates owned 609.25 limited partnership units in
the Partnership  representing  49.77% of the outstanding  units at September 30,
2001. 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
acquire additional limited partnership  interests in the Partnership for cash or
in exchange  for units in the  operating  partnership  of AIMCO  either  through
private purchases or tender offers. Under the Partnership Agreement, unitholders
holding a majority of the Units are  entitled  to take action with  respect to a
variety of matters,  which would  include  voting on certain  amendments  to the
Partnership  Agreement and voting to remove the Managing General  Partner.  As a
result  of its  ownership  of  49.77% of the  outstanding  units,  AIMCO is in a
position to influence all such voting  decisions with respect to the Registrant.
When voting on matters, AIMCO would in all likelihood vote the Units it acquired
in a manner favorable to the interest of the Managing General Partner because of
its affiliation with the Managing General Partner.

Note C - Refinancing of Mortgage Note Payable

On January 16, 2001,  the  mortgages  encumbering  Reflections  Apartments  were
refinanced in order to pay for the rehabilitation  project at the property.  The
maximum new loan amount is $13,600,000.  Effective  January 16, 2001, the lender
made an  initial  advance  of  $5,040,000.  Prior to the  initial  advance,  the
Managing  General  Partner loaned the  Partnership  approximately  $3,673,000 in
order for the Partnership to close the refinancing of the property.  This amount
will be repaid from the further refinancing that will occur after the completion
of the rehabilitation  project,  estimated to be September 2002. During the nine
months ended September 30, 2001, the lender advanced  Reflections  Apartments an
additional  amount of  approximately  $1,884,000.  Subsequent  advances of up to
$6,676,000  will  also be made to cover  renovation  work  that is needed at the
property.  The new loan  matures in  January  2004,  with 2  one-year  extension
options.  Interest  payments  started in  February  2001 based on LIBOR plus 280
basis  points  (6.575% for  September  2001).  In  addition,  monthly  cash flow
payments will be made to the lender until the anticipated completion date of the
renovations,  which is September  2002.  Due to the  rehabilitation  project,  a
portion of the interest expense is being capitalized. If any amount remains from
these advances on the completion date of the  renovation,  it will be applied to
the  principal  balance.  Principal  payments will begin in February  2003,  and
monthly deposits into a replacement reserve will be required. In connection with
the refinancing, the Partnership incurred loan costs of approximately $90,000 as
of December  31, 2000 and  approximately  $469,000  during the nine months ended
September  30,  2001.  These  loan  costs are  included  in other  assets in the
accompanying consolidated balance sheet and are being amortized over the life of
the mortgage. In connection with the refinancing,  the assets and liabilities of
the property were transferred  from one subsidiary,  Big Walnut L.P., to a newly
formed  subsidiary,  AIMCO  Greensprings L.P. The partners of AIMCO Greensprings
L.P.  are  the  Partnership,  with  99.9%  interest,  and  Davidson  Diversified
Properties,  Inc.,  with  0.1%  ownership.  The  loan is  collateralized  by the
property  as  well  as  the  interest  of  both  the  Partnership  and  Davidson
Diversified  Properties,  Inc.  in  AIMCO  Greensprings  L.P.  The new  mortgage
replaced a first mortgage of  approximately  $7,518,000 and a second mortgage of
approximately  $294,000. The Partnership recognized an extraordinary loss on the
early  extinguishment  of  debt  of  approximately   $554,000  consisting  of  a
prepayment  penalty of  approximately  $359,000 and the write off of unamortized
loan costs and mortgage discounts of approximately $195,000.

Note D - Segment Reporting

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

Note E - 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. (the "Nuanes action") in the Superior Court of the
State of  California  for the  County  of San  Mateo.  The  plaintiffs  named as
defendants,  among others,  the  Partnership,  its Managing  General Partner and
several of their  affiliated  partnerships  and corporate  entities.  The action
purports  to  assert  claims  on  behalf  of a class  of  limited  partners  and
derivatively  on behalf  of a number  of  limited  partnerships  (including  the
Partnership)  which are named as nominal  defendants,  challenging,  among other
things,  the  acquisition of interests in certain  general  partner  entities by
Insignia  Financial  Group,  Inc.  ("Insignia")  and entities which were, at one
time,  affiliates of Insignia;  past tender offers by the Insignia affiliates to
acquire  limited  partnership  units;  management  of  the  partnerships  by the
Insignia  affiliates;  and the series of transactions which closed on October 1,
1998 and  February 26, 1999 whereby  Insignia  and  Insignia  Properties  Trust,
respectively,  were merged into AIMCO.  The plaintiffs seek monetary damages and
equitable relief, including judicial dissolution of the Partnership. On June 25,
1998,  the Managing  General  Partner  filed a motion  seeking  dismissal of the
action.  In lieu of responding to the motion,  the  plaintiffs  filed an amended
complaint. The Managing General Partner filed demurrers to the amended complaint
which were heard February 1999.

Pending the ruling on such  demurrers,  settlement  negotiations  commenced.  On
November 2, 1999,  the parties  executed and filed a Stipulation  of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the  settlement  was obtained on November 3, 1999 from the Court,  at which time
the Court set a final  approval  hearing for  December  10,  1999.  Prior to the
December  10,  1999  hearing,  the  Court  received  various  objections  to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement.  On
December 14, 1999, the Managing  General  Partner and its affiliates  terminated
the  proposed  settlement.  In  February  2000,  counsel  for some of the  named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated  the  settlement.  On June  27,  2000,  the  Court  entered  an order
disqualifying  them  from the case and an  appeal  was  taken  from the order on
October 5, 2000. On December 4, 2000, the Court  appointed the law firm of Lieff
Cabraser  Heimann & Bernstein  LLP as new lead  counsel for  plaintiffs  and the
putative class.  Plaintiffs filed a third amended complaint on January 19, 2001.
On March 2, 2001,  the  Managing  General  Partner  and its  affiliates  filed a
demurrer to the third amended  complaint.  On May 14, 2001,  the Court heard the
demurrer to the third amended  complaint.  On July 10, 2001, the Court issued an
order  sustaining  defendants'  demurrer on certain  grounds.  On July 20, 2001,
plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order
granting in part and denying in part defendants' demurrer. On September 7, 2001,
plaintiffs  filed a fourth amended class and  derivative  action  complaint.  On
September 12, 2001, the Court denied plaintiffs' motion for reconsideration.  On
October 5, 2001, the Managing General Partner and affiliated  defendants filed a
demurrer to the fourth amended complaint,  which, together with a demurrer filed
by other  defendants,  is currently  scheduled to be heard on November 15, 2001.
The Court has set the matter for trial in January 2003.

During the third  quarter of 2001, a complaint  (the "Heller  action") was filed
against  the same  defendants  that are named in the  Nuanes  action,  captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended  complaint.  The first amended complaint in the Heller action is
brought as a purported  derivative  action,  and asserts  claims for among other
things  breach  of  fiduciary  duty;  unfair  competition;   conversion,  unjust
enrichment;  and judicial  dissolution.  Plaintiffs in the Nuanes action filed a
motion to  consolidate  the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed  without  leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the Managing  General  Partner and affiliated
defendants  moved to strike the first  amended  complaint  in its  entirety  for
violating  the Court's July 10, 2001 order  granting in part and denying in part
defendants'  demurrer in the Nuanes action, or alternatively,  to strike certain
portions of the complaint based on the statute of limitations.  Other defendants
in the action  demurred to the fourth  amended  complaint,  and,  alternatively,
moved to strike the complaint.  The matters are currently  scheduled to be heard
on November 15, 2001.

The Managing  General Partner does not anticipate that any costs,  whether legal
or  settlement  costs,  associated  with  these  cases will be  material  to the
Partnership's overall operations.

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

ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS 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, 2001 and 2000:

                                                     Average Occupancy
                                                      2001       2000
      Big Walnut Apartments
         Columbus, Ohio (1)                           83%         92%
      LaFontenay I & II Apartments
         Louisville, Kentucky                         93%         93%
      The Trails Apartments
         Nashville, Tennessee                         94%         96%
      Reflections Apartments (formerly
         Greensprings Manor Apartments)
         Indianapolis, Indiana (2)                    39%         52%

(1)   The Managing  General Partner  attributes the decrease in occupancy at Big
      Walnut  Apartments to job  transfers  and tenants  buying homes due to low
      interest rates.

(2)   The  Managing  General  Partner  attributes  the  decrease in occupancy at
      Reflections  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.

Results of Operations

The Registrant's net loss for the three and nine months ended September 30, 2001
was approximately  $446,000 and $1,621,000,  respectively,  as compared to a net
loss for the three and nine months  ended  September  30, 2000 of  approximately
$272,000  and  $909,000,  respectively.  The  increase  in net loss for the nine
months ended September 30, 2001 was primarily due to the extraordinary loss from
the early extinguishment of debt related to the refinancing of the mortgage note
encumbering  Reflections  Apartments (formerly Greensprings Manor Apartments) in
January 2001 (see  discussion in "Liquidity  and Capital  Resources").  The loss
before extraordinary item was approximately $1,067,000 for the nine months ended
September  30, 2001 as compared to $909,000 for the nine months ended  September
30,  2000.  The loss  before  extraordinary  item  for the  three  months  ended
September 30, 2001 was approximately $446,000 compared to approximately $272,000
for the three months ended  September 30, 2000.  The increase in loss before the
extraordinary  item for the nine months  ended  September  30, 2001 was due to a
decrease in total revenues partially offset by a decrease in total expenses. The
increase in loss before  extraordinary item for the three months ended September
30,  2001  was due to a  decrease  in total  revenue  and an  increase  in total
expenses.  For the three and nine month periods ended September 30, 2001,  total
revenues decreased primarily due to a decrease in rental income partially offset
by an increase in other  income.  Rental  income  decreased  primarily  due to a
decrease in occupancy at all the investment  properties except LaFontenay I & II
Apartments partially offset by an increase in the average rental rate at all the
properties.  Other  income  increased  primarily  due to an  increase in utility
reimbursements and late charge fees at all of the Partnership's  properties,  an
increase in laundry  income at all properties  except Big Walnut  Apartments and
increased  lease   cancellation  fees  at  all  properties  except   Reflections
Apartments  partially  offset by a  decrease  in  interest  income  due to lower
balances on deposit in interest bearing accounts.

Total expenses  decreased for the nine months ended  September 30, 2001 due to a
decrease in  operating  expense  partially  offset by  increases  in general and
administrative, depreciation and interest expenses. Total expenses increased for
the three months ended September 30, 2001 due to increases in  depreciation  and
interest  expenses  offset by  decreases  in  operating  expense and general and
administrative  expense.  Operating  expense  decreased  for the  three and nine
months ended September 30, 2001 primarily due to a decrease in contract security
patrol  at  Reflections  Apartments  and  maintenance  supplies  at  all  of the
Partnership's properties partially offset by increases in advertising expense in
an effort to increase  occupancy,  in utilities due to increased cost of gas and
electricity in the areas and in insurance  premiums at all of the  Partnership's
properties.  Depreciation  expense increased for the three and nine months ended
September  30, 2001  primarily due to capital  improvements  placed into service
during the prior twelve  months.  Interest  expense  increased for the three and
nine months ended  September 30, 2001  primarily due to increases in interest on
general  partnership  loans and the  amortization  of loan costs at  Reflections
Apartments.

General  and  administrative  expenses  increased  for  the  nine  months  ended
September 30, 2001  primarily due to increases in the cost of services  included
in the  management  reimbursements  to the general  partner as allowed under the
Partnership Agreement and increases in state license fees and taxes,  especially
in Tennessee where The Trails Apartments is located.  General and administrative
expenses  decreased for the three months ended  September 30, 2001 primarily due
to the timing of the receipt of the Tennessee State license fees and taxes. Also
included in general and  administrative  expenses 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,  2001,  the  Partnership  had cash and  cash  equivalents  of
approximately  $554,000 as compared to  approximately  $930,000 at September 30,
2000. Cash and cash equivalents  decreased  approximately  $576,000 for the nine
months ended September 30, 2001 from the Partnership's  year end,  primarily due
to  approximately  $2,814,000  of cash used in  investing  activities  which was
partially  offset by  approximately  $1,794,000  of cash  provided by  financing
activities and approximately  $444,000 of cash provided by operating 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  primarily of proceeds from  refinancing the mortgage note encumbering
Reflections  Apartments and advances from the Managing General Partner partially
offset  by  repayment  of  the  previous   mortgages   encumbering   Reflections
Apartments,  a  prepayment  penalty  and  loan  costs  paid in  relation  to the
refinancing   and   principal   payments  on  the  mortgages   encumbering   the
Partnership's  properties.  The Partnership invests its working capital reserves
in interest bearing accounts.

The sufficiency of existing  liquid assets to meet future  liquidity and capital
expenditure   requirements   is  directly   related  to  the  level  of  capital
expenditures  required at the 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 $209,000 during the current year which consists of
structural  improvements,  maintenance  equipment,  floor covering replacements,
cabinet enhancements,  and recreational facilities improvements. The Partnership
has completed  approximately  $122,000 in budgeted  capital  expenditures at Big
Walnut  Apartments  as of  September  30,  2001  consisting  primarily  of floor
covering replacements and plumbing fixture replacements. These improvements were
funded primarily from operating cash flow and Partnership reserves.

LaFontenay I & II Apartments:  The property has budgeted, but is not limited to,
capital  improvements  of  approximately  $171,000 during the current year which
consists of floor covering and appliance  replacements,  and HVAC  replacements.
The Partnership has completed  approximately $211,000 in budgeted and unbudgeted
capital  expenditures  at LaFontenay I & II Apartments as of September 30, 2001,
consisting  primarily of structural  improvements,  HVAC replacements,  plumbing
fixture  replacements,  water  heater  replacements,  and  appliances  and floor
covering  replacements.  These improvements were funded primarily from operating
cash flow and Partnership reserves.

The  Trails:  The  property  has  budgeted,  but  is  not  limited  to,  capital
improvements of approximately $234,000 during the current year which consists of
lighting and other  building  improvements  and water heater  replacements.  The
Partnership has completed  approximately $206,000 in capital expenditures at The
Trails  Apartments  as of  September  30,  2001,  consisting  primarily of water
submetering   enhancements,   floor   covering,   water  heater  and   appliance
replacements and major  landscaping.  These  improvements  were funded primarily
from operating cash flow.

Reflections:  In January  2001,  the Managing  General  Partner  refinanced  the
mortgage  encumbering  this  property.  The  proceeds  will be used to fund  the
rehabilitation  project  that is  planned  for this  property.  This  project is
expected  to  cost  approximately  $7,645,000  with  anticipated  completion  in
September  2002.  The  Partnership  has  completed  approximately  $2,496,000 in
capital  expenditures  at  Reflections  Apartments  as of  September  30,  2001,
consisting primarily of floor covering replacements, HVAC replacements,  parking
area  enhancements,  architect and  consultant  fees,  structural  improvements,
signage,  cabinet and  appliance  replacements,  interior  decoration  and major
landscaping.  These improvements were funded primarily from refinancing proceeds
and operating cash flow.

The additional  capital  expenditures will be incurred only if cash is available
from operations or from Partnership  reserves.  To the extent that such budgeted
capital improvements are completed, the 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  $22,488,000,  net of discount,  is amortized over
periods  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
properties cannot be refinanced or sold for a sufficient  amount, the Registrant
will risk losing such properties through foreclosure.

On January 16, 2001,  the  mortgages  encumbering  Reflections  Apartments  were
refinanced in order to pay for the rehabilitation  project at the property.  The
maximum new loan amount is $13,600,000.  Effective  January 16, 2001, the lender
made an  initial  advance  of  $5,040,000.  Prior to the  initial  advance,  the
Managing  General  Partner loaned the  Partnership  approximately  $3,673,000 in
order for the Partnership to close the refinancing of the property.  This amount
will be repaid from the further refinancing that will occur after the completion
of the rehabilitation  project,  estimated to be September 2002. During the nine
months ended September 30, 2001, the lender advanced  Reflections  Apartments an
additional  amount of  approximately  $1,884,000.  Subsequent  advances of up to
$6,676,000  will  also be made to cover  renovation  work  that is needed at the
property.  The new loan  matures in  January  2004,  with 2  one-year  extension
options.  Interest  payments  started in  February  2001 based on LIBOR plus 280
basis  points  (6.575% for  September  2001).  In  addition,  monthly  cash flow
payments will be made to the lender until the anticipated completion date of the
renovations,  which is September  2002.  Due to the  rehabilitation  project,  a
portion of the interest expense is being capitalized. If any amount remains from
these advances on the completion date of the  renovation,  it will be applied to
the  principal  balance.  Principal  payments will begin in February  2003,  and
monthly deposits into a replacement reserve will be required. In connection with
the refinancing, the Partnership incurred loan costs of approximately $90,000 as
of December  31, 2000 and  approximately  $469,000  during the nine months ended
September  30,  2001.  These  loan  costs are  included  in other  assets in the
accompanying consolidated balance sheet and are being amortized over the life of
the mortgage. In connection with the refinancing,  the assets and liabilities of
the property were transferred  from one subsidiary,  Big Walnut L.P., to a newly
formed  subsidiary,  AIMCO  Greensprings L.P. The partners of AIMCO Greensprings
L.P.  are  the  Partnership,  with  99.9%  interest,  and  Davidson  Diversified
Properties,  Inc.,  with  0.1%  ownership.  The  loan is  collateralized  by the
property  as  well  as  the  interest  of  both  the  Partnership  and  Davidson
Diversified  Properties,  Inc.  in  AIMCO  Greensprings  L.P.  The new  mortgage
replaced a first mortgage of  approximately  $7,518,000 and a second mortgage of
approximately  $294,000. The Partnership recognized an extraordinary loss on the
early  extinguishment  of  debt  of  approximately   $554,000  consisting  of  a
prepayment  penalty of  approximately  $359,000 and the write off of unamortized
loan costs and mortgage discounts of approximately $195,000.

No cash  distributions were made during the nine months ended September 30, 2001
or 2000. The  Registrant's  distribution  policy is reviewed on a monthly 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.  There  can be no  assurance,
however,  that the Registrant  will generate  sufficient  funds from  operations
after required capital  expenditures to permit  distributions to its partners in
2001 or subsequent periods. In addition,  the Partnership may be restricted from
making  distributions  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 for a total of approximately  $100,000
to $251,000.  As of September 30, 2001,  the account  balance was  approximately
$222,000 for Big Walnut Apartments.

In addition to its  indirect  ownership of the general  partner  interest in the
Partnership,  AIMCO and its affiliates owned 609.25 limited partnership units in
the Partnership  representing  49.77% of the outstanding  units at September 30,
2001. 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
acquire additional limited partnership  interests in the Partnership for cash or
in exchange  for units in the  operating  partnership  of AIMCO  either  through
private purchases or tender offers. Under the Partnership Agreement, unitholders
holding a majority of the Units are  entitled  to take action with  respect to a
variety of matters,  which would  include  voting on certain  amendments  to the
Partnership  Agreement and voting to remove the Managing General  Partner.  As a
result  of its  ownership  of  49.77% of the  outstanding  units,  AIMCO is in a
position to influence all such voting  decisions with respect to the Registrant.
When voting on matters, AIMCO would in all likelihood vote the Units it acquired
in a manner favorable to the interest of the Managing General Partner because of
its affiliation with the Managing General Partner.


<PAGE>


                           PART II - OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS

In March 1998, several putative unit holders of limited partnership units of the
Partnership  commenced an action  entitled  Rosalie  Nuanes,  et al. v. Insignia
Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the
State of  California  for the  County  of San  Mateo.  The  plaintiffs  named as
defendants,  among others,  the  Partnership,  its Managing  General Partner and
several of their  affiliated  partnerships  and corporate  entities.  The action
purports  to  assert  claims  on  behalf  of a class  of  limited  partners  and
derivatively  on behalf  of a number  of  limited  partnerships  (including  the
Partnership)  which are named as nominal  defendants,  challenging,  among other
things,  the  acquisition of interests in certain  general  partner  entities by
Insignia  Financial  Group,  Inc.  ("Insignia")  and entities which were, at one
time,  affiliates of Insignia;  past tender offers by the Insignia affiliates to
acquire  limited  partnership  units;  management  of  the  partnerships  by the
Insignia  affiliates;  and the series of transactions which closed on October 1,
1998 and  February 26, 1999 whereby  Insignia  and  Insignia  Properties  Trust,
respectively,  were merged into AIMCO.  The plaintiffs seek monetary damages and
equitable relief, including judicial dissolution of the Partnership. On June 25,
1998,  the Managing  General  Partner  filed a motion  seeking  dismissal of the
action.  In lieu of responding to the motion,  the  plaintiffs  filed an amended
complaint. The Managing General Partner filed demurrers to the amended complaint
which were heard February 1999.

Pending the ruling on such  demurrers,  settlement  negotiations  commenced.  On
November 2, 1999,  the parties  executed and filed a Stipulation  of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the  settlement  was obtained on November 3, 1999 from the Court,  at which time
the Court set a final  approval  hearing for  December  10,  1999.  Prior to the
December  10,  1999  hearing,  the  Court  received  various  objections  to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement.  On
December 14, 1999, the Managing  General  Partner and its affiliates  terminated
the  proposed  settlement.  In  February  2000,  counsel  for some of the  named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated  the  settlement.  On June  27,  2000,  the  Court  entered  an order
disqualifying  them  from the case and an  appeal  was  taken  from the order on
October 5, 2000. On December 4, 2000, the Court  appointed the law firm of Lieff
Cabraser  Heimann & Bernstein  LLP as new lead  counsel for  plaintiffs  and the
putative class.  Plaintiffs filed a third amended complaint on January 19, 2001.
On March 2, 2001,  the  Managing  General  Partner  and its  affiliates  filed a
demurrer to the third amended  complaint.  On May 14, 2001,  the Court heard the
demurrer to the third amended  complaint.  On July 10, 2001, the Court issued an
order  sustaining  defendants'  demurrer on certain  grounds.  On July 20, 2001,
plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order
granting in part and denying in part defendants' demurrer. On September 7, 2001,
plaintiffs  filed a fourth amended class and  derivative  action  complaint.  On
September 12, 2001, the Court denied plaintiffs' motion for reconsideration.  On
October 5, 2001, the Managing General Partner and affiliated  defendants filed a
demurrer to the fourth amended complaint,  which, together with a demurrer filed
by other  defendants,  is currently  scheduled to be heard on November 15, 2001.
The Court has set the matter for trial in January 2003.

During the third  quarter of 2001, a complaint  (the "Heller  action") was filed
against  the same  defendants  that are named in the  Nuanes  action,  captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended  complaint.  The first amended complaint in the Heller action is
brought as a purported  derivative  action,  and asserts  claims for among other
things  breach  of  fiduciary  duty;  unfair  competition;   conversion,  unjust
enrichment;  and judicial  dissolution.  Plaintiffs in the Nuanes action filed a
motion to  consolidate  the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed  without  leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the Managing  General  Partner and affiliated
defendants  moved to strike the first  amended  complaint  in its  entirety  for
violating  the Court's July 10, 2001 order  granting in part and denying in part
defendants'  demurrer in the Nuanes action, or alternatively,  to strike certain
portions of the complaint based on the statute of limitations.  Other defendants
in the action  demurred to the fourth  amended  complaint,  and,  alternatively,
moved to strike the complaint.  The matters are currently  scheduled to be heard
on November 15, 2001.

The Managing  General Partner does not anticipate that any costs,  whether legal
or  settlement  costs,  associated  with  these  cases will be  material  to the
Partnership's overall operations.

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

            a)    Exhibits

                  None.

            b)    Reports on Form 8-K:

                  None filed during the quarter ended September 30, 2001.


<PAGE>


                                   SIGNATURES



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



                                    DAVIDSON 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: