DAVIDSON DIVERSIFIED REAL ESTATE II LIMITED PARTNERSHIP, 10KSB, 1998-03-06

DAVIDSON DIVERSIFIED REAL ESTATE II LIMITED PARTNERSHIP
10KSB, 1998-03-06
REAL ESTATE

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

(Mark One)
[X] Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934 [No Fee Required]

For the fiscal year ended December 31, 1997
or
[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 [No Fee Required]

For the transition period from.........to.........

Commission file number 0-14483

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

Delaware 62-1207077
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

One Insignia Financial Plaza, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices) (Zip Code)

Issuer's telephone number (864) 239-1000

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

None

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

Units of Limited Partnership Interest

(Title of class)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No.

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

State issuer's revenues for its most recent fiscal year. $8,976,000

State the aggregate market value of the voting partnership interests held by
non-affiliates computed by reference to the price at which the partnership
interests were sold, or the average bid and asked prices of such partnership
interests, as of date within past 60 days of filing date. Market value
information for the Registrant's partnership interests is not available. Should
a trading market develop for these interests, it is the Managing General
Partner's belief that the aggregate market value of the voting partnership
interests would not exceed $25,000,000.

DOCUMENTS INCORPORATED BY REFERENCE

1. Portions of the Prospectus of Registrant dated October 16, 1984 (included in
Registration Statement, No. 2-92313, of Registrant) are incorporated by
reference into Parts I and III.

PART I

ITEM 1. DESCRIPTION OF BUSINESS

Davidson Diversified Real Estate II, L.P. (the "Registrant" or the
"Partnership") is a Delaware limited partnership organized in June 1984. The
general partners of the Registrant are Davidson Diversified Properties, Inc., a
Tennessee corporation ("Managing General Partner"); Davidson Equities, Limited
("Associate General Partner"); and David W. Talley ("Individual General
Partner") (collectively, the "General Partners").

The Managing General Partner is a wholly-owned subsidiary of MAE GP Corporation
("MAE GP"), an affiliate of Insignia Financial Group, Inc. ("Insignia").
Effective February 25, 1998, MAE GP was merged into Insignia Properties Trust
("IPT") which is an affiliate of Insignia. Thus, the Managing General Partner
is now a wholly-owned subsidiary of IPT.

The offering of the Registrant's limited partnership units ("Units") commenced
on October 16, 1984, and terminated on October 15, 1985. The Registrant
received gross proceeds from the offering of $24,485,000 and net proceeds of
$21,760,500.

The Registrant's primary business is to own, operate and ultimately dispose of
existing income-producing residential and, to a lesser extent, existing and to-
be-built commercial real estate. Industry segment information is not relevant.
The Registrant does not engage in any foreign operations nor derive any income
from foreign sources.

All of the net proceeds of the offering were invested in the Registrant's eight
properties, of which one has been sold and two have been foreclosed. See "Item
2. Description of Properties", below for a description of the Registrant's five
remaining properties.

The Registrant receives income from its properties and is responsible for
operating expenses, capital improvements and debt service payments under
mortgage obligations secured by the properties. The Registrant financed its
properties primarily through non-recourse debt. Therefore, in the event of
default, the lender can generally only look to the subject property for recovery
of amounts due.

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

At this time, it appears that the Partnership's investment objective of capital
growth will not be attained. In addition, unless there is significant
improvement in the performance of the Registrant's properties and the markets in
which such properties are located, investors may not receive a return of a
portion or possibly any of their initial capital contributions.

For the year ended December 31, 1997, the Registrant's properties accounted for,
in the aggregate, over 99% of the Registrant's gross revenues. All eight
properties were acquired prior to December 31, 1985. Of the eight properties
originally acquired, only five remain.

The Registrant has no employees. Management and administrative services are
performed by Davidson Diversified Properties, Inc., the Managing General
Partner, and by Insignia Residential Group, L.P., an affiliate of Insignia
Financial Group, Inc. ("Insignia"). See "Item 12. Certain Relationships and
Related Transactions" for an enumeration of the affiliates and the compensation
and reimbursement received from the Registrant during 1997 and 1996.

The real estate business in which the Partnership is engaged is highly
competitive and the Partnership is not a significant factor in this industry.
The Registrant's real property investments are subject to competition from
similar types of properties in the vicinities in which they are located. In
addition, various limited partnerships have been formed by related parties to
engage in business which may be competitive with the Registrant.

ITEM 2. DESCRIPTION OF PROPERTIES:

The following table sets forth the Registrant's investments in properties as of
December 31, 1997:

Date of Type of
Property Purchase Ownership Use

Big Walnut Apartments 03/28/85 Fee ownership subject Apartment-
Columbus, Ohio to first and second 251 units
mortgages

LaFontenay Apartments 10/31/84 Fee ownership subject Apartment-
(Phase I and II) to first mortgage 260 units
Louisville, Kentucky

The Trails Apartments 08/30/85 Fee ownership subject Apartment-
Nashville, Tennessee to first mortgage 248 units

Greensprings Manor Apartments 09/30/85 Fee ownership subject Apartment-
Indianapolis, Indiana to first and second 582 units
mortgages

Shoppes At River Rock 12/31/84 Fee ownership subject Commercial-
(Formerly Outlet's Ltd. Mall) to first mortgage approximately
Murfreesboro, Tennessee 120,000 sq. ft.

SCHEDULE OF PROPERTIES (IN THOUSANDS):

<TABLE>
<CAPTION>
Gross
Carrying Accumulated Federal
Property Value Depreciation Rate Method Tax Basis
<S> <C> <C> <C> <C> <C>
Big Walnut Apartments $ 8,300 $ 4,106 5-25 yrs. S/L $ 2,561

LaFontaney I & II Apartments 9,235 4,384 5-25 yrs. S/L 3,306

The Trails Apartments 8,298 3,768 5-25 yrs. S/L 3,494

Greensprings Manor Apartments 12,052 5,931 5-25 yrs. S/L 4,682

Shoppes At River Rock 6,659 3,074 5-25 yrs. S/L 3,217

$44,544 $21,263 $17,260
<FN>
"Note A" of the financial statements included in "Item 7" for a description of
Partnership's depreciation policy.
</FN>
</TABLE>

SCHEDULE OF MORTGAGES (IN THOUSANDS):

<TABLE>
<CAPTION>
Principal
Principal Stated Balance
Balance At Interest Period Maturity Due At
Property December 1997 Rate Amortized Date Maturity
<S> <C> <C> <C> <C> <C>
Big Walnut Apartments
1st mortgage $ 4,776 7.60% 257 months 11/15/02 $ 3,912
2nd mortgage 167 7.60% none 11/15/02 167

LaFontenay I & II Apartments
1st mortgage 7,308 7.50% 360 months 09/01/07 6,369

The Trails Apartments
1st mortgage 5,932 (1) 240 months 12/01/09 3,078

Greensprings Manor Apartments
1st mortgage 8,395 7.60% 257 months 11/15/02 6,875
2nd mortgage 294 7.60% none 11/15/02 294

Shoppes At River Rock
1st mortgage 1,644 10.125% 180 months 01/15/00 1,490
28,516 $22,185

Less unamortized discounts (1,709)
Total $ 26,807
<FN>
(1) Adjustable rate based on 75% of the interest rate on new-issue long-term A-
rate utility bonds as determined on the first day of each calendar quarter. The
rate at December 31, 1997 was 5.385%.
</FN>
</TABLE>

SCHEDULE OF RENTAL RATES AND OCCUPANCY:

<TABLE>
<CAPTION>
Average Annual Average Annual
Rental Rates Occupancy
Property 1997 1996 1997 1996
<S> <C> <C> <C> <C>
Big Walnut Apartments $6,339/unit $6,076/unit 94% 96%
LaFontenay I & II Apartments 7,106/unit 6,825/unit 94% 94%
The Trails Apartments 6,798/unit 6,532/unit 92% 92%
Greensprings Manor Apartments 4,987/unit 4,904/unit 86% 92%
Shoppes At River Rock 8.93/sq. ft. 9.67/sq. ft. 71% 82%
</TABLE>

The Managing General Partner attributes the decrease in occupancy at
Greensprings Manor Apartments to numerous evictions throughout the year.
Management is evicting tenants who are not complying with the collection policy
in an effort to improve the tenant base. Also contributing to the decrease in
occupancy is deferred maintenance which has delayed the renting of these
apartments. Occupancy at the Shoppes At River Rock has also decreased due to
increased competition. The property is not located in the retail corridor which
makes it difficult to position the property. The Managing General Partner is in
the process of exploring different concepts such as "big box", entertainment,
and specialty center in an effort to reposition the Mall in hopes of
reestablishing occupancy levels.

As noted under "Item 1. Description of Business", the real estate industry is
highly competitive. All of the properties of the Partnership are subject to
competition from other residential apartment complexes and commercial buildings
in the area. The Managing General Partner believes that all of the properties
are adequately insured. The multi-family residential properties' lease terms are
for one year or less. No residential tenant leases 10% or more of the available
space.

The following is a schedule of the lease expirations at Shoppes At River Rock
for the years beginning 1998 through the maturities of current leases:

Number of % of Gross
Expirations Square Feet Annual Rent Annual Rent
Shoppes At River Rock

1998 3 13,797 $130,000 20.92%
1999 4 16,732 153,000 24.46%
2000 6 20,505 196,000 31.37%
2001 4 12,986 105,000 16.77%
2002 1 4,084 40,000 6.48%

SCHEDULE OF REAL ESTATE TAXES AND RATES:
(dollar amounts in thousands)

1997 1997
Billing Rate
Big Walnut Apartments $ 122 2.95%
LaFontenay I & II Apartments 84 1.08%
The Trails Apartments 122 3.27%
Greensprings Manor Apartments 256 7.11%
Shoppes At River Rock 157 5.63%

ITEM 3. LEGAL PROCEEDINGS

The Registrant is unaware of any pending or outstanding litigation that is not
of a routine nature. The Managing General Partner of the Registrant believes
that all such pending or outstanding litigation will be resolved without a
material adverse effect upon the business, financial condition, or operations of
the Partnership.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The unit holders of the Registrant did not vote on any matter during the fiscal
year covered by this report.

PART II

ITEM 5. MARKET FOR PARTNERSHIP EQUITY AND RELATED PARTNER MATTERS

There is no established market for the Units and it is not anticipated that any
will occur in the foreseeable future. As of December 31, 1997, there were 1,653
holders of record owning an aggregate of 1,224.25 Units.

In February 1997, the Partnership distributed $100,000 to the partners. The
limited partners received $98,000 ($80.05 per limited partnership unit) and the
general partners received $2,000. In August 1996, the Partnership distributed
$100,000 to the partners. The limited partners received $98,000 ($80.05 per
limited partnership unit) and the general partners received $2,000. Future cash
distributions will depend on the levels of net cash generated from operations,
refinancing, property sales and the availability of cash reserves.

Pursuant to the terms of the Partnership Agreement, there are restrictions on
the ability of the Limited Partners to transfer their Units. In all cases, the
General Partners must consent to any transfer.

The Revenue Act of 1987 contained provisions which have an adverse impact on
investors in "publicly traded partnerships." Accordingly, the General Partners
have established a policy of imposing limited restrictions on the
transferability of the Units in secondary market transactions. Implementation
of this policy should prevent a public trading market from developing and may
impact the ability of an investor to liquidate his investment quickly. It is
expected that such policy will remain in effect until such time, if ever, as
further clarification of the Revenue Act of 1987 may permit the Registrant to
lessen the scope of the restrictions.

There are no material restrictions upon the Registrant's present or future
ability to make distributions in accordance with the provisions of the
Registrant's Partnership Agreement.

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

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

RESULTS OF OPERATIONS

The Partnership's net loss as reported in the financial statements for the year
ended December 31, 1997, was approximately $819,000 compared to a net loss of
approximately $307,000 for the corresponding period of 1996 (see "Note D" of the
financial statements for a reconciliation of these amounts to the Partnership's
federal taxable loss). The increase in the net loss is primarily attributable
to a decrease in rental income and casualty gain of approximately $227,000 for
the year ended December 31, 1996.

Rental income decreased for the year ended December 31, 1997 due to a decrease
in occupancy at Big Walnut Apartments, Greenspring Manor and Shoppes At River
Rock (as discussed in "Item 2"), the remaining properties remained stable. The
Partnership recorded a net casualty gain in 1996 resulting from two fires at the
Trails Apartments which destroyed four apartment units and caused minor smoke
damage in one unit. The damage resulted in a net gain of approximately $227,000
arising from proceeds from the Partnership's insurance carrier of approximately
$319,000 which exceeded the basis of the property. Also contributing to the
increase in net loss is an increase in depreciation and property tax expenses.
Depreciation expense increased due to building and property improvements at all
of the properties. The increase in property taxes is a result of an increase in
assessed value on The Trail Apartments in 1997.

Partially offsetting the increase in net loss is a decrease in general and
administrative and interest expenses. The decrease in general and
administrative expense is attributable to a decrease in partnership
administration cost reimbursements. The decrease in interest expense is due to
the refinancing of the mortgage encumbering LaFontenay Apartments in August
1997. As a result of the refinancing, the interest rate was reduced from 9.25%
to 7.5%.

Included in operating expenses for the twelve months ended December 31, 1997 is
approximately $195,000 of major repairs and maintenance comprised primarily of
exterior building improvements, major landscaping and window coverings.
Included in operating expenses for the twelve months ended December 31, 1996 is
approximately $287,000 of major repairs and maintenance comprised primarily of
interior and exterior building improvements, parking lot repairs, major
landscaping and window coverings.

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

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1997, the Partnership had cash and cash equivalents of
approximately $885,000 compared to approximately $1,004,000 at December 31,
1996. The net (decrease) increase in cash and cash equivalents for the years
ended December 31, 1997 and 1996 is $(119,000) and $290,000, respectively. Net
cash provided by operating activities decreased primarily due to the increase in
net loss as discussed above and an increase in accounts receivables and
deposits. Receivables and deposits increased as a result of increased deposits
to the tax escrows. Net cash used in investing activities increased due to an
increase in property improvements and replacements offset by a decrease in
insurance proceeds received. Net cash used in financing activities decreased
due to the Partnership's refinancing of the mortgage note encumbering LaFontenay
Apartments in 1997.

On August 6, 1997, the Partnership refinanced the mortgage encumbering
LaFontenay Apartments. The total indebtedness refinanced was approximately
$6,720,000. The refinancing replaced the existing indebtedness which carried
stated interest rates of 9.25% with maturity date of August 1, 1997. The new
mortgage indebtedness of $7,325,000 carries a stated interest rate of 7.5% and
is amortized over 360 months with a balloon payment due on September 1, 2007.

The MultiFamily Housing Revenue Bonds and Note Agreement collateralized by The
Trails Apartments were called and, therefore, payable in full on February 1,
1997 in accordance with the terms of the agreements. On June 30, 1997 the
Partnership entered into a Modification of Bond Documents with the issuer.
Pursuant to the modification, the call notice was rescinded. The modification
converted the monthly payments from interest only to principal and interest
payments with an amortization period of twenty years. The note and bond mature
on December 1, 2009 with a balloon payment. Pursuant to the modified terms, the
Bondholder shall not exercise the call right on the Bond on a date prior to the
fifth anniversary of the modification.

The Partnership has no material capital programs scheduled to be performed in
1998, although certain routine capital expenditures and maintenance expenses
have been budgeted. These capital expenditures and maintenance expenses will be
incurred only if cash is available from operations or is received from the
capital reserve account.

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. Such assets are
currently thought to be sufficient for any near-term needs of the Partnership.
The mortgage indebtedness of approximately $26,807,000, net of discount, with
stated interest rates of 7.5% to 10.125%, has maturity dates ranging from
January 2000 to December 2009.

In February 1997, the Partnership distributed $100,000 to the partners. The
limited partners received $98,000 ($80.05 per limited partnership unit) and the
general partners received $2,000. Future cash distributions will depend on the
levels of net cash generated from operations, refinancing, property sales and
the availability of the cash reserves. In August 1996, the Partnership
distributed $100,000 to the partners. The limited partners received $98,000
($80.05 per limited partnership unit) and the general partners received $2,000.

Year 2000

The Partnership is dependent upon the Managing General Partner and Insignia for
management and administrative services. Insignia has completed an assessment
and will have to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter (the "Year 2000 Issue"). The project is estimated to be completed
not later than December 31, 1998, which is prior to any anticipated impact on
its operating systems. The Managing General Partner believes that with
modifications to existing software and conversions to new software, the Year
2000 Issue will not pose significant operational problems for its computer
systems. However, if such modifications and conversions are not made, or are not
completed timely, the Year 2000 Issue could have a material impact on the
operations of the Partnership.

Other

Certain items discussed in this annual report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "Reform Act") and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Partnership to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Such forward-looking statements speak only as of the date
of this annual report. The Partnership expressly disclaims any obligation or
undertaking to release publicly any updates of revisions to any forward-looking
statements contained herein to reflect any change in the Partnership's
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.

ITEM 7. FINANCIAL STATEMENTS

DAVIDSON DIVERSIFIED REAL ESTATE II, L.P.

LIST OF FINANCIAL STATEMENTS

Report of Ernst & Young LLP, Independent Auditors

Consolidated Balance Sheet - December 31, 1997

Consolidated Statements of Operations -Years ended December 31, 1997 and 1996

Consolidated Statements of Changes in Partners' Capital (Deficit) - Years ended
December 31, 1997 and 1996

Consolidated Statements of Cash Flows - Years ended December 31, 1997 and 1996

Notes to Consolidated Financial Statements

Report of Ernst & Young LLP, Independent Auditors

The Partners
Davidson Diversified Real Estate II, L.P.

We have audited the accompanying consolidated balance sheet of Davidson
Diversified Real Estate II, L.P. (A Limited Partnership) as of December 31,
1997, and the related consolidated statements of operations, changes in
partners' capital (deficit) and cash flows for each of the two years in the
period ended December 31, 1997. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Davidson
Diversified Real Estate II, L.P. (A Limited Partnership) at December 31, 1997
and the consolidated results of its operations and its cash flows for each of
the two years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.

/S/ ERNST & YOUNG LLP

Greenville, South Carolina
February 25, 1998

DAVIDSON DIVERSIFIED REAL ESTATE II, L.P.

CONSOLIDATED BALANCE SHEET
(in thousands except unit data)

December 31, 1997

Assets
Cash and cash equivalents $ 885
Receivables and deposits, net of $31,000 for
doubtful accounts 938
Restricted escrows 897
Other assets 520
Investment properties (Notes B and F)
Land $ 2,878
Buildings and related personal property 41,666
44,544
Less accumulated depreciation (21,263) 23,281

$26,521
Liabilities and Partners' Deficit

Liabilities
Accounts payable $ 226
Tenant security deposit liabilities 189
Accrued property taxes 691
Other liabilities 271
Mortgage notes payable (Notes B and F) 26,807

Partners' Deficit
General partners $ (468)
Limited partners (1,224.25 units
issued and outstanding) (1,195) (1,663)

$26,521

See Accompanying Notes to Consolidated Financial Statements

DAVIDSON DIVERSIFIED REAL ESTATE II, L.P.
(in thousands except unit data)

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended December 31,
1997 1996
Revenues:
Rental income $ 8,254 $ 8,589
Other income 722 712
Casualty gain (Note G) -- 227
Total revenues 8,976 9,528
Expenses:
Operating 4,329 4,363
General and administrative 277 316
Depreciation 2,033 1,951
Interest 2,417 2,494
Property taxes 739 711
9,795 9,835

Net loss $ (819) $ (307)

Net loss allocated to general partners (2%) $ (16) $ (6)
Net loss allocated to limited partners (98%) (803) (301)

Net loss $ (819) $ (307)

Net loss per limited partnership unit $(655.91) $(245.86)

See Accompanying Notes to Consolidated Financial Statements

DAVIDSON DIVERSIFIED REAL ESTATE II, L.P.
(in thousands except unit data)

STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)

Limited
Partnership General Limited
Units Partners Partners Total

Original capital contributions 1,224.25 $ 1 $24,485 $24,486

Partners' (deficit) capital at
December 31, 1995 1,224.25 (442) 105 (337)

Distributions to partners -- (2) (98) (100)

Net loss for the year ended
December 31, 1996 -- (6) (301) (307)

Partners' deficit at
December 31, 1996 1,224.25 (450) (294) (744)

Distributions to partners -- (2) (98) (100)

Net loss for the year ended
December 31, 1997 -- (16) (803) (819)

Partners' deficit at
December 31, 1997 1,224.25 $ (468) $ (1,195) $(1,663)

See Accompanying Notes to Consolidated Financial Statements

DAVIDSON DIVERSIFIED REAL ESTATE II, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

Years Ended December 31,
1997 1996
Cash flows from operating activities:
Net loss $ (819) $ (307)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 2,033 1,951
Amortization of discounts and loan costs 237 265
Casualty gain -- (227)
Loss on disposal of property 23 --
Change in accounts:
Accounts receivable and deposits (309) (51)
Other assets (29) (6)
Accounts payable 18 31
Tenant security deposit liabilities 6 (2)
Accrued property taxes 106 76
Other liabilities 24 (55)

Net cash provided by operating activities 1,290 1,675

Cash flows from investing activities:
Property improvements and replacements (1,130) (1,046)
Increase in restricted escrows (171) (83)
Insurance proceeds from property damage 159 319

Net cash used in investing activities (1,142) (810)

Cash flows from financing activities:
Principal payments on mortgage notes payable (573) (471)
Repayment of mortgage notes payable (6,720) --
Proceeds from long-term borrowings 7,325 --
Loan costs paid (199) (4)
Distributions to partners (100) (100)

Net cash used in financing activities (267) (575)

Net (decrease) increase in cash and cash equivalents (119) 290

Cash and cash equivalents at beginning of period 1,004 714

Cash and cash equivalents at end of period $ 885 $ 1,004

Supplemental disclosure of cash flow information:
Cash paid for interest $ 2,172 $ 2,203

See Accompanying Notes to Consolidated Financial Statements

DAVIDSON DIVERSIFIED REAL ESTATE II, L.P

Notes to Consolidated Financial Statements

December 31, 1997

NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

Davidson Diversified Real Estate II, L.P. (the "Partnership" or "Registrant") is
a Delaware limited partnership organized in June 1984 to acquire and operate
residential and commercial real estate properties. The Partnership's Managing
General Partner is Davidson Diversified Properties, Inc., which is a wholly-
owned subsidiary of MAE GP Corporation ("MAE GP"), an affiliate of Insignia
Financial Group, Inc. Effective February 25, 1998, MAE GP was merged into
Insignia Properties Trust ("IPT"), which is an affiliate of Insignia. Thus, the
Managing General Partner is now a wholly-owned subsidiary of IPT. As of
December 31, 1997, the Partnership operates four residential and one commercial
property located in or near major urban areas in the United States.

PRINCIPLES OF CONSOLIDATION

The financial statements include all the accounts of the Partnership and three
99.9% owned partnerships. The General Partner of the consolidated partnerships
is Davidson Diversified Properties, Inc. Davidson Diversified Properties, Inc.
may be removed by the Registrant; therefore, the consolidated partnerships are
controlled and consolidated by the Registrant. All significant interpartnership
balances have been eliminated.

ALLOCATIONS TO PARTNERS

Net income, other than that arising from the occurrence of a sale or
refinancing, and net loss shall be allocated 2% to the general partners and 98%
to the limited partners.

Cash from sales or refinancings shall be distributed in the following order of
priority:

First, to the limited partners, an amount which when added to all prior
distributions of cash from sales or refinancings shall equal their original
invested capital, plus an amount which, when added to all prior distributions to
the limited partners (excluding distributions which are deducted in the
calculation of adjusted invested capital), will equal 8% per annum cumulative
noncompounded on the adjusted invested capital, commencing the last day of the
calendar quarter in which each limited partner is admitted to the partnership
through the date of payment; and second, after payment to an affiliate of the
general partners of an amount equal to its subordinated real estate commissions,
85% of the remaining cash from sales or refinancings to the limited partners and
15% of the remaining cash from sales or refinancings to the general partners.

RESTRICTED ESCROWS

RESERVE ACCOUNT - A general Reserve Account of $203,000 was established with the
refinancing proceeds for Big Walnut Apartments and Greenspring Manor Apartments.
These funds were established to cover necessary repairs and replacements of
existing improvements, debt service, out-of-pocket expenses incurred for
ordinary and necessary administrative tasks, and payment of real property taxes
and insurance premiums. The Partnership is required to deposit net operating
income (as defined in the mortgage note) from each refinanced property to the
respective reserve account until the reserve accounts equal $1,000 per apartment
unit or approximately $833,000 in total. At December 31, 1997, the account
balances were approximately $267,000 for Big Walnut Apartments and approximately
$402,000 for Greensprings Manor Apartments.

REPLACEMENT RESERVE - LaFontenay Apartments has a replacement reserve as
required by its lender of approximately $228,000 at December 31, 1997, for
capital improvements.

ESCROWS FOR TAXES - These escrows are designated for the payment of real estate
taxes and are included in receivables and deposits. The Partnership and external
escrow agents currently maintain these accounts. The escrows for LaFontenay I &
II Apartments are maintained at an external escrow. The remaining properties
escrows are maintained at the Partnership.

INVESTMENT PROPERTIES

Investment properties are stated at cost. Acquisition fees are capitalized as a
cost of real estate. In accordance with Statement of Financial Accounting
Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of, the Partnership records impairment
losses on long-lived assets used in operations when events and circumstances
indicate that the assets might be impaired and the undiscounted cash flows
estimated to be generated by those assets are less than the carrying amounts of
those assets.

DEPRECIATION

Depreciation is calculated using the straight-line method over the estimated
lives of the properties and related personal property. For Federal income tax
purposes, the accelerated cost recovery method is used (1) for real property
over 18 years for additions after March 15, 1984, and before May 9, 1985, and 19
years for additions after May 8, 1985, and before January 1, 1987, and (2) for
personal property over 5 years for additions prior to January 1, 1987. As a
result of the Tax Reform Act of 1986, for additions after December 31, 1986, the
modified accelerated cost recovery method is used for depreciation of (1) real
property additions over 27 1/2 years, and (2) personal property additions over 7
years. Effective generally for property placed in service on or after May 13,
1993, the Great Deficit Reduction Act of 1993 increases the depreciation period
from 31.5 to 39 years, although transition rules apply to property placed in
service before 1994.

LOAN COSTS

Loan costs of approximately $644,000 less accumulated amortization of
approximately $238,000 are included in other assets and are being amortized on a
straight-line basis over the life of the respective loans. The amortization
expense is included in interest expense.

CASH AND CASH EQUIVALENTS

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

TENANT SECURITY DEPOSITS

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

LEASES

The Partnership generally leases apartment units for twelve-month terms or less.
The Partnership leases certain commercial space to tenants under various lease
terms.

Some of the leases contain stated rental increases during their term. For
leases with fixed rental increases, rents are recognized on a straight-line
basis over the terms of the lease. This straight-line basis recognized
approximately $4,000 (1997) and approximately $29,000 (1996) more in rental
income than was collected. This amount will be collected in future years as
cash collections under the terms of the leases exceed the straight-line basis of
revenue recognition.

Several tenants have percentage rent clauses which provide for additional rent
upon the tenant achieving certain rental objectives. Percentage rent totaled
$50,000 in 1997 and $29,000 in 1996.

For all other leases, minimum rents are recognized over the terms of the leases.

The Managing General Partner finds it necessary to offer rental concessions
during particularly slow months or in response to heavy competition from other
similar complexes in the area. During 1997, the properties offered various
concessions including reduced rent for the first month, variable move-in
allowances, and reduced security deposits. Concessions are charged to expense
as incurred.

ADVERTISING COSTS

Advertising costs of approximately $252,000 and approximately $313,000 for the
years ended December 31, 1997, and December 31, 1996, respectively, are charged
to expense as they are incurred and are included in operating expenses.

FAIR VALUE OF FINANCIAL STATEMENTS:

"SFAS No. 107, Disclosures about Fair Value of Financial Instruments", as
amended by "SFAS No. 119, Disclosures about Derivative Financial Instruments and
Fair Value of Financial Instruments", requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate fair value. Fair value is
defined in the SFAS as the amount at which the instruments could be exchanged in
a current transaction between willing parties, other than in a forced or
liquidation sale. The Partnership believes that the carrying amount of its
financial instruments (except for long term debt) approximates their fair value
due to the short term maturity of these instruments. The fair value of the
Partnership's long term debt, after discounting the scheduled loan payments to
maturity, approximates its carrying balance.

USE OF ESTIMATES

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

RECLASSIFICATIONS

Certain reclassifications have been made to the 1996 balances to conform to the
1997 presentation.

NOTE B - MORTGAGE NOTES PAYABLE

The principal terms of mortgage notes payable are as follows (dollar amounts in
thousands):

<TABLE>
<CAPTION>
Principal Monthly Principal
Balance At Payment Stated Balance
December 31, Including Interest Maturity Due At
Property 1997 Interest Rate Date Maturity
<S> <C> <C> <C> <C> <C>
Big Walnut Apartments
1st mortgage $ 4,776 $ 43 7.60% 11/15/02 $ 3,912
2nd mortgage 167 1 7.60% 11/15/02 167

LaFontenay I & II Apartments
1st mortgage 7,308 51 7.50% 09/01/07 6,369

The Trails Apartments
1st mortgage 5,932 41 (1) 12/01/09 3,078

Greensprings Manor Apartments
1st mortgage 8,395 75 7.60% 11/15/02 6,875
2nd mortgage 294 2 7.60% 11/15/02 294

Shoppes At River Rock
1st mortgage 1,644 20 10.125% 01/15/00 1,490
28,516 $ 233 $22,185
Less unamortized discounts (1,709)
Total $26,807
<FN>
(1) Adjustable rate based on 75% of the interest rate on new-issue long-term A-
rated utility bonds as determined on the first day of each calendar quarter.
The rate at December 31, 1997 was 5.385%.
</FN>
</TABLE>

The discount is reflected as a reduction of the mortgage notes payable and
increases the effective rate of the debt to 8.76% for Big Walnut Apartments and
Greensprings Manor Apartments and 8.00% for The Trails Apartments.

Mortgages are nonrecourse and are collaterlized by the related property and
improvements and by pledge of revenues from the property and improvements of the
Partnership. Certain of the notes require prepayment penalties if repaid prior
to maturity and prohibit resale of the properties subject to existing
indebtedness.

Scheduled principal payments of mortgage notes payable, subsequent to December
31, 1997, are as follows (in thousands):

1998 742
1999 798
2000 2,259
2001 825
2002 12,034
Thereafter 11,858

$ 28,516

NOTE C - LEASES

Property and improvements consist of apartment complexes and a shopping center
which are under operating leases. Lease terms are one year or less for
apartments and generally three to five years with renewal options for tenants of
the shopping center.

Tenants of Shoppes At River Rock reimburse the shopping center for common area
expenses, including taxes, utilities, and insurance.

Approximate minimum rentals for noncancelable operating leases with remaining
terms of more than one year are as follows (in thousands):

Year Amount
1998 $ 497
1999 438
2000 221
2001 75
2002 34

$1,265

These amounts do not include contingent rentals determined as a percentage of
tenant sales and reimbursement for real estate taxes and common area maintenance
costs.

NOTE D - INCOME TAXES

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

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

1997 1996

Net loss as reported $ (819) $ (307)
Add (deduct):
Depreciation differences 60 (84)
Amortization of present
value discounts 39 30
Casualty gain 159 (233)
Unearned income 46 (65)
Miscellaneous (24) (4)

Federal taxable loss $ (539) $ (663)

Federal taxable loss
per limited partnership unit $(431.46) $(530.74)

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

Net deficit as reported $(1,663)
Land and buildings 3,828
Accumulated depreciation (9,849)
Other (1,122)

Net deficit - Federal tax basis $(8,806)

NOTE E - TRANSACTIONS WITH AFFILIATED AND OTHER PARTIES

Years Ended December 31,
1997 1996
Property management fees (included in operating expenses) $436 $381
Reimbursement for services of affiliates, including
approximately $31,000 of construction oversight
reimbursements in both 1997 and 1996 (included in
general and administrative, operating expense and
investment properties). 253 257

During 1996, Shoppes At River Rock was managed by a third party. As of January
1997, an affiliate of the Managing General Partner assumed management of the day
to day operations.

For the period from January 1, 1996 to August 31, 1997, the Partnership insured
its properties under a master policy through an agency and insurer unaffiliated
with the Managing General Partner. An affiliate of the Managing General Partner
acquired, in the acquisition of a business, certain financial obligations from
an insurance agency which was later acquired by the agent who placed the master
policy. The agent assumed the financial obligations to the affiliate of the
Managing General Partner who received payments on these obligations from the
agent. The amount of the Partnership's insurance premiums accruing to the
benefit of the affiliate of the Managing General Partner by virtue of the
agent's obligations are not significant.

On September 26, 1997, an affiliate of the Managing General Partner purchased
Lehman Brothers' class "D" subordinated bonds of SASCO, 1992-M1. These bonds
are secured by 55 multi-family apartment mortgage loan pairs held in Trust,
including Big Walnut Apartments and Greensprings Manor Apartments owned by the
Partnership.

NOTE F - INVESTMENT PROPERTIES AND ACCUMULATED DEPRECIATION (IN THOUSANDS)

Initial Cost
To Partnership
Cost
Buildings Capitalized
and Related (Removed)
Personal Subsequent to
Encumbrances Land Property Acquisition
Apartment Properties

Big Walnut $ 4,943 $ 520 $ 6,505 $ 1,275
LaFontenay 7,308 650 6,719 1,866
The Trails 5,932 586 7,054 658
Greensprings Manor 8,689 847 9,684 1,521

Shopping Center
Shoppes At River Rock 1,644 275 4,519 1,865
28,516
Less unamortized
discounts (1,709)

Total $26,807 $2,878 $34,481 $ 7,185

<TABLE>
<CAPTION>
Gross Amount at Which Carried
At December 31, 1997
Buildings
and
Related
Personal Accumulated Date of Date Depreciable
Description Land Property Total Depreciation Construction Acquired Life-Years
<S> <C> <C> <C> <C> <C> <C> <C>
Apartment Properties
Big Walnut 520 7,780 8,300 $ 4,106 1971 03/28/85 5-25
LaFontenay $ 650 $ 8,585 $ 9,235 4,384 1971-1973 10/31/84 5-25
The Trails 586 7,712 8,298 3,768 1984-1985 08/30/85 5-25
Greensprings Manor 847 11,205 12,052 5,931 1970-1975 09/30/85 5-25

Shopping Center
Shoppes At River Rock 275 6,384 6,659 3,074 1980 12/31/84 5-25

Totals $2,878 $41,666 $44,544 $21,263
</TABLE>

Reconciliation of "Investment Properties and Accumulated Depreciation" (in
thousands):

Years Ended December 31,
1997 1996
Real Estate
Balance at beginning of year $43,779 $42,854
Property Improvements 1,130 1,046
Disposals of property (365) (121)

Balance at end of year $44,544 $43,779

Accumulated Depreciation

Balance at beginning of year $19,413 $17,512
Additions charged to expense 2,033 1,951
Disposals of property (183) (50)

Balance at end of year $21,263 $19,413

The aggregate cost of the investment properties for Federal income tax purposes
at December 31, 1997 and 1996 is approximately $48,372,000 and approximately
$47,246,000, respectively. The accumulated depreciation taken for Federal
income tax purposes at December 31, 1997 and 1996 is approximately $31,112,000
and approximately $29,139,000, respectively.

NOTE G - CASUALTY GAIN (LOSS)

The Partnership recorded a net casualty gain in 1996 resulting from two fires at
the Trails Apartments which destroyed four apartment units and caused minor
smoke damage in one unit. The damage resulted in a net gain of approximately
$227,000 arising from proceeds from the Partnership's insurance carrier of
approximately $319,000 which exceeded the basis of the property. Reconstruction
of these units began December 1997.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

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

The Registrant does not have any directors or officers. The Managing General
Partner, Davidson Diversified Properties, Inc., is responsible for the
management and control of substantially all of the Registrant's operations and
has general responsibility and ultimate authority in all matters affecting the
Registrant's business. The Individual General Partner, in his capacity as such,
did not devote any material amount of business time or attention to the
Registrant's affairs.

The present officers of the Managing General Partner are listed below:

Name Age Position

Carroll D. Vinson 57 President and Director

Robert D. Long, Jr. 30 Vice President and Chief
Accounting Officer

William H. Jarrard, Jr. 51 Vice President

Daniel M. LeBey 32 Secretary

Kelley M. Buechler 40 Assistant Secretary

Carroll D. Vinson has been President and Director of the Managing General
Partner and President of Metropolitan Asset Enhancement, L.P., and subsidiaries
since August of 1994. He has acted as Chief Operating Officer of Insignia
Properties Trust, an affiliate of the General Partner, since May 1997. During
1993 to August 1994, Mr. Vinson was affiliated with Crisp, Hughes & Co.
(regional CPA firm) and engaged in various other investment and consulting
activities which included portfolio acquisitions, asset dispositions, debt
restructurings and financial reporting. Briefly, in early 1993, Mr. Vinson
served as President and Chief Executive officer of Angeles Corporation, a real
estate investment firm. From 1991 to 1993, Mr. Vinson was employed by Insignia
in various capacities including Managing Director - President during 1991.

Robert D. Long, Jr. has been Vice President and Chief Accounting Officer of the
Managing General Partner since August 1994. Mr. Long joined Metropolitan Asset
Enhancement, L.P. ("MAE"), an affiliate of Insignia, in September 1993. Mr.
Long was an accountant for Insignia until joining MAE in 1993. Prior to joining
Insignia, Mr. Long was an auditor for the State of Tennessee and was associated
with the accounting firm of Harsman Lewis and Associates.

William H. Jarrard, Jr. has been Vice President of the Managing General Partner
since January 1, 1992. He has acted as Senior Vice President of Insignia
Properties Trust ("IPT"), parent of the Managing General Partner since May 1997.
Mr. Jarrard previously acted as Managing Director - Partnership Administration
of Insignia from January 1991 through September 1997 and served as Managing
Director - Partnership Administration and Asset Management from July 1994 until
January 1996.

Daniel M. LeBey has been Secretary of the Managing General Partner since January
29, 1998 and Insignia's Assistant Secretary since April 30, 1997. Since July
1996 he has also served as Insignia's Associate General Counsel. From September
1992 until June 1996, Mr. LeBey was an attorney with the law firm of Alston &
Bird LLP, Atlanta, Georgia.

Kelley M. Buechler has been Assistant Secretary of the Managing General Partner
since June 1996 and Assistant Secretary of Insignia since January 1991.

ITEM 10. EXECUTIVE COMPENSATION

The Registrant was not required to and did not pay remuneration to officers
and/or directors of the Managing General Partner during 1997 or 1996. See "Item
12" below for a discussion of compensation and reimbursements paid to the
General Partners and certain affiliates.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

As of December 31, 1997, no security holder was known by the Registrant to be
the beneficial owner of more than 5% of the Units of the Registrant.

As of December 31, 1997, no director or officer of the Managing General Partner
owns, nor do the directors or officers as a whole own more than 1% of the
Registrant's Units. No such director or officer had any right to acquire
beneficial ownership of additional Units of the Registrant.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

No transactions have occurred between the Partnership and any officer or
director of Davidson Diversified Properties, Inc.

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 payments to
affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership. The Partnership has a property
management agreement with Insignia Residential Group, L.P. pursuant to which
Insignia Residential Group, L.P. has assumed direct responsibility for day-to-
day management of the Partnership's properties. This service includes the
supervision of leasing, rent collection, maintenance, budgeting, employment of
personnel, payment of operating expenses, etc. Insignia Residential Group, L.P.
receives a property management fee equal to 5% of apartment revenues and 4% of
commercial revenues.

The following transactions with Insignia Financial Group, Inc. and its
affiliates were incurred in 1997 and 1996 (in thousands):

Years Ended December 31,
1997 1996

Property management fees $436 $381
Reimbursement for services of affiliates, including
approximately $31,000 of construction oversight
reimbursements in both 1997 and 1996 253 257

During 1996, Shoppes At River Rock was managed by a third party. As of January
1997, an affiliate of the Managing General Partner assumed management of the day
to day operations.

On September 26, 1997, an affiliate of the Managing General Partner purchased
Lehman Brothers' class "D" subordinated bonds of SASCO, 1992-M1. These bonds
are secured by 55 multi-family apartment mortgage loan pairs held in Trust,
including Walnut Apartments and Greensprings Manor Apartments owned by the
Partnership.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits: See Exhibit 27, Financial Data Schedule, is filed as an
exhibit to this report.

(b) No Reports on Form 8-K were filed during the fourth quarter of
1997.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

DAVIDSON DIVERSIFIED REAL ESTATE II, L.P.

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

By: /s/Carroll D. Vinson
President and Director

By: /s/Robert D. Long, Jr.
Vice President and Chief
Accounting Officer

Date: March 6, 1998

EXHIBIT INDEX

Exhibit

3 Partnership Agreement dated June 11, 1984, as amended is incorporated by
reference to Exhibit A to the Prospectus of the Registrant dated October
16, 1984 as filed with the Commission pursuant to Rule 424(b) under the
Act.

3B Amendment No. 1 to the Partnership Agreement dated August 1, 1985 is
incorporated by reference to Exhibit 3B to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1985.

4 Certificate of Limited Partnership dated June 11, 1984 is incorporated
by reference to Exhibit 4 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1987.

4A Certificate of Amendment to Limited Partnership dated July 17, 1984 is
incorporated by reference to Exhibit 4A to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1987.

4B Restated Certificate of Limited Partnership dated October 5, 1984 is
incorporated by reference to Exhibit 4B to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1987.

10A Agent's Agreement dated October 16, 1984 by and among the Registrant and
Harvey Freeman & Sons, Inc. is incorporated by reference to Exhibit 10B
to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1984.

10B Agreement Among Agents dated October 16, 1984 by and among Harvey
Freeman & Sons, Inc., Harvey Freeman & Sons, Inc. of Arkansas, Harvey
Freeman & Sons, Inc. of Florida, Harvey Freeman & Sons, Inc. of Georgia,
Harvey Freeman & Sons, Inc. of Indiana, Harvey Freeman & Sons, Inc. of
Kentucky, Harvey Freeman & Sons, Inc. of Mississippi, Harvey Freeman &
Sons, Inc. of North Carolina, Harvey Freeman & Sons, Inc. of Ohio and
Harvey Freeman & Sons, Inc. of South Carolina is incorporated by
reference to Exhibit 10C to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1984.

10C Acquisition and Disposition Services Agreement dated October 16, 1984
between the Registrant and Criswell Freeman Company is incorporated by
reference to Exhibit 10D to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1984.

10D Purchase Agreement Phases I and II dated October 3, 1984 between NTS-
LaFontenay Partners and Tennessee Trust Company, Trustee, is
incorporated by reference to Exhibit 10E to Amendment No. 1 to the
Registrant's Registration Statement on Form S-11 (Registration No. 2-
92313) as filed on October 15, 1984.

10E Modification of Purchase Agreements dated October 31, 1984 by and amount
NTS-LaFontenay Partners, the Registrant and LaFontenay Associates is
incorporated by reference to Exhibit 10F to Post-Effective Amendment No.
1 to the Registrant's Registration Statement on Form S-11 (Registration
No. 2-92313) as filed on January 15, 1985.

10F Contract for Sale of Real Estate for Outlets Ltd. Mall dated November
15, 1984 between Company Stores Development Corp. and Tennessee Trust
Company, as Trustee, is incorporated by reference to Exhibit 10G to
Post-Effective Amendment No. 1 to the Registrant's Registration
Statement on Form S-11 (Registration No. 2-92313) as filed on January
15, 1985.

10G Submanagement Agreement dated December 31, 1984 between Harvey Freeman &
Sons, Inc., Company Stores Management Corp. and the Registrant is
incorporated by reference to Exhibit 10H to Post-Effective Amendment No.
1 to the Registrant's Registration Statement on Form S-11 (Registration
No. 2-92313) as filed on January 15, 1985.

10H Assignment of Purchase Agreement dated October 25, 1984 between
Tennessee Trust Company, Trustee, and the Registrant relating to
assignment of Purchase Agreement for LaFontenay Apartments is
incorporated by reference to Exhibit 10I to Post-Effective Amendment No.
1 to the Registrant's Registration Statement on Form S-11 (Registration
No. 2-92313) as filed on January 15, 1985.

10I Contract for Sale of Real Estate for Big Walnut Apartments dated
December 6, 1984 between Community Development Company, an Ohio limited
partnership and Tennessee Trust Company, as Trustee, is incorporated by
reference to Exhibit 10(b) to the Registrant's Current Report on
Form 8-K dated March 28, 1985.

10J Assignment of Contract for Sale of Real Estate dated March 22, 1985
between Tennessee Trust Company, Trustee, and the Registrant, relating
to assignment of Purchase Agreement for Big Walnut Apartments is
incorporated by reference to Exhibit 10(a) to the Registrant's Current
Report on Form 8-K dated march 28, 1985.

10K Contract for Sale of Real Estate for the Trails Apartments dated July
31, 1985 between Trails of Nashville Associates, Ltd., a Tennessee
limited partnership by reference to Exhibit 10(b) to the Registrant's
Current Report on Form 8-K dated August 30, 1985.

10L Assignment of Contract for Sale of Real Estate dated August 28, 1985
between Tennessee Trust Company, as Trustee and the Registrant, relating
to assignment of Contract for Sale of Real Estate for The Trails
Apartments is incorporated by reference to Exhibit 10(a) to the
Registrant's Current Report on Form 8-K dated August 30, 1985.

10M Contract for Sale of Real Estate for Greenspring Manor Apartments dated
July 15, 1985 between Greenspring Apartments Associates, an Indiana
limited partnership and Tennessee Trust Company, as Trustee, is
incorporated by reference to Exhibit 20(d) to the Registrant's current
Report on Form 8-K dated August 30, 1985.

10N Assignment of Contract for Sale of Real Estate dated August 28, 1985
between Tennessee Trust Company, as Trustee and the Registrant, relating
to assignment of Contract for Sale of Real Estate for Greenspring Manor
apartments is incorporated by reference to Exhibit 10(c) to the
Registrant's Current Report on Form 8-K dated August 30, 1985.

10O Tennessee Note dated September 25, 1980 executed by Company Stores
Development Corp. payable to TVB Mortgage Corporation relating to
Outlets, Ltd. Mall is incorporated by reference to Exhibit 10GG to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1985.

10P Deed of Trust and Security Agreement dated September 25, 1980 between
Company Stores Development Corp. and TVB Mortgage Corporation relating
to Outlets, Ltd. Mall is incorporated by reference to Exhibit 10HH to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1985.

10Q Note secured by Real Estate dated October 21, 1985 payable to First
American National Bank of Nashville executed by the Registrant relating
to Outlet's, Ltd. Mall is incorporated by reference to Exhibit 10II to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1985.

10R Deed of Trust and Security Agreement dated October 21, 1985 executed by
the Registrant in favor of First American National Bank of Nashville
relating to Outlet's Ltd. Mall is incorporated by reference to Exhibit
10EE to the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1986.

10S Mortgage Note dated March 27, 1985 executed by the Registrant payable to
The Great-West Life Assurance Company relating to Big Walnut Apartments
is incorporated by reference to Exhibit 10KK to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1985.

10T Mortgage and Security Agreement dated March 27, 1985 between the
Registrant and The Great-West Life Assurance company relating to Big
Walnut Apartments is incorporated by reference to Exhibit 10Ll to the
Registrant's annual Report on Form 10-K for the fiscal year ended
December 31, 1985.

10U Mortgage Note dated March 27, 1985, executed by the Registrant payable
to BANCOhio National Bank relating to Big Walnut Apartments is
incorporated by reference to Exhibit 10MM to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1985.

10V Open-End Mortgage and Security Agreement dated March 27, 1985 between
the Registrant and BANCOhio National Bank relating to Big Walnut
Apartments is incorporated by reference to Exhibit 10NN to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1985.

10W Deed of Trust and Security Agreement dated December 1, 1984 between
Trails of Nashville Associates, Ltd., and Capital Holding Corporation
relating to The Trails Apartments is incorporated by reference to
Exhibit 10QQ to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1985.

10X Note dated December 28, 1984 executed by Trails of Nashville Associates,
Ltd., payable to The Industrial Development Board of the Metropolitan
Government of Nashville and Davidson County relating to The Trails
Apartments is incorporated by reference to Exhibit 10RR to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1985.

10Y Wraparound Mortgage Note dated September 30, 1985 payable to Greenspring
Apartments Associates executed by the Registrant relating to Greenspring
Manor Apartments is incorporated by reference to Exhibit 10SS to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1985.

10Z Wraparound Mortgage Note dated September 30, 1985 between Green Spring
Apartments Associates and the Registrant relating to Green Spring Manor
apartments is incorporated by reference to Exhibit 10TT to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1985.

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

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

10CC Partnership Agreement of La Fontenay, L.P. dated May 15, 1990 owned
99.9% by the Registrant relating to refinancing of La Fontenay
Apartments is incorporated by reference to Exhibit 10FFF to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990.

10DD Multifamily Note with Addendum dated May 24, 1990 executed by La
Fontenay, L.P. payable to the Patrician Mortgage Company relating to La
Fontenay Apartments is incorporated by reference to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1990.

10EE Multifamily Mortgage with Rider dated May 24, 1990 executed by La
Fontenay, L.P. in favor of the Patrician Mortgage Company relating to La
Fontenay Apartments is incorporated by reference to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1990.

10FF Termination Agreement, dated December 31, 1991 among Jacques-Miller,
Inc., Jacques-Miller Property Management, Davidson Diversified
Properties, Inc., and Supar, Inc. is incorporated by reference to
Exhibit 10JJJ to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991.

10GG Assignment of Limited Partnership Interest of Freeman Equities, Limited,
dated December 31, 1991 between Davidson Diversified properties, Inc.
and Insignia Jacques-Miller, L.P. is incorporated by reference to
Exhibit 10KKK to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991.

10HH Assignment of General Partner Interests of Freeman Equities, Limited,
dated December 31, 1991 between Davidson Diversified Properties, Inc.
and MAE GP Corporation is incorporated by reference to Exhibit 10LLL to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1991.

10II Stock certificate, dated December 31, 1991 showing ownership of 1,000
shares of Davidson Diversified Properties, Inc. by MAE GP Corporation is
incorporated by reference to Exhibit 10MMM to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1991.

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

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

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

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

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

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

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

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

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

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

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

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

10LL (a) Loan Agreement dated June 30, 1993 between Outlet's Mall, L.P. and
First American National Bank setting forth the terms and
conditions of the loan, as a condition of extending the maturity
date.

(b) Renewal Note Secured by Real Estate dated June 30, 1993 between
Outlet's Mall, L.P. and First American National Bank to extend the
maturity date of the loan until April 1, 1995.

(c) Loan modification and agreement dated January 18, 1995, between
Outlet's Mall, L.P. and First American National Bank setting forth
the new terms and conditions of the loan.

10MM Multifamily Note secured by a Mortgage or Deed of Trust dated
August 6, 1997, between La Fontenay, L.L.C. and Patrician
Financial Company Limited Partnership related to Lafontenay
Apartments, is filed as an exhibit to this report.

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

27 Financial Data Schedule

99A Agreement of Limited Partnership for Big Walnut, L.P. between
Davidson Diversified Properties, Inc. and Davidson Diversified
Real Estate II, L.P. entered into on August 23, 1991 is
incorporated by reference to Exhibit 99A to the Registrant's
Annual Report on Form 10-KSB for the fiscal year ended December
31, 1992.

99B Agreement of Limited Partnership for Outlet's Mall, L.P. between
Outlet's Mall GP Limited Partnership and Davidson Diversified Real
Estate II, L.P. is incorporated by reference to Exhibit 99B to the
Registrant's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1992.

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Davidson
Diversified Real Estate II Limited Partnership 1997 Year-End 10-KSB and is
qualified in its entirety by reference to such 10-KSB filing.
</LEGEND>
<CIK> 0000750258
<NAME> DAVIDSON DIVERSIFIED REAL ESTATE II LIMITED PARTNERSHIP
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 885
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 44,544
<DEPRECIATION> 21,263
<TOTAL-ASSETS> 26,521
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 26,807
0
0
<COMMON> 0
<OTHER-SE> (1,663)
<TOTAL-LIABILITY-AND-EQUITY> 26,521
<SALES> 0
<TOTAL-REVENUES> 8,976
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 9,795
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,417
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (819)
<EPS-PRIMARY> (655.91)<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>

</TABLE>